Tanzania banking sector outlook

Tanzania's banking sector has been facing challenges in recent years, with the total domestic credit declining by 4.1% in the month of June, according to the Bank of Tanzania. Non-performing loans have remained high at 10.8% as of April, raising concerns about the stability of the sector. In a recent interview on CNBC Africa, Prince Moloto, Africa Banking Analyst at Rand Merchant Bank, shed light on the current state of the banking space in Tanzania. Looking back at the trends in the Tanzanian banking sector, Moloto highlighted a significant growth in total assets in 2015, with a growth rate of around 21%. However, in the following years, the growth rate slowed down due to various factors, leading to an increase in non-performing loans. This slowdown in economic growth has exposed the vulnerabilities in the banking sector, with some banks facing non-performing loans of over 30%, making it unsustainable for their operations. Moloto pointed out that the rising non-performing loans in Tanzania are not unique to the country and are reflective of broader macroeconomic trends in the East African region. Factors such as regulatory uncertainty and liquidity constraints have contributed to the increase in non-performing loans. Government initiatives, like the treasury single account aimed at reducing corruption, have inadvertently drained liquidity from the banking system, making it challenging for banks to extend loans. Despite these challenges, Moloto noted a slight rebound in credit growth in Tanzania, attributed to the Central Bank's initiatives to reduce statutory cash reserve requirements and increase liquidity in the market. This move has allowed banks to have more funds available for lending, leading to a drop in interbank rates and a potential increase in credit extended to the private sector in the coming months. In addressing the concerns raised by SMEs regarding the stringent collateral and credit scoring requirements, Moloto emphasized the importance of banks reevaluating their lending practices. He highlighted that banks are proactively revisiting their SME loan portfolios to tighten credit requirements and prevent the recurrence of past mistakes. The Bank of Tanzania is also taking a more active role in ensuring the stability of the banking system and mitigating the risks associated with non-performing loans. As Tanzania navigates through the challenges in its banking sector, stakeholders are hopeful that the proactive measures being taken by banks and regulators will lead to a more resilient and sustainable banking environment in the future. Despite the current uncertainties, there are opportunities for growth and development within the sector, especially with the vast natural resources and potential for private sector expansion in the country.