7 July 2014

Tanzania: Better Credit Facility in Pipeline

MEMBERS of the public may soon start accessing credits on competitive terms, thanks to the Credit Reference Bureau (CRB), that commercial banks have embraced amid optimism that the data base will help to extend financial services to more people, a new study has shown.

CRB is the database for consumer credit information that provides details of individuals' borrowing and bill-paying habits to help especially lenders to predict the future credit behaviour of their existing and potential customers.

"Financial inclusion in the banking sector is rising, as evidenced in Tanzania, Kenya, Rwanda and Uganda. This is in line with stronger economic growth, which is successfully incorporating more people into the formal economy," the study report by Ernest and Young (EY) notes.

Presenting the report to banking sector stakeholders in Dar es Salaam at the weekend, Country Managing Partner for EY, Mr Joseph Sheffu, also noted that the role of credit bureaus is likely to play a major role in facilitating increased financial inclusion.

"Banks will be able to extend credit on a more informed basis," he said, pointing out that the special topic this year focused on the role of credit bureaus in boosting responsible and profitable credit extension and how that in turn could help stimulate economic growth Giving Tanzania's outlook, Associate Director at EY, Mr Chacha Winani, said that in the case of Tanzania, financial inclusion (banking sector) rose from 9.2 per cent to 13.9 per cent between 2009 and 2013.

"While this ratio remains low, even in emerging standards, the banking sector has seen its retail clients base rise by nearly half over the space of four years," said Mr Winani. He noted that increasing financial inclusion, coupled with strong GDP growth, will continue to support growth in the banking sector in the medium.

"While Kenya currently dominates the banking sector in the region, the strongest economy will likely stem from the fastest growing economies - Tanzania and Uganda," he noted.

EY Partner East Region Leader Financial and Private Sector Advisory, Mr Steve Osei-Mensah, observed that large banks continue to dominate the market and as a result, they are able to attract a large chunk of available deposits and account for a considerable portion of lending activity.

Earlier, Mr Winani had told the forum that findings of the report show that between 2009 and 2013, bank assets grew at Compound Annual Growth Rate (CAGR) of 17.5 per cent, with loans and advances having outpaced overall asset growth to a tune of up to 22.5 per cent.

However, he noted that in the same period, deposit growth was marginally weaker than asset growth at 16.3 per cent. He added that Tanzania's banks' interest earnings were supported by high and stable interest rates In the report, Tanzanian banks were the only East African member banks which did not face low or declining interest rates.

Mr Shefu said that Tanzania's banks faced slower revenue growth, despite economic growth remaining robust, in line with previous year's levels, pointing out that the region continues to attract growing interest from a range of investors, in line with Africa's sustained growth.

He also told executives from the industry that the East Africa's share of the total sub-Sahara African banking market was gradually rising although South Africa remains by far the dominant banking market for now. "Large banks typically enjoy stronger economies of scale than their smaller peers.

This is true of banks across the globe and East Africa is no exception, although Rwanda stands out as a market where smaller banks enjoy some noticeable advantages," he noted.

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