BANK PROFITS SHRINK AS CASH WOES BITE

Prof Mohamed Warsame DHOW Financial CEO

Dar es Salaam. Although banks made profits in 2016, analysts contend that the gains were below expectations.

They foresee tough going for the banks this year as illiquidity, shilling depreciation and non-performing loans bite.

“The banks used to post double digits in annual profit growth. That has slowed down for the whole industry even though some individual banks may be doing well but overall growth is subdued,” says Prof Mohamed Warsame, chief executive officer of Dhow Financials — a private financial consulting firm.

“The same factors that made 2016 difficult are projected into 2017, be they non-performing loans or liquidity.”

Data shows some banks failed to attain their last year’s profitability while others missed their set targets.

Early last year, the government ordered ministries, pastatals and local authorities to immediately transfer their funds deposited in banks to the Bank of Tanzania.

That caused liquidity problems to some commercial lenders that were holding government’s Sh500 billion.

The government introduced austerity measures, greatly affecting the money circulation and reducing credit to the private sector. It also introduced the value-added tax on the financial service charges, impacting on the banking industry.

Quarterly financial statements of some top banks yesterday showed mixed trends in cumulative profits that experts and bankers say are generally unhealthy despite some performance successes.

Ten lenders dominate

Tanzania has more than 50 financial institutions. They include commercial banks, community banks and microfinance institutions. However, 10 lenders account for 70 per cent of all banking assets.

The Citizen analysis covered CRDB Bank, National Microfinance Bank (NMB), Diamond Trust Bank (DTB), Standard Chartered Bank, National Bank of Commerce (NBC) and TIB Development Bank after having seen their financial statements. CRDB Bank — the largest bank in terms of assets — posted Sh73.4 billion profits, down from Sh122.4 billion the previous year.

It had Sh90 billion profits in 2014.

The bank officials were not available to comment on the profit shrinkage.

The NMB profits increased to Sh154.2 billion in 2016 from Sh150.2 billion in 2015.

NMB executives could not be reached to explain about their success.

DTB had profits of Sh21.7 billion compared with Sh19.8 billion the previous year while Standard Chartered Bank profits improved to Sh27.9 billion from Sh25.5 billion.

NBC also increased its cumulative profits to Sh13.7 billion in 2016 from Sh12 billion the previous year. TIB Development Bank suffered a loss of Sh20 billion in 2016, down from 2015’s profit of Sh5.9 billion.

This year is tough

Despite the profitability of some top lenders,

Bankers and independent analysts do not expect the business to be easy this year as illiquidity caused by the monetary policy bites.

Bankers who preferred anonymity said tight liquidity was affecting lending and generally making the business difficult.

“My projection is that 2017 will continue being challenging in terms of deposits, access to loans and foreign exchange trading. Banks are opting to look for alternative deposits through foreign financiers like the African Development Bank and the International Finance Corporation but these will take long to mature. So, in the short run the liquidity problem will persist,” according to a seasoned banker.

“The fall of the shilling against the dollar is another challenge to the financial sector despite the fact that it’s a market issue which has nothing to do with banks.”

Another banker said the situation will start coming back to normal when the government loosens its tight monetary policy stance and pays contractors.

“The current tight and austerity policies are discouraging even the private sector to borrow. If this persists then mergers and acquisitions are unavoidable for the banks to manage their liquidity demands,” said the banker. 
The Citizen