Tanzania: Potential Loan Defaults Haunt Tanzanian Banks

Tanzanian banks continued to grapple with escalating non-performing loans (NPLs) portfolios in the second quarter of 2021 despite central bank warning to rein in the ratios to within accepted levels.

Published Q2 2021 financial statements by commercial banks placed them on the wrong end of the spectrum, with TIB Development Bank and International Commercial Bank, top the list with NPL ratios of 52 and 50.7 percent respectively, meaning that more than half the loans disbursed to their clients remained unpaid up to June 30 this year.

Azania Bank, at 30.35 percent, and Equity Bank (30.26 percent), Access Bank (19.31 percent), Akiba Commercial Bank (19 percent) and the Dar es Salaam Stock Exchange-listed Dar es Salaam Commercial Bank (DCB) at 11.8 percent.

CRDB's 4.4 percent figure for Q2 was up from 4.1 percent posted in Q1 (January to March) but still within BoT threshold range, while NMB's ratio of 4.3 percent were a drop from 5 percent in Q1.

Tanzania's two top banks in terms of assets and capitalisation, CRDB and NMB, both posted NPL ratios of below 5 percent while announcing rising numbers in total loans disbursed during the period April to June this year.

Meanwhile, Access Bank's 19.31 percent NPL ratio was an improvement from 24.51 percent posted in Q1 of 2021 (January to March), but still far above the BoT ceiling.

Despite the NPLs factor, Access Bank announced a modest Tsh494 million ($214,780) quarterly net profit after tax, representing a turn-around from Tsh2.86 billion ($1.24 million) in losses in the corresponding period (March-June) of 2020.

Domestic credit growth

According to BoT's latest monthly review report for August 2021 published this week, domestic credit growth continued to recover, expanding at 8.9 percent in July compared with 6 percent in the corresponding period of 2020.

Credit extended to the private sector grew by 4.1 percent in July, although this was still lower than the 5.5 percent recorded in July 2020. Most of the credit was in the form of personal loans, followed by mining and quarrying, and then trade. Manufacturing also gained a large quota of credit.

Private sector credit growth is projected at 11.6 percent in 2021/22 amid an expected increase in demand for credit. Interest rates charged on loans and offered on deposits by banks was unchanged averaging between 14 and 17 percent.

Meanwhile, cost-to-income ratios among Tanzania's 10 banks with assets exceeding Tsh1 trillion ($434.78 million) have continued to range between 57 and 80 percent.

Cost-to-income ratio is calculated by dividing operating expenses by operating income. Operating expenses include salaries and other benefits, fees, commissions and those classified as "other expenses."

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