Banking industry lags behind international standards

The country’s total bank assets remain below 50 per cent of the national economy against the recommended international standard of between 200 and 250 per cent of the Gross Domestic Product (GDP).

The gap leaves a room for a lot to be done to reach the international norm that advocates for at least twice or thrice the total economy, a level that if achieved would accelerate the national economic growth.

Financial analysts say to achieve the international standard, large banks in terms of assets and profitability, capable of expanding to rural areas, have to drive the banking industry.

Dhow Financial Managing Director, Prof Mohamed Warsame, said in Dar es Salaam over the weekend that the country needs large banks to boost efficiency, competitiveness and outreach, thanks to their strong financial muscles.

“Large banks are good for the economy,” Prof Warsame said, adding: “Actually, the economy needs few large banks that bring in new technologies and innovations to keep the sector prosperous.” 

The professor of finance said the benefits of big banks include financial power to compete, innovation, technologies and ability to extend by opening up new rural branches. “Large banks, unlike their small counterparts, have financial muscles,” Prof Warsame said.

Prof Warsame comments came amid Exim Bank announcement that its assets had crossed the 1trn/- mark, a level that has been attained by other four banks - CRDB and National Microfinance Bank (NMB), with over 3trn/- each as well as National Bank of Commerce (NBC) and Standard Chartered that have 1.5trn/- each.

This means that five banks control 50 per cent of the banking sector’s total assets estimated at 20trn/-, the situation that financial experts describe as healthy for the economy.

“Of course, we need small banks to challenge the big ones to increase outreach to rural areas in particular, because in the absence of the challenges, the big banks will remain in towns,” Prof Warsame, who gave up lecturing to run his office, said.

The country’s financial sector outreach captured about 14 per cent of total bankable population. The country has over 50 banks. CRDB Bank Managing Director, Dr Charles Kimei said the influx of banks might not be healthy as most end up in the cities, giving little challenges to the industry.

“It is better to have few banks that have the muscles to expand on to the remotest parts of the country,” Dr Kimei said “as investment return in these parts takes time.”

A cost of opening a branch, according to CRDB boss, stands at about 700m/- which takes time to recoup especially in the rural areas business goes slow. Official records show that there are 51 banks, most of which have failed to woo customers in rural areas and instead opted to go for the elite clientele and lucrative businesses in urban centres.

Analysts believe that, skipping rural areas has far-reaching impact on the banks’ balance sheets because despite doubling in number for the last five years, the bankable population has remained relatively low.

According to 2012 banking industry data, five banks control 85 per cent market share in terms of assets, loans and customer deposits. The top banks in the market in terms of total assets in brackets are CRDB, NMB, NBC, StanChart and Exim.

Since the enactment of the Banking and Financial Institutions Act in 1991, the banking industry has undergone dramatic change allowing setting up of dozens of banks and non-bank financial institutions in the country, some with highly specialised products.
Source: Daily News, reported by Abduel Elinaza,from Dar es Salaam, Tanzania

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