Tanzania: 2010 Employee productivity, pretax profits fall; small banks flourish

THE average business earnings-per-employee at the banks operating in Tanzania went down in 2010, compared with the previous year, a new report by Ernst & Young (E&Y), a consulting and audit firm, says.Titled 'Ernst & Young’s Tanzania 2010 Banking Sector Review' and published on May 20 this year, the report notes that the mean employee productivity fell to Tsh26 million per person last year, lower than Tsh31 million in 2009. It was also the lowest in five years!
“This implies the growth of number of employees during the year was higher than the earnings growth", said Joseph Shefu, Ernst & Young's country managing partner.

The report was published just one week after players in the banking industry published their financial results for the quarter which ended on March 31, 2011. The results indicate a positive trend in profitability, mainly for the banks with relatively large market-share.
Citibank had the highest earning per staff in 2010, at Tsh555 million. Coming a distant second was Standard Chartered (Tsh85 million), followed by I&M Bank (Tsh76 million) and Bank of Baroda, with Tsh71 million earnings-per-staff.

However, the new entrant to the banking world, Ecobank, had the least earnings – instead making a loss of Tsh116 million per staff. Ecobank was followed by United Bank Africa and Ephata, with losses of Tsh60 million and Tsh47 million per staff in that order!
In that regard, the banking sub-sector had a total of 10,865 employees as of December 2010, higher than the 9,020 it had in 2008. This translated into an average growth in personnel of 11 per cent in a single year, driven mostly by small and regional banks whose employee strength grew by 30 per cent.
According to the E&Y report, the industryfs operating efficiency has remained flat at 13 per cent over the period under review. However, paradoxically enough, 'small' banks – including Ecobank, Access Bank and Ephata – were more efficient that others. The largest banks were less efficient.
The average net income-after-income tax went down to Tsh197,009 million in 2010, down from the Tsh217,018 million recorded in 2009.
This decrease was mainly attributed to the large increase in bad debt – which grew by 177 per cent – as well as provision for bad and doubtful debt, which grew 39 per cent.

The ratio of loans and advances-to-total assets grew slightly in 2010, to 46 per cent, from 44 per cent in 2009.
Deposits from customers were the main source of funding for the banking sub-sector, accounting for 90 per cent of total liabilities. The overall deposit base increased from Tsh7,828 billion in 2009 to Tsh9,814 billion in 2010, a growth of 25 per cent.
I&M Bank, Bank M, Bank of India and CBA recorded the most positive customer deposits trend in 2010.
However, CRDB Bank, NBC, NMB, Standard Chartered Bank and Exim Bank were holding the highest markets-share of customer deposits.
Fees and commissions, foreign exchange dealings and transactions were the main drivers of banking profitability during the period under review.
“One of the main trends that was seen in 2009 – and continued in 2010 – is the gain in market-share by the small and medium banks group from the large banks,h the E&Y report states.

Total assets for the gnon-large group of banksh increased from 19.7 per cent (in 2008) to 22.0 per cent in 2009, and 24.3 per cent in 2010 – with large banks assets growing by an average rate of 19 per cent over the last two years; medium banks by nearly double that and small/regional banks at nearly three times that rate!

Small banks have continued to expand their markets-share in the local banking industry. As of December 2010, markets-share for the large banks slipped slightly from 80 per cent in 2008 to 76 per cent in 2010, the report indicates.
Overall performance of the banking sub-sector over the last five years (2006-2010) was positive, as the sector weathered the global financial crisis.
The sub-sector's balance sheet continued on its growth path, with total assets increasing by 26 per cent (Tsh12,364 billion) in 2010 compared with seven per cent (Tsh9,817 billion) in 2009.

Investments in debt and government securities increased substantially by 42 per cent in 2010, higher than 11 per cent in 2009. Furthermore, the loans, advances and overdraft portfolios increased to 21 per cent in 2010, from nine per cent in 2009.
The banking sub-sector's aggregate balance sheet had increased by 28 per cent (Tsh12,407 billion) by December 2010, compared with 19 per cent (Tsh9,854 billion) by December 2009.

The major components were loans, advances and overdrafts, while government securities and placements accounted for 44 per cent, 19 per cent and 4 per cent in that order.
Gross loans, advances and overdrafts increased from Tsh4,545 billion in December 2009 to Tsh5,480 billion in December 2010, translating into a growth of 21 per cent.

“The banking sector remains highly liquid with the year-end liquid assets-to-total assets ratio climbing from 44 per cent (2008) to 51 per cent in 2010. Government assets as a percentage of earning assets showed an increase from 22 per cent to 24 per cent,” the report notes.
As of December 31 last year, the banking sub-sector boasted 28 commercial banks, seven regional unit banks, two district banks and five non-bank financial institutions making a total of 42 institutions in the sector.