Is Tanzania over-banked?

Tanzania's banking sector has seen significant changes and challenges in recent years, with over 50 banks vying for market share in a crowded space. Lawrence Mafuru, Managing Partner of Bankable Tanzania, shed light on the state of Tanzania's banking sector in a recent interview with CNBC Africa. The sector, comprised of a mix of top-tier, mid-tier, and micro-finance institutions, has been facing increasing pressure to consolidate in order to stay competitive. Since 2015, several banks have been closed or forced to merge, signaling a shift towards a more streamlined and efficient industry landscape. The Central Bank of Tanzania made headlines in 2018 when it revoked five bank licenses due to the banks' failure to meet capital requirements. While some may question the drastic measure, Mafuru praised the decision, emphasizing the importance of regulatory oversight in safeguarding the financial health of the sector. The clean-up efforts have spurred a wave of consolidation, allowing for a more efficient allocation of resources and a focus on strengthening the remaining institutions. One of the key challenges facing Tanzanian banks is the high volume of non-performing loans, which directly impact the banks' capital reserves. Mafuru pointed out that this, coupled with the introduction of IFRS 9 regulations requiring banks to allocate more capital for risk-based assets, has put pressure on banks to shore up their financial positions. This has led to a more cautious approach in lending and a strategic focus on attracting investment to bolster capital. Regional banks from neighboring countries, such as Kenya, have recognized the potential of the Tanzanian market and are positioning themselves to capitalize on the opportunities for growth. By expanding their presence in Tanzania, these larger banks aim to compete with global players and establish a stronger foothold in the East African region. The influx of digital transformation initiatives further underscores the need for investments in technology, driving banks to seek strategic partnerships with well-capitalized firms to stay ahead in the rapidly evolving landscape. As banks navigate these challenges, mergers have emerged as a viable solution to enhance capital strength and competitiveness. Unlike some other African markets where mergers are often driven by regulatory requirements, Tanzania's consolidation efforts are primarily market-led. Businesses are proactively seeking merger opportunities to bolster their market position and drive long-term sustainability. Mafuru believes that these mergers are not only logical but also sustainable, setting the stage for a stronger and more resilient banking sector in Tanzania. In conclusion, Tanzania's banking sector is at a crossroads, where strategic decision-making and market-driven consolidation efforts are reshaping the industry landscape. With regulatory reforms, technological advances, and a focus on prudent financial management, Tanzanian banks are poised to weather the storm and emerge stronger in a competitive and dynamic market environment.