Tanzania Banking: CRDB Bank is the Leading and Largest Bank in Tanzania

Interview with Saugata Bandyopadhyay, Deputy Managing Director of CRDB Bank

Could you start by giving us an overview of CRDB Bank?

CRDB is celebrating its 20 years so far. It is around a 3 billion dollar bank. It has been listed on the stock exchange since 1999, on the Dar es Salaam stock exchange. We have our promotors, mainly institutions and 40% are small shareholders. At present the institutions are pension funds, IFC, CDC and 21% is held by foreign private equity funds. That gives the bank a widely held structure. We play in all segments. This is the only bank that gives a 50 dollar loan but also gives a 100 million dollar loan. We have microfinance to corporate finance. We do microfinancing, retail lending, SME lending, business, mid corporate, corporate, etc. The bank over the last twenty years of transformation has the courage to be technology based. We are a bank which has always introduced products which are prevalent in other developed or developing countries around the world. For that we have been also recognised by various magazines. We got our Euro Money Award in 2004 and many other awards also. We are the first Superbrand in Tanzania and many other awards followed.

What did Euro Bank give you?

Best bank in Tanzania. This year we got the Best Regional Bank award at the African Development Bank annual conference in Lusaka.

The Euro Bank awards are highly sought after.

Yes. That was in 2004 and now it is 2016 but getting a Best Regional Bank from the African Development Bank is something to be proud of; there are only two awards from the African Development Bank and we have one.

As of March 2015 there were about 56 licensed banks and financial institutions in Tanzania versus 38 in 2009. Whilst the vibrancy of the sector is obviously consistently attracting foreign financial institutions to come and enter this market, the market is also characterised by a few big players, yourselves amongst them and several smaller banks. I wanted to ask from your perspective whether you think that Tanzania runs the risk of being over banked?

CRDB is the only bank that gives a 50 dollar loan but also gives a 100 million dollar loan. We have microfinance to corporate finance. We do microfinancing, retail lending, SME lending, business, mid corporate, corporate, etc.

Yes, we also think it may be overbanked but if you go by the size it is still only three banks controlling almost 60% of the market. We have 25% of market share and the other two banks have around 35% total. You can see the flavour of all of the banks, there are international banks, pan African banks then regional banks from South Africa, Nigeria, Kenya etc. Equity Bank for example is a leading bank in Kenya but here they are maybe only a 100 million dollar bank or a 150 million dollar bank. They are all small and they are all waiting for the Tanzanian economy to take off. They are all here to understand the market and get ready for the big days to come. They are all backed by their own parent companies which are quite large and you also have Standard Chartered Bank, Barclays… HSBC is not working in Africa anymore; otherwise you have more or less all of the banks here except Credit Suisse or BNP Paribas. The competition and the quality of the competition is in the Dar es Salaam region per say, because most banks are located here; 56 banks are not located up country, if you go to the up country locations you will find only about 4 to 5 banks and when you go further into the interior it will be between 3 banks. Given that scenario I don’t see that the competition is that much because we don’t feel the heat of the competition as one of the larger banks. Maybe the smaller banks feel it more because they are only located in some small pockets. Otherwise it is fine, we do expect some consolidation to take place, maybe four to five years down the line. The banks are quite well capitalised and they have more or less not ventured outside of their core competency and the bond and treasury bill markets are quite lucrative in east Africa and in Tanzania so they are investing in that segment. The treasury business is very strong for these banks and they play here and there. There are three big Indian banks here, each of their sizes are maybe 50 million, 60 million and 100 million. They are all here thinking that when the gas comes in to play then they will reap the benefits. Another positive aspect of Tanzania is the stable economy and a very stable political scenario in comparison to other parts of Africa. If people want to open up a new branch they are now thinking of trying with Tanzania, the capital is very easy, 15 million dollars.

How hard is it to get the licence?

They are distributing very freely because whatever is coming is very good as FDI.

Providing they have the capital?

Yes. The market will adjust itself automatically in the future so they want to have more players and see how the consolidations or the competition will take place.

What is your view on the National Financial Inclusion framework launched in 2014? It was a significant landmark piece of legislation for the sector. It was designed to combat economic vulnerability and to expand financial services and access to financial services to 50% of adult Tanzanians by 2016. How successful was this program?

