Tanzania: Plenty Of Room For Expansion

The Tanzania banking sector has seen an intensification in liquidity, an upsurge in deposits and loans and higher assets growth in 2011. In Tanzania’s financial market, the banking sector dominates with a 75% per cent share.

Three banks control around 40% of Tanzania’s banking sector: Federal Bank of Middle East (FBME), National Micro-Finance Bank (NMB) and CRDB Bank. These banks account 45% of its loans, 48% of its assets, half of the industry’s employees and 52% of deposits.

Both the larger and smaller banks posted higher profits in 2010 compared to previous years. Investment in government securities, advances, loans, foreign exchange dealings and transactions contributed to the overall positive performance of Tanzanian banks.

However, like the other East African Community (EAC) members, Tanzanians are also hit by high interest rates and rising inflation stifling their financial participation. Tanzania’s domestic interest rates currently swing between 16% to 35%. These high interest rates are a stumbling block to most of the economy’s productive sectors. High interest rates do not appear to have affected the overall positive performance by banks.

In 2010, Tanzania’s banking sector’s total assets stood at $10.4bn with $4bn lending to customers. The revenues raked in by Tanzanian banks have showed a marked growth in recent years: in 2006, they were $98m, by the end of 2010 they had increased to $223m.

With three banks holding 40% of market share, seven other banks account for another 40%. These are: National Bank of Commerce, Standard Chartered Bank, Exim Bank, Stanbic Bank, Barclays Bank, Diamond Trust Bank and Bank M. The remaining 20% is split between 31 banks.

The adage “small is big” fits FBME. Setting up in Tanzania in 2003, the privately owned Lebanese bank has built up an extraordinary level of financial strength with an estimated asset base standing at $2bn and has outperformed more established banks. On its own, FBME commands a 19.3% market share. The bank has deposits of $1.8bn although it has only four branches and 300 employees.

Coming second in the pecking order is CRDB Bank which, since establishment in 1996 has been making a profit. Listed on the Dar es salaam Stock Exchange (DSE) some two years ago, CRDB leads the pack in terms of lending and revenues. With over 61 branches across Tanzania, CRDB is now said to be looking at prospects in neighbouring countries with the first stop expected to be the Ugandan market.

Though ranked third, the National Microfinance Bank (NMB) is the most profitable in the country, registering $8.6m net profit in 2010. NMB not only leads in being the biggest investor in government securities, totalling $429m, it also has the widest reach in the country with 138 branches. The Tanzanian government still holds some 31.7% of the bank.

According to the Central Bank of Tanzania, the country’s banking sector has remained strong, stable and robust courtesy of the raft of reforms undertaken in 2009 when it established the Financial Sector Stability Department (FSSD). FSSD’s main task so far has been to undertake surveillance and assess the country’s financial system in order to give an early warning on financial imbalances and the risks they posed on the economy.

The Bank of Tanzania has identified agro-processing, infrastructure development, regional trade, mineral exploitation and tourism as some of the promising sectors needing heavy capitalisation and due attention.

The Economist Intelligence Unit (EIU) projects that by 2020, the banking industry in Tanzania will be worth $28bn, indicating that the sector is still far from saturation.