Citibank Tanzania’s bad loan surge clouds profit outlook

TANZANIA: CITIBANK Tanzania saw a sharp rise in non-performing loans (NPLs) in the third quarter, marking a significant reversal from the prior quarter’s stable performance.

The bank’s NPL ratio climbed to 21.6 per cent from zero, well above the regulatory benchmark of five per cent, highlighting a decline in asset quality and heightened credit risk.

To cushion the impact, Citibank increased its impairment charges, which dampened profitability.

While net interest income rose, the surge in NPLs and related provisions overshadowed this positive result.

Nonetheless, robust growth in non-interest income and foreign exchange gains helped offset some of the rising costs, keeping the bank’s profitability intact.

Citibank’s strategy to diversify revenue sources and leverage opportunities in the foreign exchange market has provided a significant advantage during this challenging period.

The spike in NPLs and additional impairment charges significantly impacted the bank’s earnings, with net profit dropping to 14.28bn/- for the quarter ending September 2024, down from 21.34bn/- in the similar quarter last year.

This drop was primarily driven by increased provisioning for bad loans, which offset gains in net interest income.

Impairment losses on loans and advances surged to 2.43bn/- , up from 564m/- a year earlier, reflecting a conservative approach to provisioning amid rising credit risk.

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The quarter also saw a steep increase in interest expense, reaching 9.17bn/-, nearly tripling from 3.6bn/- in the previous year.

Non-interest income, a key component of Citibank’s revenue structure, declined by 8.9 per cent to 18.1bn/- from 19.87bn/- , impacted by weaker fee-based services.

Earnings per share fell to 1.53m/- from 2.13m/- in the same period last year, underscoring the effects of higher impairment charges and interest expenses.

Operating profit also declined, dropping by 23.6 per cent to 23.28bn/- from 30.47bn/- as higher funding costs weighed on margins.

Although interest income rose by 13.9 per cent to 25.14bn/-, interest expenses surged, resulting in a 13.5 per cent reduction in net interest income to 15.97bn/-.

Despite these challenges, Citibank’s strong performance in non-interest income and foreign exchange gains has been a stabilising factor.

These revenue streams have helped the bank mitigate rising costs and maintain a measure of profitability.