This research shows that the financial sector in Tanzania is performing well in terms of stability, asset quality, profitability, credit growth, regulatory oversight, and efforts to expand financial inclusion. These are positive signs for the overall health and development of the sector and, by extension, the national economy.

Sector Composition:

The financial sector in Tanzania comprises banking, microfinance, insurance, capital markets, and social security sub-sectors, with banking dominating, accounting for over 70% of assets.

Asset Quality Improvement:

Non-performing loans (NPLs) decreased from 8.5% to 5.8% due to better credit risk management practices and measures taken by the Bank.

Liquidity and Profitability:

Liquidity ratios exceeded regulatory requirements, although a decrease was attributed to shifts to more profitable investments. Profitability improved, with higher return on assets and equity driven by increased interest income, non-interest income, and operational efficiency.

Foreign Exchange Risk:

Banks reduced their exposure to foreign exchange risk, with the net open position to core capital decreasing from 7.8% to 2.5%.

Growth in Total Assets:

Total assets increased by 17.3% primarily due to higher deposits, borrowings, and retained earnings. Public confidence in the sector, economic activities, and deposit strategies contributed to deposit growth.

Credit Growth:

Loans, advances, and overdrafts increased by 25.3%, driven by a favorable macroeconomic environment, monetary policy, and regulatory measures supporting private sector credit growth.

Expanded Outreach:

The sector expanded through branch networks, agent banking, and digital channels, improving access and usage of banking services.

Regulatory Changes:

The Bank approved acquisitions and license changes, with one microfinance bank being placed under statutory administration and its assets and liabilities transferred to another bank as a resolution option.

Credit Reference System:

The credit reference system improved, with more credit inquiries and reports sold, helping reduce information asymmetry in credit underwriting processes.

Foreign Exchange Services:

Banks and bureaux de change continued to offer foreign currency services, with the Bank strengthening supervision to ensure compliance with legal and regulatory requirements.

The financial sector in Tanzania exhibits several positive indicators regarding its performance:

• Stability and Soundness: The banking sub-sector, which dominates the financial sector, remained stable in terms of capital adequacy, liquidity, asset quality, and profitability. Capital adequacy ratios were above regulatory requirements, indicating financial stability.
• Improved Asset Quality: The decrease in non-performing loans (NPLs) from 8.5% to 5.8% suggests that banks and financial institutions have improved their credit risk management practices. This is a positive sign for the quality of assets in the sector.
• Liquidity and Profitability: Liquidity ratios exceeded regulatory requirements, and profitability increased. This was driven by higher interest income, non-interest income, and operational efficiency, indicating a healthy financial environment.
• Credit Growth: The increase in loans, advances, and overdrafts by 25.3% reflects a favorable macroeconomic environment and regulatory support for private sector credit growth. This is crucial for economic development and indicates the sector's ability to support businesses and individuals.
• Outreach and Access: The sector expanded through various channels, such as branch networks, agent banking, and digital platforms. This implies increased access to financial services, which is essential for financial inclusion and economic growth.
• Regulatory Oversight: The sector is subject to effective regulatory oversight, as evidenced by the Bank's approvals and interventions in cases of non-compliance.
• Credit Reference System: The improvement in the credit reference system, with more credit inquiries and reports sold, indicates increased transparency and a reduction in information asymmetry in credit processes.
• Foreign Exchange Services: The continued provision of foreign exchange services indicates a robust foreign exchange market and enhances financial market functionality.
• Microfinance Inclusion: The issuance of microfinance licenses demonstrates a commitment to financial inclusion and providing access to financial services for underserved populations.
• Regional and International Engagement: Participation in regional and international forums reflects a commitment to aligning with global best practices and enhancing cooperation.