What Tanzania’s over-reliance on two banks implies for economy

Among the 34 commercial banks, only two (CRDB and NMB) control nearly half of the market share by asset size.

The sector’s total assets rose 14.8 percent to Sh62.1 trillion in 2024. At group level, CRDB closed the year with assets of Sh16.7 trillion and NMB with Sh13.7 trillion, giving them a combined Sh30.4 trillion, or almost 50 percent of the market.

Medium-sized banks saw their share shrink to 8.6 percent, while regional and small lenders clung to just 0.6 percent. EY’s country leader, Mr Joseph Sheffu, said this concentration reflected the strength of large players but warned it highlighted “the need for innovation and strategic support to bolster the competitiveness of smaller institutions.”

For some observers, dominance by the top two banks provides stability. For others, it risks turning the system into a duopoly with disproportionate influence over lending, deposits and innovation.

Tanzania Private Sector Foundation (TPSF) chief executive officer, Mr Raphael Maganga, said over-reliance on the two largest lenders was a concern.

“Yes, Tanzania risks becoming over-reliant on two big banks, and this will continue in the medium to long term,” he said, pointing to similar experiences in the region.

He warned that concentration reduces private sector bargaining power, raises systemic risks, and constrains innovation. “For TPSF and the broader private sector, it is crucial to advocate for financial sector diversification, fintech inclusion and alternative financing mechanisms,” he said.

Mr Maganga urged expansion of venture capital, private equity, collective investment schemes and fintech platforms to complement traditional bank lending.

Uneven fortunes

According to the report, the sector’s deposits stood at Sh41 trillion at the end of 2024 while after tax profit rose by 40.9 percent to close 2024 at Sh2.1 trillion.

The level of non-performing loans stood at a historic low of 3.2 percent.

Medium-sized banks saw their share of assets fall from 13.4 percent in 2023 to 8.6 percent in 2024, partly due to reclassifications such as Equity Bank Tanzania and Citibank Tanzania moving into the large-bank category, alongside a Sh1.3 trillion fall in deposits.

Development economist Prof Abel Kinyondo of the University of Dar es Salaam described concentration as “both a shield and a vulnerability.” Large banks can absorb shocks, he said, but if either CRDB or NMB stumbles, the entire economy feels the impact.

For smaller lenders, the reverse is true. “Bad debts eat directly into their thin profit margins,” Prof Kinyondo said. “They don’t have the buffer that CRDB or NMB enjoys.”

Finance lecturer Dr Tobias Swai added that concentration is also geographic. “Most large banks’ networks are in urban areas,” he said. “Innovation tends to happen where infrastructure is strongest, while smaller banks follow too late.”

He noted that mobile and agent banking are helping narrow the gap, but historical advantages—deep government links and payroll management for public servants—keep the two biggest players far ahead.

Dr Swai suggested regulatory reforms beyond entry capital requirements, such as performance thresholds requiring banks to achieve growth within five to ten years. “This would push smaller banks to scale faster, rather than stagnating,” he said.

Systemic pressures

Banking analyst Mr Kelvin Mkwawa said the dominance of the top two banks is already reshaping the market.

“Small banks are under liquidity pressure,” he noted. “They struggle to attract deposits, limiting their ability to lend to SMEs, while the large banks effectively set the cost of credit.”

He warned that even minor disruptions at a top-tier bank could have outsized effects. “A small change in CRDB’s core system disrupted millions across the country. That is the systemic risk concentration creates.”

Mr Mkwawa suggested BoT should monitor loan-to-deposit ratios more closely and encourage collaboration among smaller banks to reach underserved populations. Incentives for SME lending and rural expansion could also help level the playing field.

The EY report reinforced these concerns, noting that large banks operate at far greater efficiency—with cost-to-income ratios of 35.7 percent compared to 67.4 percent for smaller institutions.

Meanwhile, collective investment schemes such as UTT AMIS are growing rapidly, with a 44.9 percent compound annual growth rate between 2022 and 2024, compared to bank deposits’ 15.8 percent CAGR. This suggests savers are beginning to diversify.

Consolidation trend

Recent mergers and acquisitions are also reshaping the landscape. Access Bank Group’s takeover of BancABC Tanzania and the consolidation of Kilimanjaro and Tandahimba cooperative banks into the Cooperative Bank of Tanzania in 2024 further entrenched the dominance of major players.

BoT has introduced reforms to strengthen resilience, including a shift to interest rate-based monetary policy, maintaining the central bank rate at 6 percent, and amendments to accommodate Islamic finance.

The loan-to-deposit ratio edged up to 92 percent, while return on average equity climbed to 23.6 percent. Still, experts warn that concentration could slow innovation and widen inequalities in a country targeting 6 percent GDP growth in 2025.

Regional lessons

Tanzania’s challenge is not unique. In South Africa, the top five banks control around 90 percent of assets. In Nigeria, a handful of large lenders dominate despite dozens of licensed players. Kenya, by contrast, maintains a more fragmented market, where mid-tier banks continue to play a meaningful role.

For Tanzania, the lesson is clear: concentration may signal strength, but without diversification, it could also expose the economy to vulnerabilities.