Revealed: Contributing factors as bank profits hit new record

Going by Ernst & Young’s Tanzania Banking Report 2023, which was released last week, the banking industry’s total net profit for the first three quarters of this year was roughly equivalent to the profit posted in the whole of 2023.

The impressive performance has been attributed to, among other factors, a robust increase in both interest and non-interest incomes, successful risk management and a higher lending capacity across the industry.

NMB Bank Plc emerged as the industry leader, posting Sh474.02 billion in net profit during the period under review, followed by CRDB Bank Plc at Sh400.44 billion, Stanbic Bank at Sh100.63 billion and the National Bank of Commerce (NBC) at Sh84.16 billion.

Standard Chartered Bank, Citi Bank and the People’s Bank of Zanzibar also performed well with net profits of Sh68 billion, Sh65.97 billion and Sh47.24 billion, respectively.

Other banks with their respective cumulative net profits in brackets are Absa Tanzania (Sh59.02 billion), DTB (Sh40.71 billion), KCB Tanzania (Sh39.2 billion), Exim Bank (Sh28.34 billion), Tanzania Commercial Bank (Sh27.35 billion), Azania Bank (Sh23.6 billion) and Equity (Sh15.05 billion).

Interest income grew substantially, reaching Sh3.57 trillion by the end of September 2024, up from Sh2.97 trillion during the corresponding period in the previous year.

The increase in interest income has been driven by a combination of factors, including higher lending rates, steady demand for loans and improved risk management across the industry.

Non-interest income from streams such as service fees and transactional charges also rose to Sh1.55 trillion from Sh1.27 trillion.

Higher profits mean increased lending capacity among banks, further stimulating economic growth and job creation. This trend is supported by data analysed by The Citizen, which shows that loans issued to individuals and businesses rose to Sh32.2 trillion by the end of September from Sh31.62 trillion.

Tanzania Bankers Association chairman Theobald Sabi said growth has been observed across all key performance parameters, signalling a thriving financial services sector that is vital for Tanzania’s sustainable economic development.

“This achievement would not have been possible without the invaluable support of the government and our regulator, the Bank of Tanzania. Their commitment to creating an enabling business environment has made it possible for banks to innovate, expand and effectively serve the diverse needs of our customers,” he said.

“As we build on this momentum, we remain committed to delivering the highest standards of service and value, contributing positively to Tanzania’s economy and the prosperity of our communities,” added Mr Sabi, who is also NBC chief executive.

NMB Bank chief executive Ruth Zaipuna said the lender’s strong performance has primarily been driven by a solid business momentum, enhanced efficiency gains and significant improvements in the loan portfolio quality.

“Our strong performance is a further testament to the resilience of our business model, disciplined execution of our strategy and the extent of stakeholders’ trust in us,” she said.

“We maintain an optimistic outlook as we move towards the end of the year, supported by favourable policies and business environment. We will continue to invest in technology and innovative solutions, as well as in our communities and our people. We remain committed to unlocking further opportunities for sustainable value creation for all our stakeholders,” Ms Zaipuna added.

KCB regional businesses director and KCB Tanzania managing director Cosmas Kimario attributed the bank’s strong performance to a number of key factors.

“Our customer-focused approach has been fundamental, ensuring that our services consistently meet clients’ evolving needs,” he said.

Mr Kimario also highlighted the role of KCB’s digital offerings, saying they have streamlined service delivery and increased accessibility for customers.

He noted that the favourable regulatory and economic environment, supported by the Sixth Phase Government’s proactive and enabling policies, has further driven growth in the banking industry this year.

The surge in profitability has been accompanied by better loan portfolio management, with several banks reducing their non-performing loan (NPL) ratios.

Standard Chartered Bank lowered its NPLs from 3.4 percent to 1.2 percent; Absa Bank Tanzania from 4.4 percent to 1.5 percent; Exim Bank from 4.02 percent to 2.88 percent; Stanbic Bank from 3.4 percent to 2.7 percent and CRDB Bank from 3.3 percent to 2.6 percent.

As the financial sector continues with its upward trajectory, strategic investments in technology and infrastructure by banks are likely to further improve efficiency, bolster customer satisfaction and support Tanzania’s economic development.