'Declining NPLs signal stronger financial stability in Tanzania’

Dar es Salaam. The latest data on non-performing loans (NPLs) in Tanzania’s banking sector indicates significant improvement, with many banks successfully reducing their loan default rates.

This positive trend, according to experts, is expected to strengthen financial stability and improve access to credit for businesses and individuals alike.

According to banks’ quarterly statements, the overall NPL ratios for several banks have dropped compared to the previous year, signalling improved asset quality and better loan repayment behaviours.

The Bank of Tanzania (BoT) wants commercial banks to maintain NPLs to total gross loans of not more than five percent.

Also read: The causes of non-performing loans in the banking industry

In what points to a positive trend, leading commercial banks have shown remarkable improvements in their NPL ratios. NMB reduced its NPL ratio to 2.90 percent in December 2024, from 3.20 percent in December 2023.

CRDB also maintained a stable NPL rate, hovering around 2.90 percent in December 2024.Stanbic Bank saw a decline in NPLs to 2.90 percent in December 2024, from 3.60 percent in December 2023.

Standard Chartered Bank recorded one of the most significant improvements, with its NPL ratio plummeting from 3.90 percent in December 2023 to a mere 0.20 percent in December 2024.

KCB Bank has also maintained a strong position, with its NPL ratio standing at 1.41 percent from 1.62 in September 2024 and 1.62 in December 2023.

KCB’s managing director, Cosmas Kimario, attributes this to a stable business environment and a responsive regulator. “When the business environment is good and the regulator is attentive, you see banks continuing to operate well.

NPLs across the board have dropped significantly, which shows that even customers are demonstrating the ability to run and grow their businesses.

At 1.4 percent to 1.6 percent for KCB, our NPLs are very low, which is a good sign,” Kimario explained.

On his part, Kelvin Kawawa, a seasoned banking and financial analyst, attributes the decline in NPLs partly to improved economic stability and the strategic decisions banks made in response to last year’s dollar crisis.

“The economy is on the right track. People now have enough liquidity to meet their loan obligations, and banks have been more flexible in working with struggling borrowers on repayment plans,” Kawawa noted.

He explained that in 2023, the shortage of US dollars forced many borrowers to convert their loans from United States dollars to the Tanzanian shilling. This move significantly reduced bad loans that had emerged due to forex volatility.

“If you analyse the NPL rates for dollar-denominated loans between 2023 and 2024, you’ll see the impact of this shift,” he added. While the overall trend is positive, some banks continue to struggle with high NPL ratios.

Financial analysts emphasise that banks with elevated NPLs should adopt stricter risk management strategies.

Experts recommend tackling high default rates through innovative loan restructuring programs and rigorous borrower evaluations before granting credit.

The decline in NPLs has significantly improved credit access in Tanzania, as banks with healthier loan books are more willing to lend.

Lower default rates mean banks can extend more loans to businesses and individuals at competitive interest rates.

The reduction in bad loans allows lenders to introduce more flexible lending products, enabling businesses to expand operations, including small and medium-sized enterprises (SMEs).

The improvement in asset quality has also been reflected in an increase in private sector credit growth, with businesses leveraging the improved lending environment to invest in expansion and job creation.

Despite the positive trend, financial experts urge continued vigilance in managing loan defaults.

The BoT has encouraged commercial banks to adopt technology-driven credit risk assessment tools and strengthen their customer engagement strategies to ensure sustained improvement in NPLs.

With continued regulatory oversight and responsible lending practices, Tanzania’s banking sector is poised for further growth, ensuring that more individuals and businesses gain access to affordable credit, ultimately contributing to the country’s economic development.