28 December 2012

Tanzania: Most Banks Encountered Many Challenges

THIS year's second quarter was worse for banking sector. In fact, the sector passed a rough quarter that saw about 13 banks posting losses, among them heavy weights in the market.

The losses were attributed to various reasons ranging form central bank's policies to tighten money in circulation imposed last year to curb high inflation and depreciation of the shilling. While, the increase in bad debts, associated with the global financial crisis also had a share of blame, since banks put aside or write off bad debts to clean their balance sheets.

On other hand, most of the banks that got losses were start-up banks which need at least three to four years to break-even and start making profit after opening doors to customers.

The banks that made losses include BancABC, Tanzania Women Bank, Equity Bank, Bank of India, First National Bank, Mwanga Community Bank, Mkombozi Commercial Bank and Ecobank Tanzania.

Others are NBC Bank, Barclays Bank, Tanzania Investment Bank, DCB Commercial Bank and Azania Bancorp. The heavily affected bank that made a huge loss in just three months, a record in the country history since trade liberalization in mid 1990s was NBC. The bank made a loss of 20.3bn/- in three months ending June 2012, blaming the results on bad debts. While it set aside as provisioning for bad and doubtful debts at 11.1 per cent, which translates into over 71bn/-.

The second on line was Barclays Bank that posted a 6.3bn/- loss, followed by BancABC with a 739m/- loss and other was much less than the three banks which have been in business for quite sometime. BoT Director of Banking Supervision Mr Agapiti Kobelo reassured the market that the losses made by about 13 banks out of about 50 operating in the country was too early to conclude that the banking and financial system was and would end the year in trouble.

"É performance report at 30th June 2012 only covers half-year and it may not necessarily be a reflection of a full year," Mr Kobelo was quoted saying. The Zan Securities Chief Executive Officer, Mr Raphael Masumbuko, told the 'Daily News' that "posting loss in one quarter does not necessarily mean the bank will lose in full year results." Nevertheless, Barclays, NBC Bank and BancABC have said they have started taking initiatives to make sure the banks finish the year in the black.

True to their words, these banks were back to profitability way in the third quarter. NBC recuperated and posted a profit of 4.24bn/- which was translated as the welcoming gesture to its Managing Director, Lawrence Mafuru who was on a forced leave to pave the way for investigations on some alleged financial irregularities. The NBC profit came despite writing off bad debts worth 199m/- in comparison to the walloping figure of 24.74bn/- it struck off balance sheet in September 2011.

Barclays Chief Executive Officer, Mr Kihara Maina acknowledged making the loss saying it reflected the changes they were doing to strengthen the business. "We expect to make profit at the end of the year. We don't want to jinx it but as I have said we expect to make profit," said Mr Maina. ABC Holdings Chief Financial Officer, Mr Beki Moyo was quoted as saying they have made lots of progress in the country and "we are in the country for the long haul, not for a short time.

"We have learnt our lessons." All in all, in the third quarter ended September most banks generated profits led by National Microfinance Bank (NMB). The bank had in cumulative annual profit after tax of 80.23bn/- for the year ended September 2012, up from 55.08bn/- recorded in the 2011. At the same time NMB scooped the top award for being overall most tax compliant client and the second largest taxpayer with 61bn/- paid to state coffers in the 2011 financial year. The first such top award offered to the industry.

CRDB Bank also posted a hefty profit of 59bn/- for the year ended September 2012 and set aside 23.8bn/- or impairment losses on loans. CRDB which was strangled by bad debts following the world financial crisis which left their core customers, in agriculture, failed to honour their debt obligations. The bank wrote off about 50bn/- bad debts. Other banks made good profit in September, Bank M, the fast growing bank in the country, made an impressive pre-tax profit beating tight liquidity restrictions and high inflation rates. Bank M's Head of Transaction Banking, Jacqueline Woiso said the "outstanding" profit climbed to 9.58bn/- in September in comparison, profit in September 2011 stood at 5.93bn/-.

"Our growth has been enormous," Ms Woiso said," (to the extent that) up to the end of this year's third quarter, we have surpassed last year's full year profit," Ms Woiso said. Akiba Commercial Bank (ACB) also made a good net profit of 390m/- in September compared to 83m/- generated last September. Citibank too made profit though slowed down to 1.9bn/- against 3.02bn/- of last September.

As the BoT's Banking Supervision Director said making a loss in one quarter does not necessarily mean a loss in full 12 months. The sector seems to register this year as one of the best since global financial crisis... and perhaps the sector is out of the wood. "...and this is a good gesture signifying that this year's profit target (set at 13bn/-) can be easily realised." She attributed the achievement largely to interest earnings generated from loans, foreign currency dealings, fees and commissions portfolios.

Bank M is owned by renowned lawyer and MP for Musoma Rural constituency, Mr Nimrod Mkono. Proceeds from the lending portfolio rose by slightly over 44 per cent to 13.77bn/-, while total noninterest income increased by 86 per cent to 10.08 bil/- in cumulative year transactions by September, this year. Bank M is basically a corporate bank. The revenue from loans followed an increase in deposits that rose by 44 per cent to clock 378.64bn/- in the quarter ended last September.

The bank's loan book increased to 291.77bn/- from 240.05bn/-. Bank M's Head of Internal Audit Orest Maskini said the exemplary performance within just five years of its existence was due to prudent lending and control of the nonperforming loans to stay low at around two per cent only. "A first-rate internal control enables assets to grow by almost 38 per cent and stick to almost the same percentage yearly," Mr Maskini said.

The situation, according to the bank, assisted the assets to grow to 462.69bn/- from 335.92bn/-. The industrial non-performing loans stand at about five per cent only. The recently published report on the bank's performance for the quarter ended last month shows the lending portfolio caters for all sectors of the economy -- led by manufacturing, trading and agriculture.

"Despite the risks associated with some sectors, such as agriculture, real estate and exports, after the global financial meltdown, we still managed to record zero NPLs (Non-performing loans) in such sectors," Ms Woiso said. Despite being young in the market, Bank M has been an active player in fulfilling its commitment to the society by undertaking significant activities under its Corporate Social Responsibility policy.

The bank, in partnership with the Rotary Clubs in Dar es Salaam, is for the third year in a row, staging the Dar Marathon, which is expected to raise more than 500m/- for the completion of one of the best Sub-Saharan Africa children's cancer therapy and treatment centre at the Muhimbili National Hospital.

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