NCBA invests Sh40 billion in its Tanzania subsidiary

NCBA Group is investing Ksh2 billion ( Sh40 billion) in its Tanzanian subsidiary this year to shore up its capital which was eroded by losses and a rise in defaults due to the economic fallout from the Covid-19 pandemic.

The new capital injection into NCBA Bank Tanzania Limited is part of efforts to improve the performance of the regional subsidiaries that have recorded lower profitability compared to the mainstay Kenyan market.

“We have made Ksh1 billion (Sh20 billion) investment in Tanzania so far to support capital and we intend to continue with more investment and make another close to Ksh1 billion (Sh20 billion) by the end of the year,” NCBA chief executive John Gachora said.

“We had closed four branches this year. We don’t plan to open the branches but what we are doing is reconfiguring the business to go after corporates and we need to lend them more money and therefore need more capital to do so. The investment is really to support business growth in Tanzania.”

The Tanzanian subsidiary made a net loss of Ksh1.1 billion (Sh2.2 billion) in the year ended December 2021, larger than the Ksh770 million (over Sh1 billion)  net loss recorded the year before.

The performance was attributed to an increase in bad loans and provisions for the same. The subsidiary’s non-performing loans ratio stood at 20.3 percent which is significantly above the recommended level of five percent.

The bank was also slightly above other capital requirements, constraining its ability to lend more. The new funds are expected to recapitalise the business and put it on an expansion path.

The recapitalisation is being accompanied by a review of operations and client focus to fast-track the move to profitability.

NCBA Bank Tanzania is now pivoting to serve large businesses while closing excess branches in specific locations.

Standard Chartered Tanzania also recently announced it will exit the retail banking business and retain institutional banking, indicating that the mass market is less profitable.

In other markets including Kenya and Uganda, NCBA Group has grown aggressively in the retail market through digital banking services in partnership with telecommunications companies.

The new capital being deployed in Tanzania will raise the Nairobi Securities Exchange-listed firm’s cumulative investment in that market to Ksh7 billion (Sh140 billion) from the Ksh5 billion (Sh100 billion) recorded at the end of last year.

The Kenyan banking multinational owned a 93.44 percent stake in the Tanzanian unit as of December 2021 and it was not immediately clear whether the minority shareholders are also participating in the recapitalisation.