The program is quite successful because you see this financial inclusion includes the MNOs, so if you take the MNO experience in Kenya and Tanzania, because of the East African Community and the union that is now trying to forge in, with all of the policies and regulations, fiscal disciplines, etc., you can see that they are falling in place and we are closely following Kenya. I think in 2015 Tanzania has taken over Kenya in terms of the mobile money penetration. I think Kenya is around 65% or 67% and Tanzania is around 69%. Mobile money penetration is quite good, if I compare Kenya and Tanzania, you can see Safaricom in Kenya but in Tanzania you see Airtel, Vodafone, Tigo, and now Viettel, there are five players who are playing in this so the growth and competition is quite fierce. That has also added to the penetration. Now if you come to the banking penetration in the financial inclusion: it only improved 5% from 12% in 2012 to today where it is around 17% or 18%. We have also taken on an agency banking model and we are the pioneer in that, having around 70% of the market right now with around 2700 independent agents. I see that Kenya is around the 30% level in banking penetration post their penetration in mobile money, so as Tanzania has reasonable penetration in mobile money there is a huge potential. That was also one of the reasons which represents the potential that investors are seeing, that in Tanzania the banking penetration is such.

To come back to the issue of MNOs, it has obviously been a key feature of the growth of the banking sector across Africa in recent years, a rapid adoption and expansion of mobile banking, over and above what traditional banking has been able to penetrate. My question concerns whether you think it is still relevant for the banks themselves to develop such a widespread branch network?

No, there are innovations now, we used to have a large branch network, and that is where CRDB doesn’t still have the legacy that the other two banks have because they have their brick and mortar branches in place in various districts but in CRDB we concentrated on having growth coming not from all over Tanzania but from the pockets where the development took place because we go by our profit per branch model and that helped us. With agent banking we need a different model because cash distribution is a requirement because the agent has to be serviced with cash. We have come up with a new system and it has shrunk our branch size and also our staff network, where we used to have 15 staff in a small branch it has now come down to 4 or 5 staff because we are now heavily dependent on technology so we don’t need those numbers of staff in those remote locations. We require a cash management scenario, the servicing model, the logistics, etc. With this we can easily almost tailor this to one branch. There is still a requirement because not everything can be done with mobile money you do need some physical banks.

Only about 13% of Tanzanians are actually accessing banking services currently. What about the other 87%? There is obviously massive opportunity here to grow the banking business in this country.

Yes, of that 87%, we have yet to see what their savings potential is. The MNOs have proved that they are now adapting to technology because this is not a very literate population but they are able to manage with their mobile phones. That is a good pointer but still their propensity to save is something to be seen. If we look at our network since 2007 and its growth, almost every day, we are collecting around 5 to 6 billion transactions and in a year it is about 1.5 to 2 trillion and it is growing at a 25% speed. That shows that MNOs have made a difference and we know that we are just seeing the tip of the iceberg. The network has only been in place for three years so there will be consolidation and quality issues. There are a lot of flow issues for example. Once all of these things are addressed then I see a lot of opportunity and in the next 5 years Tanzania will be reaching 25% for sure.

We look forward to that. We have said that the banking sector is hyper competitive here, how will you be creative in differentiating CRBD from the rest of the players and to ensure that potential customers really understand who you are, what you stand for, what the ethos of the bank is and also the sorts of innovations that you are beginning to invest in?

In 1996 it was the smallest bank in the country and today it is the largest bank in the country. Because of our managing director who joined the bank in 1997 we have grown so much. At the beginning we had just 1% and were in just one region and our tagline was that we were the “bank that listens”. People feel that this is a Tanzanian bank with a Tanzanian MD; in fact he is the only Tanzanian MD amongst all of the banks as the rest are all expats. Given that situation it creates a common bond with the Tanzanians, loyalty is quite strong. The bank from the early days has embarked upon technology and so that is a major differentiator. From 2002 onwards we have had the cheapest international card in Tanzania. We are certified by MasterCard and we certify other banks in Zimbabwe, Zambia and other countries. Our agent banking is completely technology driven. Tanzanian Revenue, Tanzanian Portals, Tanzanian National Parks are all manned by our point of sales and satellite network. This is the only bank which is completely interconnected. We have international cards not only MasterCard and Visa but we have China Union Pay also. CRDB is always at the forefront of development. We have introduced agent banking even before the Bank of Tanzania as they were not ready. They took a year to set it up and in the meantime we set up around 50 Tanzania Postal Corporations agents. We quickly copy technology from other markets and we spend huge amounts of money on trading and assimilation of knowledge from various markets across the world to find out which products are suitable for this market. We have adapted to the technology from the very beginning and that has given us the edge. Now we have an internal development team who are developing products and launch them. Instead of core banking you can do all of the same transactions through the telephone network. Other things can be copied but you can’t copy what is at the core, which is a technology expert in banking. In this market, having people who understand technology and being in that process, being technology orientated is a sure plus. Like what others are doing in other markets who want to work with mobile technologies, our people can do that, which is a big plus. Otherwise in terms of corporate banking we are the first, in trade and finance we are the first, in agent banking we are the first, in forex business we are the first, in card business we cover 60%, in e-commerce we are the only ones and we cover almost 80% of the market. In everything we are the leaders. I cannot say that agent banking is good or SMEs are good or whatever is good, I can only say that the core technology backbone is very solid and it has made the people more analytic and agile and more prone to change.

