Tanzania Takes Account
The sector, today an open playing field for private investors, foreign and local, ushered in names such as the UK’s Standard Chartered Bank, Barclays, and Standard Bank of South Africa. As of December 2013, Tanzania has 53 licensed banks and financial institutions, after listed Maendeleo opened for business on September 9 of the same year. With the government’s large-scale withdrawal from the sector, NBC was broken into separate entities. Today, NBC is majority-owned by ABSA Bank Group of South Africa, with the government retaining a 30% equity stake. Three domestic banks are currently listed on the Dar Es Salaam Stock Exchange (DSE); this excludes the cross listing of Kenya Commercial Bank Group.
Tanzania has welcomed several foreign banks, all of them keen to participate in the nation’s inevitable growth and the formalization of the capital markets. Some of the banks that have commenced operations include FNB from South Africa, UBA from Nigeria, Ecobank from West Africa, and Equity Bank from Kenya.
The Financial Stability Report for March 2014 issued by the Bank of Tanzania (BoT) reveals that the banking sector accounts for roughly 70% of the financial system’s total assets, marching in step with broader economic growth, as demonstrated in the expansion of banks’ physical infrastructure, as well as employment of the agent banking model, the broader leveraging of mobile banking—mobile penetration exceeds 60%—and integration of mobile financial services to extend financial inclusion.
For the year ending March 2014, total banking sector assets rose 12% to TZS20,141.3 billion ($12.59 billion), with deposits also up by double-digit figures (10.9%) to TZS15,726.5 billion ($9.83 billion). Sector assets as a percentage of GDP were at 37.9% in March 2014 down from 40.2% YoY. For the period, the BoT report indicates that, “The banking system remained profitable, adequately capitalized, and liquid,” with the caveat that, “Asset quality declined slightly mainly due to increase in non-performing loans [NPLs] in the personal, trade, manufacturing and agricultural credit categories.” Yet the system was sufficiently capitalized to mitigate against systemic risk, where, on aggregate, the sector’s total capital adequacy ratio (CAR) was 19.4%, almost twice the stipulated 10% threshold.
Meanwhile, in terms of asset quality and credit concentration, “The banking sector was observed to be relatively exposed to credit risk. The assessment of asset quality based on the gross NPLs ratio, revealed marginal deterioration during the year to March 2014.” Yet in terms of credit concentration, the industry was deemed to be fairly diversified. NPLs rose to 8.3% in March 2014 from 7.9% a year before. Increased NPLs were driven by personal loans and lending to trade, manufacturing, and agriculture. The NPLs of financial intermediaries in March 2014 stood at TZS38.5 billion, up from TZS18.5 billion in March 2013.
The banks remained profitable in aggregate terms, as the system posted a return on assets (ROA) of 3.0% and net interest margin (NIM) of 68% for the period. Liquidity, too, was high, and for the period the liquid asset ratio was at 36.4%, again, healthily in excess of the regulatory threshold of 20%. The ratio of total loans to total customer deposits, at 71.9% in March 2014 was up from 68.8% a year before.
THE ‘C’ WORD?
Some industry insiders question the wisdom of licensing what appears to be a large number of banks for a relatively small economy. The banking regulator, the BoT, argues that in the national interest competition among numerous entities reduces rates, extends borrowing, and ultimately raises financial participation. The Bank’s Financial Stability Report (March 2013), stipulates a target of 50% financial inclusion by 2015. This is a tall order, as just around 17% of adults are currently banked according to The Citizen. Tanzania aims to become a middle-income nation within the next decade through the interplay of its young population, rising appeal to the foreign investor base, and supportive modernization of the industrial and commercial landscape. The reality is that the East African nation will need to spend hugely to meet that goal, and the plethora of smaller banks lack the scale to extend the kind of loans this demands. Banking regulations stipulate capital of TZS15 billion ($9.38 million) to open a commercial bank, and TZS2 billion ($1.25 million) for a community bank. These two categories respectively have until 2015 and 2017 to comply. In reality, the “c” word, namely “consolidation,” seems to be an inevitable scenario as the sector matures.
