Tanzania Banking Industry Remains Resilient Despite Covid-19

The government efforts aimed at putting enabling business operating landscape has made the banking industry remain sound and stable despite challenges posed by coronavirus pandemic.

The bank's performance largely owes to a recent prudential macroeconomic reforms, coupled with the government's bold decision not to lockdown the country during the Covid-19 pandemic hence creating an environment of business continuity.

During this period, net interest incomes of most banks namely NMB, CRDB, TPB, Azania and TIB Development increased.

The monetary and fiscal policy measures implemented by the central bank to cushion the economy from the impact of coronavirus are expected to significantly reduce the risk of further deterioration of quality of loan portfolios of banks due to slow down of some businesses such as tourism.

For example, the NMB Bank Plc posted robust profit and profitability in the second quarter this year despite the challenges brought by the global pandemic.

The Bank's Acting Chief Executive Officer, Ruth Zaipuna said, "We remained focused even during the Covid-19 pandemic.

The safety and well-being of our staff and customers remained our top priority, but we also remained focused on execution of our strategy and business initiatives."

"The Bank's performance is a reflection and outcome of our growth strategy, maximizing on our strengths, capitalizing on market opportunities and the inherent potential to drive value creation for the shareholders and the Tanzanian community," she said.

Going forward, Ms Zaipuna reiterated that balance sheet growth, operational efficiency and driving excellent customer experience remain top of the agenda in the second half this year.

Looking ahead, the Bank is expecting to continue on the growth trajectory as it takes up a greater role in driving Tanzania's growth agenda through credit extension in the personal/household sector, agriculture, insurance, manufacturing and construction.

Some of the measures executed by the Bank of Tanzania (BoT) are namely the flexibility on regulatory requirement for loan restructuring in various forms.

This was manifested in a number of measures, including reduction of the statutory minimum reserves (SMR) requirement ratio in two stages from 8.0 per cent to 7.0 per cent, and further down to 6.0 per cent, downward revision of discount rate from 7.0 per cent to 5.0 per cent.

The haircuts on government securities pledged for central bank borrowing windows for banks were reduced, from 10.0 per cent to 5.0 per cent for securities maturing within one year, and from 40.0 per cent to 20.0 per cent for securities with remaining maturities exceeding one year.

Furthermore, the BoT intensified deployment of instruments for injection of liquidity, including reverse repo transactions and standing credit facilities.

The measures significantly improved liquidity in the banking sector and ultimately lowering interbank interest rates.

Moreover, it is during the global economic downturn that Tanzania on the contrary has achieved middle-income status, 5 years ahead of the schedule - demonstrating resilience to external shocks.

Specifically, overnight interbank cash market interest rate averaged at 4.83 per cent in April 2020, from 5.47 per cent in June 2019 and 5.20 per cent in April 2019.

Likewise, overall weighted average yields of Treasury bills decreased to an average rate of 4.88 per cent in April 2020, compared with 8.69 per cent and 8.20 per cent in June 2019 and April 2019, respectively.

The overall interest rates charged by banks on loans also declined, albeit moderately, to an average of 16.85 per cent during the period July 2019 to April 2020, from an average of 17.16 per cent in the corresponding period of 2018/19.

Besides the liquidity enhancing measures which aimed at strengthening balance sheets of banks and increasing lending at low cost, banks were granted regulatory flexibility for loan restructuring.

Also, banks and mobile money operators were encouraged to increase initiatives of leveraging digital payment platforms.

To this end, Ms Zaipuna thanked the government for its deliberate efforts to ensure that the country remains a safe and exciting market.

The government decision was complemented by the Bank's investments in innovation and digitization initiatives, increased activation and usage of alternative banking channels such as NMB Mkononi, NMB WAKALA and Card usage, which enabled continued business activities even during the Covid-19 pandemic.

During the period under review, NMB Bank Plc profit has surged to 93.6bn/- year on year, which is equivalent to 65 per cent increase compared to 56.7bn/- in the corresponding period 2019, thanks to a solid operating income growth.

The strong growth in profitability was on the back of solid operating income growth of 13 per cent, largely driven by interest income growth of 10 per cent coupled with an increase in non-funded income of 19 per cent.

The bank posted a net profit of 45.83bn/- up from 37.44bn/- of the corresponding period last year.

The profit, according to the lender's financial results, was attributed mainly to net income that ballooned by slightly over 10 per cent in three months.

The revenue from net interest was pushed up as a result of an increasing loan portfolio that jumped almost 100bn/- to 1.8tri/- to June.

The increase of loan portfolio and balance with the central bank contributed dearly hence elevated NMB to become the first bank to have assets worth more than 7.12tri/- mark on quarterly basis.

The bank also continued to demonstrate commendable operational efficiency, with only 1 per cent increase in operating expenses.

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