The banking landscape in Tanzania has witnessed significant consolidation over the past five years, resulting in the disappearance of 15 banks. The number of banks in the country dropped from 59 in 2017 to 44 in 2022 due to acquisitions of financially struggling institutions. While the liberalization of the banking industry in the 1990s initially fueled growth and competition, recent economic changes have posed capital challenges for certain banks.
Top-tier banks with extensive branch networks, agency banking, and digital financial services now control the majority of the market. The central bank’s data reveals that the top six banks hold 65.4% of total deposits, pointing to the dominance of a handful of institutions.
Banking experts and economists view consolidation as a positive step toward building stronger and well-capitalized financial entities. The merging of banks provides enhanced capitalization and lending capacity, promoting financial stability and a more resilient banking sector. However, the focus should be on the impact these institutions have on the economy rather than just their number.
Consolidation has been driven by a variety of factors, including strategic shifts and economic fluctuations. Mwanga Community Bank, EFC Microfinance Bank, and Hakika Microfinance Bank merged to form Mwanga Hakika Bank, which later graduated to a commercial bank. Similarly, NIC Bank Tanzania and the Commercial Bank of Africa merged to become NCBA Bank Tanzania.
Amid this consolidation trend, experts stress the need for a balance between commercial banks and development banks in the country. Currently, Tanzania has only two development banks, leading to concerns about the dominance of commercial banks. More development financial institutions are sought to provide larger loans for longer terms at lower rates.
The size of loans issued by Tanzanian banks has increased substantially, underlining the sector’s role in supporting economic growth. While the number of banks may decrease due to consolidation, their impact on the economy and financial stability remains crucial.
Opinion:
Tanzania’s banking sector consolidation demonstrates a strategic response to economic challenges and a drive for a more robust and resilient financial system. While a reduction in the number of banks may signal initial concern, the focus should shift to the quality of the institutions and their ability to contribute to the country’s economic growth. Consolidation can lead to stronger, more competitive banks that are better equipped to navigate economic shifts and provide essential financial services to businesses and individuals alike. The push for a balanced mix of commercial and development banks reflects a broader goal of promoting sustainable economic development through diversified financial services.