BoT: Why Tanzania’s two biggest banks dominate industry

Over 30 banks operate in Tanzania, yet two institutions control more than half of sector assets and profitability, how would you assess the health and competitiveness of the banking industry?

It is not an anomaly. Outcomes in the banking sector largely depend on the strategies deployed within the business environment. Tanzania is well positioned, with 42 licensed banks currently operating in the country. While it is true that two of these banks dominate the market, their position reflects the strategies they have adopted rather than structural bias.

Some banks operating in Tanzania were established earlier than the market leaders, while others have been in the industry for many years but have not expanded significantly, largely due to strategic choices. The operating environment is neutral and open to all investors wishing to participate in the banking sector.

As the regulator, the Bank of Tanzania provides a range of guidelines to ensure banks can operate competitively without facing market distortions. Over time, the regulator has introduced incentives through regulatory frameworks to encourage innovation and the use of multiple service delivery platforms, supporting sector-wide growth.

Some banks remain hesitant to expand into remote areas due to perceived risks and cost considerations. Banks enter the market with different objectives: some focus on retail banking, while others concentrate on corporate and investment banking. It is therefore not feasible for the regulator to compel all banks to pursue the same business models.

Recognising the risks within the sector, the central bank maintains close supervision and continuous engagement with banks, offering guidance to safeguard stability while allowing institutions the flexibility to grow in line with their strategies.

Given that the government has shareholding interests in the two dominant banks and often uses them to finance public projects, does this heavy reliance raise concerns about potential liquidity risks within the banking system?

Such a situation cannot occur. We conduct close monitoring and have put in place mitigation measures to ensure that banks do not default. Through macroprudential analysis, we ensure that all banks maintain adequate liquidity and comply with statutory minimum reserve requirements.

The two dominant banks were initially established to serve remote areas, which enabled them to build extensive branch and service networks that continue to give them a competitive advantage today. This contrasts with newer banks that are largely concentrated in urban areas and focus on specific market segments.

Recognising these dynamics, the Bank of Tanzania has established robust oversight mechanisms, including daily monitoring, continuous review, and follow-up across the sector. The likelihood of misconduct is minimal, as the banking industry is closely supervised and well regulated.

In recent years, the banking sector has recorded strong profit growth, repeatedly breaking its own records. However, a large share of these profits is derived from non-interest income. There is growing public sentiment that this is the right time to remove some banking charges and reduce interest rates. How does the Bank of Tanzania view this debate?

When the economy is performing well, businesses across sectors tend to flourish. The profitability of the banking industry is, in many ways, a reflection of strong economic performance, as it indicates that people are accessing credit, investing productively, and repaying loans with interest.

Tanzania adopted a free-market economic system in 1992. Under this framework, it is not the role of the regulator to impose caps on interest rates charged by banks. Instead, our responsibility is to create incentives that support economic activity while ensuring that lending rates remain reasonable and competitive.

To enhance transparency, Bank of Tanzania has introduced internal mechanisms such as a price comparator, which allows consumers and regulators to compare fees and charges across different banks. Ultimately, the choice of which bank a customer uses is subjective and depends on individual preferences.

As the regulator, we continue to support the entire banking sector by providing a level playing field and equal opportunities for all institutions to operate competitively within the same environment.

When Tanzania’s lending rates, currently averaging around 15 percent, are compared with those in other jurisdictions, it becomes clear that they are relatively moderate. In several African countries, lending rates can reach as high as 27 percent

Digital payments have expanded rapidly in Tanzania. Last year, BoT banned additional fees and charges on card (POS) payments. Do you see the need for similar measures to be extended to mobile payments, which have a much larger user base? Why should customers pay fees to access their own money for payments when systems like TIPS already exist?

We cannot set mobile payment costs to zero because doing so would remove the incentive for service providers to invest in these services. Take mobile money agents as an example: they operate along streets and in communities because of the income they earn from transactions. If the service were free, there would be no reason for them to stay in business.

The current charges for mobile payments in Tanzania are reasonable. The Bank of Tanzania deliberately developed the Tanzania Interbank Payment System (TIPS), which has encouraged widespread use of digital payment services.

While maintaining TIPS incurs costs, careful analysis ensured that fees remain comparable across different service providers. This approach has led to reduced tariffs and increased adoption.

Compared to our regional peers, Tanzania is in a strong position in terms of affordability and uptake of digital payments. However, there is still room for improvement.

How can we make digital payments more affordable for everyone as Tanzania pushes to digitize the economy and reduce reliance on cash?

Adoption of mobile money depends on the market. In Tanzania, many people still prefer cash because they don’t fully trust digital services.

To address this, we continue to promote financial literacy, educate the public on the benefits of mobile payments, and support companies that develop innovative payment platforms to reach a wider population.