the spectre of bad loans, growing competition from mobile payments and opportunities for growth. Excerpts…
Q. NMB Bank Plc posted a 37 per cent fall in profits after tax in 2017 in line with similar declines in other major banks in Tanzania. Which key factors contributed to this performance?
A. The key factors that contributed to the fall in profits after tax in 2017 are:
(i) Deterioration in loan quality led to significant increase in impairment charge, whereby year-on-year (YoY) the banking industry charge went up by 64 per cent whereby NMB increment was 336 per cent. The main contributor of impairment is provision for salaried workers loans for the terminated civil servants with fake certificates and a few corporate clients who could not honour their debts
(ii) Slow-down of credit to the private sector resulted into reduced Net interest income in the banking sector which only grew by five per cent YoY compared to 14 per cent growth in the previous year of which NMB growth was 3.5 per cent compared to 21 per cent YoY growth in the 2016. The decline in the top-line revenue coupled with a significant increase in impairment and an increase in the cost of doing business, which went up by nine per cent in 2017 compared to seven per cent YoY growth in 2016, had a significant impact in the profit after tax in 2017 for the banking industry and NMB.
Q. What is the outlook for NMB in 2018 and beyond?
A. NMB will reinforce its market leading position by enhancing its strongholds i.e. MSME financing, the agriculture sector and NMB Wakala (agent banking). Technology advancements have changed the banking landscape globally, we will leverage on recent investments in technology to innovate customer focused financial solutions and improve the customer experience and our efficiency of the delivery of services.
Q. Where do you see opportunities for growth in Tanzania's banking sector?
A. With only 17 per cent of our adult population banked, there is a lot of work to be done to increase financial inclusion and build financial capability, especially amongst women and the youth. There has recently been significant advancements in technology, banks can definitely leverage on these to move the country from its high reliance on hard cash; 90 per cent of transactions in Tanzania are cash based, cash management is very expensive. Banks are also well placed to support the ongoing industrialization drive by providing capital and advisory services.
Q. What major challenges does the country's banking sector currently face?
The economic headwinds (and corresponding unpredictability) has affected the ability of businesses and individuals to meet their debt obligations which has subsequently dampened the growth in credit to the private sector.
Q. There has been a rapid growth in mobile money transactions in Tanzania. Do you see mobile payments competing with or complementing traditional financial methods in the delivery of financial services?
A. It is a fact of life that people all over the world are already digitally connected, i.e. in their daily lives, they use connected (networked) devices such as mobile phones, tablets, laptops or personal computers (PCs). The future of banking transactions is through mobile phones because it is online and can be used self-service, anytime, anywhere. This is the convenience bank customers want. I don’t see why a customer will need to use traditional financial services (e.g. visit a branch, write a cheque, etc.) if one can do all that on a connected device which s/he always carries. Even international card payment schemes (Visa, MasterCard, etc.) have recognised this and have come up with phone-based payment solutions using QR code (for smartphones) and merchant number (for feature phones).
For the above reasons, I see mobile payments not only competing, but replacing traditional financial methods. This is already achieved for most of the domestic payments. Due to the self-service (do it yourself) nature of mobile payments, there are some challenges to be addressed, such as cyber security, social engineering, compliance with local and international regulations (e.g. international payments require submission of physical documentations, anti-money laundering (AML), financing of criminal and terrorism networks, tax evasion, etc.).
Q. The banking sector in Tanzania has been hit by a rise in non-performing loans (NPLs) over the past two years or so. How has NMB been affected by this problem and what has caused this big increase in bad loans?
A. It is true that the banking sector in Tanzania has been hit by high NPL numbers and most of them have been impacted where their NPL numbers increase above the central bank benchmark of five per cent. This has mainly been caused by economic downturn and the impact of terminated government employees due to fake certificate and lower qualification (Standard Seven).
NMB, in many years in the past, has maintained NPL ratio below Central Bank five years benchmark. The NPL trend for the past five years has been below the five per cent as per BoT requirement as indicated in the table below:
Our bank was also impacted where the NPL number went slightly above the BoT benchmark of 5 per cent in 2017. The increase was mainly caused by economic downturn and termination of civil servants who were involved in fake certificate and lower qualifications (Standard Seven).
Also some of our customers experienced a challenging business environment were one of corporate customer could not honour his loan obligation with the bank due to pending compliance issues with a government authority.
However, the bank has put in place measures or strategies to control Non-Performing Loans and maintain an acceptable level as required by BoT. NMB’s current NPL stands at 5.01 per cent as of June 2018 and our target is to go below 5 per cent. The bank will continue to maintain good quality of our portfolio to minimize losses resulting from Non-Performing Loans.
Q. The Bank of Tanzania (BoT) recently called for a consolidation of the country's banking sector through mergers and acquisitions (M&As) of small banks that are struggling with a small capital base. What are your views on this and does NMB see M&As as one of its potential growth strategies?
A. Fifty plus banks is definitely a lot of banks, especially when you consider that some only have a branch or two and given their capital base, the fact that they are limited in the investments they can make in order to offer robust financial solutions. NMB supports the consolidation proposal and is set to leverage its strong capital base and technology platforms to support the exercise.
Q. Several banks in Tanzania, including NMB, have in recent weeks and months started to lower interest rates on loans and extend the loan repayment period. What has caused this move?
A. Banks have improved loan products features so as to attract borrowing customers. This has been helped by a loose monetary policy stance adopted by the bank of Tanzania that resulted into low interest rate environment. Banks have been able to do that because their cost of funding has equally gone down.
Q. Are there any plans by NMB to raise saving rates?
A. Yes - NMB aligns it deposit rates in line with market benchmark rates.
Q. The new mining regulations approved in January 2018 make it mandatory for mining companies to maintain a bank account with an indigenous Tanzanian bank and transact business through banks in the country. What impact will this move likely have on the Tanzanian banking industry?
A. It will have a significant impact, given the size of the mining sector and related financial flows. Indigenous banks will benefit from liquidity, fees and commissions as well as increased capability to oversee and advise on mining related transactions.