Dar es Salaam: Banks generated Sh3,560 million (about $2.4 million) a day in the last quarter of last year, which is a colossal sum of money for a poor country such as Tanzania. At that rate, the banks’ revenue could hit the Sh1.3 trillion, which is almost a tenth of the current government Budget. However, the latest survey of their performance shows diminishing profitability. But the revenue trend could explain why the government has been borrowing heavily from the sector, which, ironically, has come under criticism from some analysts for only optimally serving the economy and not catering fully for the financial needs of the majority.
Dogged by unprecedented poor revenue collections in recent years, the government has continued to borrow from banks to cater for development expenditure in the current financial year. The Bank of Tanzania notes in its latest review of the economy that the government borrowed Sh883.5 billion in the current year, compared to Sh535.2 billion a year ago.
'The banking sector’s revenue grew from Sh119 billion in the first quarter of 2006 to Sh328 billion by the fourth quarter in 2010,' notes Serengeti Advisers Limited (SAL) in the survey to be made public today (Monday).
However, the industry’s net profit margins have declined from 35 per cent in early 2006 and 2007 to less than nine per cent in the final quarter of last year.
SAL director Aidan Eyakuze says the trend was an indication of the strong competition emerging in the sector. 'Tanzania’s banking sector, measured by total assets, has almost tripled during the last five years. Lending to business has expanded at the expense of government, and the industry’s profit margins have fallen,' he notes in a brief of the summary of the Tanzania Banking Survey 2011.
Based on 697 quarterly financial statements published between January 2006 and last December, the survey ranks all the 41 regulated banks and non-bank financial institutions on 10 indicators of size and performance. These include customer deposits, loans, revenue, net profits, provisions for bad and doubtful debts, shareholders’ funds (capital), number of employees, and number of bank branches.
The survey shows that Tanzania’s banking assets - a measure of its overall size - have expanded 2.8 times from Sh5.5 trillion to Sh15.3 trillion. Deposits grew 2.8 times to Sh12.4 trillion from Sh4.4 trillion, while lending to the private sector expanded 3.5 times to Sh5.9 trillion from Sh1.7 trillion. Investments in government securities doubled from Sh1.2 trillion in 2006 to Sh2.37 trillion last year.
Commenting on the findings, research analyst Rose Aiko, of NGO Uwazi at Twaweza, said the survey was mainly targeted at informing the banking business about performance. She said it had nothing to do with whether or not the common man was served better by the sector unlike the Financial Deepening Trust Fund’s 2006 and 2009 Finscope surveys. Those, she added, gave a better insight into how the banking business is helping or not helping communities.
'The banking sector may have become more competitive. However, the Finscope Survey 2009 showed that its reach, especially among the ordinary people, is rather low. For example, it revealed that 56 per cent of Tanzanians were in 2009 excluded from access to financial services, up from 53.7 per cent in 2006,' she told The Citizen on Sunday in Dar es Salaam this week.
'The sector appears to be serving more the formal economy of the educated in the society - largely a population with secondary education and above. Unfortunately, this category forms only about 26 per cent of the population. It is so small and clearly a large part has to rely on informal/semi-formal financial services to better their lives.'
A treasury expert at one of the wholly foreign-owned banks, who preferred anonymity because of his sensitive corporate position, said the banking industry had yet to play its due role in the growth and development of the national economy. According to him, that is not the primary objective of the private banks whose goal is to make profits, and whenever possible to maximise them.
'The rest is secondary. It is like a baker. When s/he bakes bread, it is not because s/he wants to feed the hungry. It is because of making money. In such circumstances, it is upon the clientele to use banking services in a way that benefits them.'
In Tanzania, he said, there are many barriers to effective use of the services for personal and national development.
Calling on the giant banks to expand their reach by opening outlets in rural areas, Ms Aiko said the most disappointing barrier was the low interest rates on deposits, and exorbitant interest on loans.
In its April monthly economic review, the central bank says the overall average savings rate decreased to 2.66 per cent in March from 2.7 per cent recorded the previous month. On the other hand, average time deposit rates rose to 5.4 per cent from 5.32 per cent during the same period.
'On the other hand, the average lending rate charged by banks took an opposite direction compared with the developments recorded in the money market. Overall lending rate rose to 15.04 per cent in March 2011 from 14.83 per cent in February 2011, while the lending rate for loans up to one year rose to 14.58 per cent from 14.3 per cent.'