NCBA Group is investing Kes 2 billion in its Tanzanian subsidiary this year to shore up its capital, which has been eroded by losses and an increase in defaults as a result of the economic fallout from the Covid-19 pandemic.
The new capital injection into NCBA Bank Tanzania Limited is part of an effort to improve the performance of regional subsidiaries that have lower profitability than the mainstay Kenyan market.
“We have made Kes 1 billion investment in Tanzania so far to support capital and we intend to continue with more investment and make another close to Kes 1 billion by the end of the year. We had closed four branches this year. We don’t plan to open the branches, but we are reconfiguring the business to go after corporates and we need to lend them more money and therefore need more capital to do so. The investment is really to support business growth in Tanzania.”NCBA chief executive John Gachora said.
The Tanzanian subsidiary lost Kes1.1 billion in the fiscal year ended December 2021, an increase from the Kes770 million loss recorded the previous year.
The poor performance was blamed on an increase in bad loans and provisions for them. The subsidiary’s non-performing loan ratio was 20.3 percent, well above the recommended level of five percent.
In addition, the bank was slightly above other capital requirements, limiting its ability to lend more. The new funds are expected to recapitalize the company and propel it forward.
To accelerate the transition to profitability, the recapitalization is being accompanied by a review of operations and a client focus.
NCBA Bank Tanzania is now shifting its focus to serving large corporations while closing excess branches in specific locations.
Standard Chartered Tanzania has also recently announced that it will exit the retail banking business in favor of institutional banking, implying that the mass market is less profitable.
NCBA Group has aggressively expanded in other markets, including Kenya and Uganda, through digital banking services in collaboration with telecommunications companies.
The new capital deployed in Tanzania will bring the Nairobi Securities Exchange-listed company’s total investment in that market to Kes 7 billion, up from Kes 5 billion at the end of last year.
As of December 2021, the Kenyan banking multinational owned 93.44 percent of the Tanzanian unit, and it was unclear whether minority shareholders were also involved in the recapitalization.
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