Bloomberg News

Absa Tanzania Unit to Boost Capital as Banks’ Bad Loans Grow

December 20, 2012

Absa Group Ltd. (ASA), the South African bank controlled by Barclays Plc (BARC), said shareholders are in talks to boost capital at its Tanzanian unit to help it grow amid an increase in bad debts and regulatory changes.

The National Bank of Commerce Ltd. in Tanzania remains well capitalized, Johannesburg-based Absa said in an e-mailed response to questions today. A plan to raise funds in the first quarter of next year would support the lender’s growth opportunities, Absa said.

NBC is considering boosting the capital it’s required to hold against deposits by 4 percent by raising funds “internally” and a decision will be made next month, Managing Director Lawrence Mafuru said in an interview in the commercial capital, Dar es Salaam. Absa owns 55 percent of NBC.

While lenders including FirstRand Ltd. (FSR) and Ecobank Transnational Inc. (ETI) have expanded in the East African nation, bad debts increased at four of Tanzania’s top six banks by assets in the three months through September, according to Serengeti Advisors Ltd., a Dar es Salaam-based research group. Impairments at NBC, the fourth-largest lender, grew to 14.7 percent of total loans in the third quarter, compared with 11.1 percent three months earlier, it said.

Federal Bank of the Middle East Ltd.’s Tanzanian unit, the country’s biggest lender, also reported increased bad debts along with National Microfinance Bank Ltd. (NMB) and Standard Chartered Bank Tanzania Ltd., Serengeti said.

Agricultural Loans

“We need the funds to allow the bank to face the market with a lot more strength,” Mafuru said yesterday. “The money will help the bank remain within regulatory requirements of capital adequacy, as we increase lending and invest in technology.”

Impairments have increased partly because of the failure by borrowers in the agriculture industry to repay debts because of lower cotton prices, Mafuru said.

About a quarter of all loans in Tanzania go to the agriculture industry, with about 10 percent going to cotton farmers, according to Mafuru. The fiber is Tanzania’s second- biggest export commodity, after gold, he said.

The average ratio of non-performing loans to total loans for all 45 banks that operate in Tanzania was 8.1 percent in June, having risen from 7.5 percent in March and 6.7 percent December 2011, according to the Bank of Tanzania.

Tanzanian lenders have the highest level of impairments in the five-nation East African Community, said Abubakar Ukhotya, operations manager at the central bank’s directorate of banking supervision.

Tanzanian Growth

“Our desirable levels of NPL ratio to the loan book is 5 percent,” he said in an interview. The ratio in Kenya, East Africa’s biggest economy, is 5.4 percent, and 2.5 percent in Uganda, according to World Bank data.

Tanzanian banks’ assets may grow as much as 15 percent next year, spurred by an accelerating economy, increased electricity output and expanding manufacturing and construction industries, said Mafuru, who also heads the Tanzania Bankers Association. Growth this year was 10 percent, according to Serengeti.

In the “medium term,” banks in Tanzania stand to benefit from increased business from the discovery of 33 trillion cubic feet of gas off its coast by companies including BG Group Plc (BG/) and Statoil ASA (STL), it said.

“The hydrocarbon discoveries present significant opportunity for domestic banks to support prospective local suppliers of goods and services to the large firms carrying out exploration and production activities in the gas sector,” Serengeti analyst Aidan Eyakuze said in an e-mailed response to questions. “I anticipate further banking asset growth to be driven from these activities in the medium term.”

Tanzania, East Africa’s second-biggest economy, may grow 6.8 percent in 2013 compared with an estimated 6.5 percent this year, according to the International Monetary Fund.

Tanzania’s government owns 30 percent of NBC, while the International Finance Corp., the World Bank’s private-lending arm, holds 15 percent.

NBC last month reported net income fell by almost half to 4.2 billion shillings ($2.6 million) in the third quarter, from 8.2 billion shillings a year earlier.

To contact the reporters on this story: David Malingha Doya in Dar es Salaam at dmalingha@bloomberg.net; Renee Bonorchis in Johannesburg at rbonorchis@bloomberg.net

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net


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