To come back to the SMEs, obviously they constitute the overwhelming mainstay of this economy; 95% of businesses in Tanzania are SMEs which contribute roughly to 40% of the GDP. Do you think the current banks’ high interest rates remain a significant barrier of entry to SMEs when they look to banks for financing their growth?

I would say that this is another plus point of CRDB; it is the lowest interest rate player in the market. We always look at the largest market player and we make our rate lower than them because we can, we can disrupt the market because our cost of funding is so low. We don’t do it much because the risk of the market is high and also the cost of doing business in Tanzania is high so those are the factors. Our rate is very low, it is around 18 to 19% for SMEs and that is the cheapest because the other banks are charging 23 to 24%. Our focus three years back was not on SMEs but we have taken a conscious decision, we were 75% corporate and 25% other assets, but in our five year plan from 2013 to 2017, we are going to de-risk our balance sheet and move more towards the retail and SME loans. Now we have 15% SMEs and our balance sheet has become 55% corporate and 45% SME, retail, mortgage and other assets.

What prompted that realignment?

That was prompted because we saw that the corporate rate of interest is falling because the corporates are growing and they have access to other financial institutions from abroad, from South Africa and elsewhere so they are flush with liquidity. Also when you are growing too fast you take on exposure and you can hit the exposure limit very quickly. Then you have to think of increasing your yield rate and that can only come from the personal loans, SMEs and mortgages. Also there was the feeling that it was time. Many companies have been with us for 18 to 20 years and so they have become corporates and they have been with CRDB on the same journey. We said that we had to move and make a focus on the SME segment. As you said, they are ultimately the engine of the growth here. Secondly we looked at long term fund availability in the global space from all of the DFIs; we work with the IFC, the European Investment Bank, etc., so they come and see if you have a SME portfolio because everybody is interested to see that if you want to help a country you have to help the SMEs. That also gave us the perspective to focus on the SMEs. We are doing very well; we are the leader amongst the seven top banks according to the IFC. We have a program for women´s SME development, we have a program for youth SME development and we really focus on them so that the people who are coming out of university can do well. We especially focus on women, we find that their delinquent ratios are very low and that is the advantage.

CRBD is seen very much as a national champion, it is major stakeholder in Tanzania. What are your thoughts for the future of this country over the next five to ten years?

We are very hopeful but we see that the country is on the tipping point. Luckily, there is a new government that took control in October 2015 and they are still in their initial days of adjusting their policies. What they have done very drastically and with a focused mind is the fiscal discipline. We were all hoping to have that fiscal discipline in place and the government has done tremendously well. Now when you correct your fiscal discipline then you will have problems in business because businesses will take time to adjust to it and to the monetary corrections that are going on in terms of taxes. That is what is going on now but it is very short term in nature. The government will come out with their project orientated plan and they are rightly focused on infrastructure and energy. They are the main two bottlenecks that they are addressing. Gas is here, the players are here, and they are just waiting. I think that will come also. The growth of the infrastructure, the energy, the money that the government is going to place and spend on these will have a great effect. The last decade has seen 7% growth and I am very hopeful that in the next five years if everything goes well, Tanzania will surely hit double digit growth. My guess is that by 2020 we should reach 10% growth. It is still a small economy so there is space to grow. From here there is only growth. This government will last for another five years or for ten years, so for these first five years, if they do their policies right, and the vision that they have taken is right, I think they will be able to achieve that and once we are close to 2023 then probably we will see the first gas exploration and we will obviously hit that double digit figure. We have a huge arable land area which is under development and the most important thing is that it can easily be used for mechanised, scientific farming which is coming in a big manner: agro processing in various parts of Tanzania. Infrastructure and energy will drive the economy; already there is a big cement hub here. The capacity is almost 800 metric tons per year which is huge.

There is also transhipment.

Yes. They are now spending on the ports. They are saying that it will be world class. Let´s see how it goes. Even without these ports and these bottlenecks they are hitting 7.2%. You have Congo, Uganda, Rwanda, Burundi waiting. The political stability and security is the most important thing. I think that we are on a tipping point, it could go either way.

It sounds like a very rosy prognosis.

Not rosy when you are the leading bank because you have to consider the future, obviously our plan B is in place but you never know how the growth will be managed. You are used to one kind of growth and so it is hard to project. If the market growth stays the same it is very easy to manage but if the market suddenly takes shape then you need to see how you adjust yourself and how the other players adjust themselves. It is a worrying situation. We don’t worry if the growth is 6% or the exchange rate fluctuates, the bank will make money. The worrying situation is a growth scenario when you are growing in a way you have not experienced. Then you have more players and you have to see how you handle that. That is our biggest worry.