Major Tanzanian commercial banks net $6bn in profits

Tanzania's banking sector has been ablaze with excitement as the country's 10 largest commercial banks reported a record combined net profit of about $6 billion in 2021. This astonishing feat, as reported by the Bank of Tanzania, showcases a remarkable 62% increase from the previous year's combined net profit of approximately $4 billion in 2020. The remarkable success of these banks has left many wondering about the key factors driving such massive profits, especially coming on the heels of the COVID-19 pandemic. Ivan Tarimo, a Partner at Bankable Tanzania, shed light on this exceptional performance in a recent interview with CNBC Africa. Tarimo attributed the banks' stellar financial performance to a post-COVID economic recovery that positively impacted various sectors. The shift towards digital platforms and online banking also played a significant role in boosting banks' non-interest income, driving earnings even higher. The top two banks in Tanzania, CRDB and NMB, were identified as major drivers of the industry's success, accounting for nearly 45% of market income, assets, and deposits. With a return on equity exceeding 20%, these banks have been able to leverage their scale and robust local presence to capitalize on the market's recovery from the pandemic. Moreover, the prudent management of non-performing loans (NPLs) has been a key differentiator for CRDB and NMB, both maintaining NPL ratios below 5%, well below the industry average of 10%. Tarimo highlighted the banks' conservative lending practices, particularly to government employees, as a contributing factor to their low NPL ratios. He emphasized the banks' strategic focus on reducing NPLs over the years, resulting in a stable and secure loan portfolio. Despite the challenging economic environment, both CRDB and NMB recorded an increase in loans and advances, particularly in personal and SME lending. This growth, coupled with a stable Tanzanian Shilling, reflects the banks' ability to balance their loan portfolios effectively. Tarimo also pointed out that the government's efforts to stimulate the economy through expansionary fiscal policies and international aid packages have injected additional funds into the market, boosting deposit levels and private sector credit growth. The relaxation of stringent tax collection measures and increased government spending have further supported the banking sector's profitability in the face of economic uncertainty. Overall, Tanzania's commercial banks have demonstrated resilience and adaptability in navigating the challenges posed by the COVID-19 pandemic, emerging stronger and more profitable than ever before. With a focus on prudent risk management, digital innovation, and strategic partnerships, these banks have set a new benchmark for financial success in the region.