The DSE has a current market capitalization of TZS23 trillion, and aims to increase this to 50% of GDP by 2017. Mkombozi Commercial Bank is poised to go public in pursuit of TZS5 billion by YE2015. The goal is to comply with the BoT’s required capital base, and the plan is to open bricks-and-mortar branches and extend its reach. The BoT requires all banks to have beefed up their capital base to TZS15 billion by 2015. The bank will be listed on the DSE’s new Enterprise Growth Market (EGM) on December 22, 2014. Six years old, the bank is offering 5,000,000 shares at TZS1,000/share in a deal representing 22.9% of its issued and fully paid-up ordinary share capital. Mkombozi Bank in 2014 has already raised TZS5.8 billion from a rights issue to fatten its capital. For 2013 it registered a TZS119 million net profit, and for 1Q2014 saw net profit of TZS565 million. It will be the third company to list on the EGM after Maendeleo Bank and Swala Oil and Gas.
China is, of course, well ensconced on the continent of Africa, and actively funding core infrastructure projects. Tanzania and China have signed five such contracts worth $1.7 billion. Chinese investment has in recent years soared, to a current $2.5 billion.
Enoch Osei-Safo, Managing Director of Ecobank Tanzania, in conversation with TBY, explained the advantages of the bank’s Chinese desk—China Direct—that launched its Tanzanian operations in partnership with the Bank of China in March 2013. “Africa has a significant Chinese population that lacks access to a physical bank. Our new alliance with the Bank of China enables its customers in Tanzania to make use of Ecobank. And when faced by transactions that exceed our financial capabilities, we are able to rely on risk sharing with Ecobank operations in other countries.” Servicing all multinational Chinese businesses active in Africa, the dedicated global account manager is a single point of contact, “in a way bridging China with the whole of East Africa,” he added. Tellingly, in 2013 the revenue stream from the Chinese business line appreciated by 345% YoY.
The Tanzania Mortgage Refinance Company Limited (TMRC) was established as an initiative of the government and the World Bank to raise the awareness and availability of mortgages. The TMRC has thus far extended loans of TZS34 billion to participating banks. According to Tanzania Daily News, these banks have risen from three to 19, as interest rates have dropped from 22% in 2010 to 16% in 2014 amid heightened competition. Since the inception of the TMRC, the average maturity of mortgage loans has risen to 15 to 20 years from five to 10 years. One of the three pillars of Tanzania’s Housing Finance Project (HFP) is to ensure the development of the local mortgage market, provide housing microfinance, and expand the supply of affordable housing. BoT data puts mortgage market annual growth at 46% for 2013, forecasting a repeat performance in 2014.
Rwanda was the first East African country to take the Eurobond route in April 2014, raising $400 million, the 10-year notes of which have returned 2.4% thus far. And now, according to Finance Minister Saada Salum, Tanzania aims to realize its first Eurobond issuance in 2015 or 2016 to fund infrastructure projects. The value of the deal, while unconfirmed, is estimated at up to $1 billion according to Reuter’s. All of this, however, is contingent upon Tanzania first receiving the international sovereign rating it currently lacks.
Despite the presence of 53 banks, four institutions dominate the system, jointly responsible for generating over 76% of sector profits for FY2013, according to BoT’s latest Banking Supervision Report. The document reveals a total sectoral net profit of TZS305 billion for 2013, up 12.67% YoY. While NMB accounted for the largest profit by recording a TZS132.49 billion net profit in the year under review, CRDB recorded TZS84.4 billion, Exim Bank recorded TZS20 billion, and NBC recorded TZS9.84 net profit. NBC Limited was formed in 2000 when NBC (1997) Limited was privatized and sold to ABSA Group Limited (now called Barclays Africa Group Limited) of South Africa. NBC (1997) Limited was an outcome of the nationalization of banks and financial institutions in Tanzania in 1967. In 1997, a decision was taken to split NBC into three entities, namely NBC Holding Corporation, National Microfinance Bank (NMB), and NBC in 1997. Bank M Tanzania—ranked among the top-10 sector players—posted assets north of TZS600 billion for 3Q2014. Total assets rose 14% QoQ, with YoY growth of 30%. Quarterly customer deposits rose 25% and advances by 30% YoY. However, NPLs as a percentage of total advances slid from 2.06% in 1Q2014 to 1.75% in 3Q2014. The provision coverage ratio for NPLs was notably improved from 75% in 1Q2014 to 85% at end-2Q2014. Meanwhile, pre-tax profit hit a record TNS5.90 billion for the quarter, enabled by 12% growth in interest income and a 28% hike in fee-based income. Ecobank, active in 36 African countries, saw revenue growth of 102% between 2012 and 2013.
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