15 lenders vanish in five years as banking industry consolidates

The liberalisation of the banking industry in the 1990s stimulated growth and competition among lenders, but recent changes in the economy posed capital challenges to some banks.

Despite the existence of a relatively large number of competing lenders, the bulk of the market is controlled by only a handful of banks.

For instance, banking sector deposits were dominated by the top six banks which have a wider network of branches, agency banking and digital financial services. These banks accounted for 65.4 percent of total deposits, according to the central bank which closely monitors the situation to identify and mitigate any possible systemic risks.

Bankers and economic experts believe that numbers of the financial institutions can be good for competition but Tanzania needs stronger financial entities which will meet the market demand.

“Consolidation in the banking industry is actually a very good idea to form strong and well-capitalised institutions,” said Tanzania Commercial Bank (TCB) managing director Sabasaba Moshingi.

TCB which was then known as TPB Bank Plc, joined the elite group of first-tier banks in 2020 when its assets crossed the Sh1 trillion mark, following its acquisition of assets and liabilities of the TIB Corporate Bank.

The bank had also previously benefited from the consolidation after the central bank merged assets of two poor-performing banks - Tanzania Women’s Bank and Twiga Bancorp - into the TPB in 2018.

“You know, normally a bank injects a small capital and use depositors’ money for lending and merging of these banks gives them more muscles to do the business,” Mr Moshingi said.

Mwanga Community Bank (MCBL), EFC Microfinance Bank and Hakika Microfinance Bank (HK MFB) merged in mid-2020, reducing the number of banks to form Mwanga Hakika Bank which graduated into a commercial bank.

In the same year, the BoT put China Commercial Bank Ltd under statutory administration and transferred all of its liabilities and assets to NMB Bank in March 2021.

In 2020, NIC Bank Tanzania Limited (NIC) and the Commercial Bank of Africa (Tanzania) Limited (CBA) merged to create a new bank which operates as NCBA Bank Tanzania Limited.

The merger brought together assets and liabilities of the two banks into a single entity, resulting in the creation of a Tier-2 lender with assets totalling Sh508 billion by then.

“Consolidation is a normal practice in the banking industry to cope with changing economic conditions,” said Repoa executive director Donald Mmari.

“Some banks come with a certain strategy and if that fails to work, it’s better to consolidate to have a strong bank instead of have undercapitalised banks which can create panic and disrupt the financial system,” he said.

Tanzania has only two development banks, a situation which Dr Mmari describes as concerning, while commercial banks dominate.

“We need more development financial institutions which will issue larger loans for a longer term at lower rates,” he said.

The size of the loans issued by the banks increased from Sh18.8 trillion in 2019 to Sh27.3 trillion in 2022, the central banks shows.

“I think we should not care about the number of banks but the size of their contribution to the economy,” said Dr Tobias Swai, head of banking and finance department at the University of Dar es Salaam Business School (UDBS).

“In some countries, there are fewer banks but with stronger contribution to the economy,” he added.

In May this year, the BoT announced to transfer the assets and liabilities of Yetu Microfinance Bank Plc which was under statutory administration, to NMB Bank Plc as an option for the suspended microfinance outfit.

In December, 2022, the BoT placed Yetu Microfinance Bank under statutory administration following the company’s failure to meet regulatory requirements regarding liquidity and capital adequacy.

Additional reporting by Gadiosa Lamtey