Is Tanzania's Banking Sector Strong Enough to Support Long-Term Growth?
A comprehensive analysis of financial sector resilience, capital strength, and capacity to drive sustainable economic development through 2025 and beyond
Executive Summary: The Verdict on Banking Sector Strength
According to the Bank of Tanzania Annual Report 2024/25, the banking sector remained well-capitalized, liquid, and profitable even amid global financial tightening and domestic structural challenges. The sector's strength coincided with real GDP growth acceleration from 5.1 percent to 5.5 percent, while maintaining inflation at 3.1 percent. Crucially, banks supported this growth through significant private sector credit expansion, indicating that financial intermediation did not merely remain stable but actively contributed to economic momentum.
Key Finding: All financial soundness indicators comfortably exceeded regulatory benchmarks, signaling the sector's capacity to absorb shocks and sustain lending over the long term. Core Tier 1 capital adequacy stood at 18.8 percent—nearly double the 10 percent minimum—while total capital adequacy reached 19.4 percent, well above the 12 percent requirement.
Five Pillars of Banking Sector Strength
Capital Strength
Core Tier 1 capital ratio nearly double the 10% regulatory minimum, providing substantial buffers to finance long-term investments in infrastructure, industry, and productive services.
Asset Quality
Gross NPL ratio declined sharply from 9.3% in 2021, reflecting improved credit risk management and stable macroeconomic environment. Credit expansion has become increasingly healthy and sustainable.
Liquidity Position
Liquid assets covering demand liabilities well above the 20% minimum, ensuring banks can meet obligations while continuing to extend credit to the economy.
Profitability
Return on Equity reflects strong earnings capacity and operational efficiency, enabling banks to build capital organically and invest in digital infrastructure without compromising stability.
Financial Inclusion
TanFiX index rose from 0.72, with 35 commercial banks expanding access through digital platforms, agent banking, and instant payment systems—broadening the deposit base for long-term savings mobilization.
Financial Soundness Indicators: Consistent Improvement (2021-2025)
The trajectory of key banking metrics demonstrates sustained strengthening of the sector's fundamentals, with all indicators moving in favorable directions and exceeding regulatory benchmarks by comfortable margins.
| Indicator | 2021 | 2022 | 2023 | 2024 | 2025 | Benchmark |
|---|---|---|---|---|---|---|
| Core/Tier 1 Capital Ratio (%) | 17.2 | 19.1 | 18.2 | 18.6 | 18.8 | ≥10% |
| Total Capital Ratio (%) | 17.9 | 20.2 | 19.0 | 19.3 | 19.4 | ≥12% |
| Liquid Assets/Demand Liabilities (%) | 33.2 | 28.1 | 25.1 | 26.8 | 27.7 | ≥20% |
| Gross NPLs/Gross Loans (%) | 9.3 | 7.8 | 5.3 | 4.1 | 3.3 | <5% prudential |
| NPLs Net of Provisions/Capital (%) | 35.0 | 28.3 | 22.7 | 17.4 | 13.8 | ≤25% |
| Return on Assets - ROA (%) | 2.4 | 4.1 | 4.5 | 5.7 | 5.4 | — |
| Return on Equity - ROE (%) | 10.4 | 18.5 | 21.5 | 27.3 | 25.0 | — |
| Net Open FX Position/Capital (%) | 6.5 | 4.9 | 3.4 | 4.4 | 5.2 | ≤7.5% |
Interpretation: The dramatic decline in NPLs from 9.3% to 3.3% over four years represents one of the most significant improvements in asset quality in Sub-Saharan Africa. This freed up capital for new lending rather than balance sheet repair, enabling the 15.4% private sector credit growth that supported GDP expansion. NPLs net of provisions falling to 13.8% indicates banks have strong provisions and minimal risk exposure.
Balance Sheet Growth and Credit Expansion
The banking sector demonstrated robust expansion across all key balance sheet metrics in 2024/25, with growth rates accelerating from previous years and supporting the real economy's development needs.
| Metric | June 2024 | June 2025 | Year-on-Year Growth |
|---|---|---|---|
| Total Assets (TZS Trillion) | 54-60 | 62-68 | +17-27% |
| Loans & Advances (TZS Trillion) | 28-35 | 35-41 | +22-34% |
| Customer Deposits (TZS Trillion) | ~39 | 39-42 | +10-15% |
| Private Sector Credit Growth (Annual %) | — | 15.4% | Robust expansion |
| Net Profit (Sector-wide, TZS Trillion) | 1.5-1.6 | ~2.15 | +39% |
| Number of Commercial Banks | 34 | 35 | +1 bank |
Credit-to-Deposit Ratio: At approximately 89-92%, Tanzania's banks maintain healthy liquidity while actively channeling deposits into productive lending. The loan-to-deposit ratio suggests efficient intermediation without over-extension. Top banks (CRDB, NMB) control 47-54% of assets and 57% of loans, providing stability while smaller banks drive competition and innovation.
