Experts optimistic as bank mergers gather momentum

Dar es Salaam. The wave of merges is persisting in the Tanzanian banking sector which experts say needs to consolidate for growth and better services delivery.

The banking sector is generally profitable. But some banks have been merging for business reasons - and others? To meet the industry’s regulatory minimum capital requirement.

The latest merger was last week when KCB Bank signed a deal with Atlas Mara Ltd and ABC Holding Ltd to acquire BancABC.

This year has also seen several other mergers of banks to form stronger financial institutions - including the merger between Commercial Bank of Africa Tanzania Ltd (CBA) and NIC Bank Tanzania Ltd (2020) to form NCBA Bank.

The government-owned TIB Corporate Bank Ltd was also merged with TPB Bank.

During the year, three smaller banks – Mwanga Community Bank Ltd, Hakika Microfinance Bank Ltd and EFC Microfinance Bank Ltd were merged to form a new micro-finance bank known as Mwanga Hakika Microfinance Bank Ltd.

Industry experts say Tanzania need stronger lenders that will support the country’s economic growth and development by providing required financial services.

“The new established banks after merging will be able to improve provision of loans due to enhanced level of capital as well as being able to reach more client due to expanded network through increased number of branches and alternative banking channels such as agent banking, ATMs, mobile money transfer,” said the Bank of Tanzania manager for banking supervision, Mr Sadati Musa.

According to him, the merged institutions have the opportunity to improve skills and service delivery and ultimately improve service to customers.

“Our market currently faces shortage of banking skills, as such these mergers enable pooling together available skills to enhance quality of service delivery,” he stressed.

Mr Musa said the merging of banks helps the provision of diversified services under one roof, citing an example of TPB Bank which extended from retail services to corporate banking after merging with TIB Corporate Bank.

However, he noted that if not well managed, the merging of the banks may increase cost to its customers due possibility of monopoly creation.

The reduced competition can affect pricing of products or services and reduce the quality of services offered.

“In some cases, merger results into unemployment which can create social challenges and reduced consumption, a scenario which is not very health to the growth of economy,” he said.

He said that all mergers undertaken in the country have so far not caused any negative impact as were well executed in a manner that did neither create monopoly nor lay-off staff.

An economist from the University of Dar es Salaam, Dr Abel Kinyondo said consolidation of banks increases the economies of scale while at the same time ensures banks that were failing get an opportunity to survive and get grow.

However he noted that while consolidation of banks was a good thing for the economy, the disadvantage of such an eventuality was that when banks failed they adversely affect the economy.

He noted that while local banks were merging at every opportunity presented, they have not been able to consolidate with banks outside the country because they have not been able to attract FDI’s and are therefore awaiting the blueprint to come into effect.

“The issue here is: is there freedom for banks to maneuver? Just last month the China Commercial Bank was put under the Bank of Tanzania (BoT) administration,” he said.

On his part, the chairman of the Tanzania Bankers Association Mr Abdulmajid Nsekela said a majority of banks have been consolidating to increase capital.

He said it’s vital that countries have a strong banking sector in order to support economic growth.

He also commented on the scenario where Kenyan banks were pushing for regional consolidation while those from Tanzania had used the opportunity significantly.

“The issue of merging with foreign banks depends on willingness of the banks to do so, as well as opportunity to arise,” he said.

But for Mr Musa, the Tanzanian banks would increase acquiring banks in other countries with time.

“Going forward, we may experience such scenario as more Tanzanian banks are now looking to expand their operations to other countries,” he said.