Financial sector expands as investors turn selective

DAR ES SALAAM: FINANCIAL sector delivered a revealing contrast during the week of 2–8 November this year. Investors submitted almost three times the amount offered at a government bond auction, while the stock market declined despite strong earnings reported by banks, the exchange operator and Vodacom. The figures suggest expanding financial activity alongside greater investor selectivity. They also raise a practical question: How much of this growth is reaching businesses through affordable, sustainable financing?

The clearest demand signal came from the reopened two-year Treasury bond on November 4. Investors tendered 394.9bn/- against 139bn/- offered, producing a bid-to-cover ratio of 2.84 times. About 136.9bn/- was accepted, with 44 of 75 bids successful. The weighted average yield fell to 8.09 per cent from 8.40 per cent at July’s auction. Although the bond carries a 9.5 per cent coupon, its average price of 102.2098 per 100 of face value explains why buyers’ yield to maturity was lower.

The bond matures on July 30, 2028, so November buyers acquire its remaining life rather than a fresh two-year investment. Falling auction yields indicate that investors accepted a lower return than in July. For new buyers, the decision therefore depends on purchase price, remaining maturity and cash needs, alongside the headline coupon.

Equities faced a different week. Between the closes of October 30 and November 6, the Dar es Salaam Stock Exchange All Share Index fell 1.11 per cent and the Tanzania Share Index declined 1.39 per cent. Equity turnover during November 2–6 dropped 10.16 per cent to 37.43bn/-. Total market capitalisation decreased from 38.57tri/- to 38.14tri/-, a reduction of approximately 429bn/- in quoted market value.

Foreign investors recorded net selling of 7.0 million US dollar, extending their selling streak to four weeks. Domestic investors accounted for 99.15 per cent of purchases. Meanwhile, secondary bond turnover increased 38.12 per cent to 163.38bn/.

Together, these figures show stronger bond trading alongside weaker equities, although they cannot establish that proceeds from share sales moved into bonds. Nor does lower market capitalisation represent an equivalent cash withdrawal.

Individual shares also diverged. CRDB fell 0.70 per cent to 2,820 and NMB declined 1.65 per cent to 1,790. DSE PLC rose 4.23 per cent to 6,400, while Vodacom gained 0.80 per cent to 1,260. The mixed performance reinforces the distinction between a company’s operating results and the price investors are willing to pay for its shares.

The exchange operator’s earnings nevertheless showed substantial expansion. DSE PLC reported nine-month profit after tax of 11.48bn/-, up 164 per cent from 4.35bn/- a year earlier. Total income increased 95.9 per cent to 24.41bn/-, while transaction-fee income rose 180.8 per cent to 8.07bn/-. Third-quarter equity turnover reached 824.1bn/-, against 248.6bn/- a year earlier. These January–September results describe a much longer period than November’s weekly decline.

Investors should also examine the composition of that growth. DSE’s other noncore income increased from 314.24m/- to 6.48bn/-, contributing approximately half the increase in total income. Its cost-to-income ratio improved from 62.5 per cent to 50.7 per cent. Stronger trading and better efficiency supported earnings, but the non-core contribution makes its repeatability a relevant question when assessing future profits.

The exchange earns fees when investors trade, including during periods of selling. Its business performance can therefore differ from the direction of its indices. Sustained participation matters to its revenues, while shareholders must also assess how much income comes from recurring operations.

The banking figures provide another measure of financial expansion. An analysis published by The Citizen on November 3 covering 16 major lenders put combined loans, advances and overdrafts at 55.12tri/- in September, up 4.14 tri/, or 8.12 per cent, from June. Their combined nine-month net profits exceeded 2.02tri/-, against 1.74tri/- a year earlier. CRDB and NMB contributed roughly 1.31tri/-, illustrating the concentration of earnings among the largest institutions.

The reported average nonperforming-loan ratio among those lenders eased from 2.27 per cent to 2.1 per cent. That is encouraging, although an average across selected banks cannot substitute for a weighted measure of the entire system. Credit affordability also remains a separate issue: The Bank of Tanzania’s October review, cited in the same report, put September’s overall lending rate at 15.54 per cent, up from 15.05 per cent in August. Expanding loan books therefore do not automatically mean cheaper borrowing.

For banks, rapid loan growth places increasing weight on underwriting and repayment capacity. A declining bad-loan ratio is useful evidence, but newly issued loans need time to mature before their full repayment performance becomes visible. Future results over the coming quarters will help test that expansion.

NMB’s 30 million US dollar facility from China Development Bank, reported on 6 November, offers a concrete example of additional funding intended for small and medium-sized enterprises. The agreement supports business expansion, investment and trade, including Tanzania–China commerce. NMB also offers renminbi accounts and payments through China’s Cross-border Interbank Payment System. The facility increases available funding, but its announcement does not disclose the final interest rates, collateral requirements or number of businesses that will benefit.

The NMB agreement also illustrates the link between international funding and domestic enterprise. Its economic contribution will depend on actual disbursements, repayment terms and the investments financed. More available capital can support expansion, but firms still need viable markets and sufficient cash flow to service borrowing.

Digital finance adds another dimension. Vodacom Tanzania’s results for the six months ended September 30 showed net profit increasing 182.7 per cent to 117.8bn/-, while service revenue rose 20.8 per cent to 1.07tri/-. M-Pesa revenue grew 26.2 per cent to 443.3bn/-, accounting for approximately 41.5 per cent of service revenue. The company reported digital-loan disbursements exceeding 2tri/- to nearly seven million borrowers. These disbursements measure lending activity over the period, rather than loans outstanding at one date.

Vodacom also reported MKoba deposits increasing by more than 50 per cent and users rising over 40 per cent to nearly two million. Offered with Tanzania Commercial Bank, the service illustrates how bank partnerships and mobile platforms can extend savings services.

Vodacom’s underlying operating-profit growth was 31 per cent after adjustments for network-modernisation costs and foreign-exchange effects, compared with reported growth of 126.9 per cent. That distinction, alongside DSE’s non-core income, reinforces the need to examine earnings quality. For Tanzania, the next test is whether strong funding demand, bank lending and digital transactions translate into broader business investment. Investors will need to weigh recurring profits, credit quality and share valuations against the returns available from government securities.