Sectoral Credit Distribution: Supporting Economic Diversification
Banks directed credit strategically to high-growth sectors, directly supporting the economy's diversification and the 5.5 percent GDP growth achieved in 2024/25. The sectoral allocation demonstrates alignment with national development priorities.
Personal Loans
29-40%Largest share, supporting household consumption and residential investment
Trade & Commerce
18-21%Working capital for distributors and retailers, contributing ~15-20% to GDP growth
Agriculture & Livestock
7-15%Highest growth rate; contributed ~15-20% to GDP expansion through productivity gains
Manufacturing
11-12%High growth supporting industrial development and export diversification
Construction & Real Estate
8-10%Strong growth funding infrastructure boom (~18% GDP contribution)
Tourism & Services
4-10%Supported 10% increase in tourist arrivals to 2.2M visitors
Mining & Quarrying
~2%High growth supporting gold export expansion to USD 4.0B
SMEs (via Credit Guarantees)
GrowingExpanded through SME-CGS and ECGS schemes, key for inclusion
How Banking Strength Translated to Economic Growth
The banking sector's health directly contributed to Tanzania's economic performance across multiple dimensions, demonstrating the critical link between financial sector stability and real economy outcomes.
| Impact Area | Banking Sector Contribution | 2024/25 Outcome |
|---|---|---|
| GDP Growth | 15.4% private sector credit growth to productive sectors | 5.5% real GDP (Mainland); 6% projected 2025/26 |
| Inflation Stability | Sound liquidity and capital buffers enabling balanced monetary policy | 3.1% average headline inflation; 2.7% core inflation |
| Financial Inclusion | Digital platforms (TIPS, TanQR), agent banking +37%, mobile money expansion | TanFiX 0.81 (from 0.72); ~70% adult financial access |
| External Resilience | Export credit (ECGS), FX stability, trade finance | Reserves 4.8 months; CAD improved to -2.4% GDP |
| Fiscal Support | Government securities holdings; deposits supporting fiscal operations | Fiscal deficit narrowed to 2.7% GDP; tax revenue 13.1% |
| Investment Financing | Long-term lending to infrastructure, industry, and productive services | Construction ~18% GDP contribution; infrastructure boom |
Digital Transformation and Financial Inclusion
Beyond traditional metrics, the banking sector's adoption of digital technologies significantly expanded access and efficiency, creating a foundation for sustained long-term growth and broader economic participation.
Digital Banking Achievements 2024/25: Tanzania Instant Payment System (TIPS) processed 453.7 million transactions worth TZS 29.9 trillion. Agent banking networks expanded by 37%, while the number of active mobile money accounts continued to grow. The integration of TIPS with the government electronic payment gateway (GePG) advanced the cash-lite economy, reducing transaction costs and improving transparency.
Financial Inclusion Progress
| Indicator | 2023/24 | 2024/25 | Impact |
|---|---|---|---|
| Financial Inclusion Index (TanFiX) | 0.72 | 0.81 | Major improvement in access |
| Adults with Financial Access | ~65% | ~70% | Broader deposit base |
| Agent Banking Outlets | Baseline | +37% growth | Extended rural reach |
| TIPS Transactions (millions) | — | 453.7 | Enhanced payment efficiency |
Comprehensive Assessment: Strengths, Challenges, and Outlook
Core Strengths
- Capital adequacy nearly double regulatory minima (19.4% vs 12%)
- NPL ratio among lowest in Sub-Saharan Africa at 3.3%
- Strong and improving profitability (ROA 5.4%, ROE 25.0%)
- Robust liquidity buffers exceeding 27% of demand liabilities
- Expanding outreach through digital channels and agent banking
- Effective risk management and regulatory oversight
Growth Support Evidence
- 15.4% private sector credit expansion fueling GDP growth
- Strategic lending to productive sectors (agriculture, manufacturing, infrastructure)
- Credit guarantee schemes (SME-CGS, ECGS) enabling higher-risk lending
- 39% year-on-year profit growth enabling capital reinvestment
- Sector contributed to export growth (gold USD 4.0B) and tourism expansion
Remaining Challenges
- Credit-to-GDP ratio (~30%) below regional peers like Kenya (56%)
- Room for further financial deepening and long-term finance
- Cost pressures in smaller banks (CIR ~60%)
- Need for enhanced climate risk management frameworks
- Concentration in top banks requires continued diversification
Policy Enablers
- Fintech Regulatory Sandbox promoting innovation
- Guidelines on fees and charges improving transparency
- Financial complaints resolution system protecting consumers
- TIPS-GePG integration advancing digital payments
- Central Bank Rate maintained at 6% (reduced to 5.75% later)
- Merger policy promoting consolidation (toward 47-48 banks)
Projected Trajectory Through 2026
Based on current trends and policy directions, Tanzania's banking sector is positioned for continued strengthening through 2026, with key indicators expected to maintain or improve their favorable trajectories.
