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| CRDB Bank Managing Director, Dr. Charles Kimei. |
By the end of October, the country had licensed 59 banks, though there are only 44 real commercial banks . The Tanzania Bankers Association Chairman Dr Charles Kimei, who is also CRDB Managing Director, shares the industry future with ‘Daily News’ STAFF WRITER.
QUESTION: How do you assess the banking sector and do you predict any consolidation in the near future?
Answer: Yes. The banking industry has grown tremendously in the past few years, with the number rising from [literally] one in mid 1990s to 59 currently. The real commercial banks are 44 while the others are non bank financial institutions. But 59 institutions in a country like Tanzania is a very large number.
Despite the number being large however, some of the banks are very small, like community banks, niche oriented in the sense that are focusing on certain segments only. Very few—I think only five—have national wide networks.
We have international banks which are operated quite well but their operations are restricted in big cities— Arusha, Mwanza, Mbeya, and Dar es Salaam. The Degree of competition becomes fairly very narrow so to speak.
The real competitions are those with a national network. We have, I can say, three such banks, the CRDB, dominating in term of network, National Microfinance Bank (NMB) and National Bank of Commerce (NBC).
These two were the biggest banks before CRDB expanded. The smaller institutions are quite venerable in terms of change, in the operation environment, as the central bank heightens capital requirement. They [BoT] has introduced operational risk bars buffers and given the difficult in growing their own capital a condition that favours big banks.
A: Over the last twenty years, as we are now celebrating our 20th anniversary, the vision of the bank is to grow its network in terms of outlets. We have focused on retail banking and it means going to the people.
Tanzania is not a country of big companies. So far is dominated by SMEs. And if you want to grow as a bank you have to go to the bottom of the pyramid. That is why we want to grow retail bank and in doing so, we have to expand and the growth has been phenomenal. Last year we opened 76 branches in one year, apart from other outlets which are below branch categories— service centers, agents banking.
The goal is to grow and grow and when you are growing you cannot make much profit, because you trade between growth and profitability. If today I was to stabilize, say not going to Burundi and elsewhere, for sure, I can double my profit but our vision is to build the foundation. I can tell you that the foundation we built in the last 20 years has now started to yield fruits. We have been posting 20 per cent of profit growth over many years. But now I can assure you what we posted last year is a peanut, because with maturity of our foundation and outlets, with new products in platform, improved our core bank system and supporting peripherals.
Q: How do you target reducing None performing loan levels ( NPLs)?
A: Our NPLs grew a little bit last year, more than we had targeted. That was what actually reduced our profit. There are three reasons; First has to do with the change of the regulatory provisioning. From last year [2015] the Central Bank introduced a new prudential regulation that required once you restructure a facility, even though the restructure facility is good, you cannot upgrade it until four consecutive installments have been made. Under previous regime, such provision would not have an effect on our provisions. Second one there was a problem in tobacco trade in 2014/15 that enables some famers to divert their sales through independent buyers thus bypassing the channel of loan repayment. Third the sugar industry, which we finance in a big way had a problem of dumping , and they failed to fulfill their obligations. However, all those three factors have been addressed by the new government, which focuses on industrialisation and ensure that the local industry is performing.
Q: How challenging is banking when dealing with diversity portfolio, from corporate to retail customers?
A: A lot of people, who are looking at our portfolio, tend to see it as diversifying. But the corporate you see in our portfolio has been growing with the bank from small, medium to corporate. We created our own corporate clients. The sector is not a large one. When we started 20 years ago, it was dominated by international banks. A corporate client in Tanzania is an SME in Europe. These are customers that have graduated from small to corporate. To manage informal and SMEs we created a subsidiary company, CRDB Microfinance Services. This manages the bottom of the pyramid—as at that time [20 years ago] we could not create such company. We have performed a strategy somehow which is uplifting everybody and scaling enterprises up.
Q: SMEs constitute a massive percentage of total number of businesses in Tanzania, are you satisfied with the kind of exposure in that sector.
A: Yes to some extent, as you cannot chew much at a time. But what I can tell you in that about 65 per cent of SME are not accessing banking finance. Some of them cannot access finance because they don’t have traditional requirement for a formal bank to lend them. And most of the time SMEs are depositors not beneficiaries of loans. What we did in 2016 was to create a special programme to reengineer the process of looking and appraising the facility of SMEs, invite them for capacity building, showing them they can grow their businesses and becoming better in terms of increase scale of their productions and profitability. I am glad that a number of multi laterals institutions— like IFC, DIG, EU investment bank and Africa Development bank in collaboration of USAID—have supported this programme because they saw it as a way of helping the growth of the country.
Q: Nurturing your clients is equal to moulding local staff. How important is this to you?
A: We are proud of ourselves as a local bank with good and strong international content. Tanzania market does not have skilled bankers. So we have to create them by giving them an opportunity to start working at the bank, before even finishing their studies. Then gradually as they are about to finish their studies we bring them in as interns and identify the good ones. We have to develop them professionally and we are collaborating with international business schools especially in South Africa. We ensure that they are getting the right skills and exposure. Also we have distance learning and e-learning and at some levels these are compulsory to every staff.
Q: What benefits are there of turning microfinance department into a full-fledged microfinance bank?
A: First the culture of microfinance operations should be different from traditional bank. By hosting it within our parent bank which is traditional bank largely we are managing it in co-structure that justifies more profit out of it. For instance, in microfinance operation you expect people to use bicycles/motorcycles instead of cars to go and visits clients. But when you’re working within a traditional bank puts brakes on control as staff tend to think as normal bankers.
Q: How important is the expansion drive to access regions that were previously under-banking?
A: If you want to focus on expanding deposits while reducing the costs of fund, the only way is to tap small depositors who are in remote areas and are not looking for interest rate. They are looking for safe haven for putting their savings. Since we are getting closer to the customers, we are getting huge unbelievable deposits. Right now we are seeing corporate deposits, especially from government side, are almost drying out as huge amount are now deposited to the central bank—it’s a way of forcing banks to look for depositors.
Q: How different is your current role as CEO and president of CRDB to the previous role, example when you were with the central bank?
A: I am glad I left the central bank, because I have learnt a lot of new things. I have learnt to work with the private sector. At the central bank you are a regulator. You almost shredded from any risk and any risk almost fall to taxpayers somehow. But when you work to private sector the requirement is business. If you send me back to the central bank today, I will overhaul a lot of things. To make them understand that one day delay in decision is almost a year breakdown for a business.
Daily News
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