| Indicator | 2025 Actual | 2026 Projection | Outlook |
|---|---|---|---|
| Core Capital Ratio (%) | 18.8 | 19.0-19.5 | Stable, well-capitalized |
| Total Capital Ratio (%) | 19.4 | 19.5-20.0 | Continued strength |
| Gross NPLs (%) | 3.3 | 3.0-3.5 | Further improvement expected |
| Return on Assets (%) | 5.4 | 5.0-5.5 | Sustained profitability |
| Return on Equity (%) | 25.0 | 24.0-26.0 | Strong returns maintained |
| Private Sector Credit Growth (%) | 15.4 | ~18 | Accelerating intermediation |
| Financial Inclusion (TanFiX) | 0.81 | 0.85-0.87 | Continued digital expansion |
| Total Assets Growth (%) | 17-27 | 17-18 | Steady expansion |
Forward Outlook: With the Central Bank Rate reduced to 5.75% and macroeconomic stability maintained, the banking sector is positioned to support projected 6% GDP growth in 2025/26. Ongoing regulatory reforms, including Islamic finance frameworks and continued merger activity, will further strengthen the sector's capacity. The key question shifts from whether banks are strong enough to how effectively this strength can be leveraged to deepen financial intermediation and channel long-term finance toward transformative economic sectors.
The Bottom Line: Yes, and Here's Why
Tanzania's banking sector in 2024/25 was not only stable but increasingly aligned with the country's long-term development needs. The evidence is compelling across multiple dimensions:
Capital Strength: With Tier 1 capital at 18.8% and total capital at 19.4%—both nearly double regulatory minima—banks possess substantial balance sheet capacity to finance long-term investments in infrastructure, industry, and productive services without compromising stability or liquidity.
Asset Quality: The dramatic improvement in NPLs from 9.3% to 3.3% represents one of the most significant turnarounds in Sub-Saharan African banking. This freed up capital for new lending rather than balance sheet repair, enabling sustainable credit expansion. NPLs net of provisions at 13.8% indicates minimal residual risk exposure.
Growth Contribution: Private sector credit growth of 15.4% directly supported GDP expansion of 5.5%, with strategic lending to agriculture, manufacturing, construction, mining, and tourism—the very sectors driving economic diversification. This wasn't passive intermediation; it was active economic enablement.
Profitability and Sustainability: ROA of 5.4% and ROE of 25.0% demonstrate strong earnings capacity, enabling banks to build capital organically, invest in digital infrastructure, and expand outreach without external capital injections. Net profits rising 39% year-on-year underscore financial viability of continued intermediation.
Structural Evolution: Expansion to 35 commercial banks, TanFiX improvement to 0.81, agent banking growth of 37%, and TIPS processing 453.7 million transactions show a sector becoming broader, deeper, and more inclusive—essential for mobilizing long-term domestic savings.
What This Means for Tanzania's Economic Future
The strength of Tanzania's banking sector creates a foundation for several critical development outcomes over the medium to long term:
Investment Financing: Banks now have the balance sheet capacity and risk management capability to provide longer-term financing for transformative infrastructure projects, industrial parks, agricultural value chains, and technology adoption—moving beyond short-term working capital to development finance.
Private Sector Development: With credit growing at 15.4% and directed strategically across sectors, private enterprises have improved access to growth capital. Credit guarantee schemes (SME-CGS, ECGS) further enable lending to higher-risk but productive segments, crucial for entrepreneurship and job creation.
Macroeconomic Stability: A sound banking sector enables effective monetary policy transmission, supports exchange rate stability through healthy FX markets, and provides a stable platform for savings mobilization—all essential for sustained growth without boom-bust cycles.
Financial Inclusion: Digital expansion and agent banking are not just about access metrics; they fundamentally broaden the deposit base, enabling banks to mobilize savings from previously excluded populations and channel them into productive investment.
Verdict: Yes, Tanzania's banking sector is sufficiently strong and resilient to support long-term growth aspirations. The sector demonstrates not just prudential soundness but active growth enablement, having contributed materially to 5.5% GDP expansion while maintaining stability. With all indicators above benchmarks and projections pointing to continued strengthening, the policy focus should shift from whether the sector is strong enough to how effectively this strength can be leveraged to deepen financial intermediation, raise private credit relative to GDP from ~30% toward regional benchmarks, and channel long-term finance toward transformative sectors that will drive Tanzania's structural economic transformation through 2030 and beyond.
About This Analysis
This comprehensive assessment is based on data and findings from the Bank of Tanzania Annual Report 2024/25, analyzing the banking sector's capacity to support Tanzania's long-term economic development. For more detailed insights on Tanzania's financial sector performance, monetary policy effectiveness, and economic development strategies, explore our complete research library at TICGL.