Tanzania’s Banking Sector Posts Record Growth, But Questions Linger Over Capital and AI Readiness

New report from EY Tanzania has underlined the growing contribution of the country’s banking sector to the national economy, reflecting record levels of asset growth, deposit mobilisation, and digital adoption across the country. EY’s analysis of the 2025 financial year shows the sector generated TZS 2.17 trillion in profit after tax, with total assets expanding to TZS 77.4 trillion (a 24.5% rise since 2024), more than double the sector’s size in 2021. The report also found the sector supported nearly 20,000 full-time equivalent employees across 950 branches, while customer deposits grew 25.8% to 51.7 trillion, revenue that helped fund lending activities supporting businesses, infrastructure, and household consumption across the country. Banking assets surge on digital lending and deposit mobilization Joseph ShefFu, EY Tanzania Country Leader, said: “Tanzania’s resilient economic growth continues to support expansion across the banking sector, with sustained growth in assets, deposits, and lending, underpinned by grater financial inclusion and increasing adoption of digital financial services. Banks demonstrated resilience by maintaining strong capital positions, improving asset quality, and enhancing operational efficiency while supporting businesses and economic development.” The sector’s growth was driven primarily by loans, advances, and overdrafts, which grew to TZS 45.5 trillion, representing 58.8% of total assets. The report attributed this to technology platforms enabling easier credit access and partnerships with Mobile Network Operators (MNOs) for microloans. Customer deposits grew even faster at 25.8%, reaching TZS 51.7 trillion, reflecting strong mobilization efforts and an expanded customer base. Asset growth was also funded through capital market participation, particularly bond issuances witnessed at Azania bank, TCB, NMB, and CRDB. Profitability holds firm despite margin pressure The sector’s profit after tax grew by 2.5% to TZS 2.17 trillion, despite a decline in Net Interest Margin from 8.2% to 7.7%. The sector managed to offset margin compression through improved operational efficiency, with Cost-to-Income Ratio improving from 37.4% to 3.1%. Return on Average Equity stood at 20.1%, down from 23.6% in 2024, while Return on Average Assets fell from 3.6% to 3.1%. The International Monetary Fund’s latest assessment of Tanzania reports that the country has successfully restored macroeconomic stability after four years of reforms, with GDP growth reaching 5.9% in 2025 and projected to expand to around 6.2% in 2026. The IMF highlights Tanzania as one of the more resilient economies in Sub-Saharan Africa, with medium-term growth projected to stabilize near 6.3%. The IMF identifies opportunities across financial services, while noting that stable inflation, stronger public finances, and a healthier banking sector make Tanzania increasingly attractive for long-term investment. The same is being iterated by the EY report, where the sector indicates improved efficiency and digital adoption, which are driving performance against a backdrop of broader economic stabilisation. Digital payments revolution reshaping banking landscape The report dedicates significant attention to Tanzania’s transition towards a cashless economy, with formal financial inclusion increasing from 65% in 2017 to 76% in 2023, according to the FinScope Tanzania 2023 Report. The Tanzania Instant Payment System processed over 453 million interoperable transactions worth approximately TZS 29.9 trillion during 2024. Tanzania possesses one of Africa’s largest financial-service-agent networks, with over 1.4 million banking and mobile money agents. However, the report notes that “many users continue to withdraw funds immediately after receiving them digitally. As a result, digital platforms are often used as temporary storage rather as complete payment ecosystem.” This suggests that while digital payments are growing, cash-based behavior remains deeply entrenched. Tanzania is following a hybrid model that combines telecom-driven mobile money with bank-led digital payments infrastructure. Kenya’s M-Pesa success came from early adoption, deep integration into daily life, extensive merchant acceptance, and continuous fintech innovation. Tanzania’s path is different—investing heavily in interoperability through TIPS, QR-code payments, and integration between banks and non-bank financial institutions. Artificial intelligence: The opportunity Tanzania cannot afford to miss Perhaps the most forward-looking section of the EY report addresses AI adoption. The report assesses AI maturity across four stages: Exploration, Pilot, Scaling, and Fully Embedded. Most Tanzanian banks appear to be in the Exploration or early Pilot stages, with some leading institutions advancing to Scaling. The World Development Report 2026 by the World Bank, The Promise of Artificial Intelligence, provides essential context: “Developing economies have more to gain than they have to fear from AI,” writes Indermit Gill, senior vice president and chief economist at the World Bank Group. “Less than a tenth of their jobs are susceptible to AI automation, compared with more than a third in high-income economies. Yet the upside is substantial: One out of every six developing economy jobs would be enhanced rather than replaced.” AI’s swift diffusion means it might be able to “do in a decade what might otherwise take a century,” giving a “major opportunity for developing countries to catch up with living standards in wealthier countries.” The EY report recommends developing a clear AI strategy aligned with business objectives, investing in modern digital infrastructure, conducting pilot tests, providing AI training for staff, developing AI tools in Swahili and English, and forming strategic partnerships with global technology companies. Asset quality improves, but sectoral disparities persist Non-performing-loans improved from 3.2% in 2024 to 3.0% in 2025. Large banks recorded a lower NPL ratio at 2.6%, indicating stronger loan performance, while Development Finance Banks had the highest at 10.8%, signalling credit risk concern. The Capital Adequacy Ratio fell from 16.2% to 15%. While this remains above the minimum regulatory requirement, the report asks, “questions remain whether the sector is sufficiently capitalised to support large-scale lending for infrastructure projects.” The dispersion across the sector is striking. CRDB led Return on Average Equity at 28.8%, while several banks recorded negative ROAE, including Habib (-20.8%), Akiba (-19.6%), and Uchumi (-17.6%). The Cost to Income Ratio ranged from KCB’s 36.2% to Uchumi’s 165.3%. Investment in technology and communities The sector’s growth is enabling unprecedented levels of reinvestment in technology and financial inclusion. Between 2021 and 2025, the branch network grew by only 31 branches, reflecting a strategic balance between physical expansion and digital channels such as mobile and agent banking, which enhanced reach and operational efficiency. Banks have played a significant role in enabling digital services, offering mobile banking and internet banking platforms that allow customers to transfer money, pay bills, purchase goods and services, and make government and business payments. The Bank of Tanzania has actively supported digital payments through national payment infrastructures including the Tanzania Interbank Settlement System, Tanzania Automated Clearing House, Tanzania Instant Payment System, and Electronic Card Payment System. Questions for the future While the report paints a picture of a growing, resilient sector, several questions remain unanswered: What is the real level of non-performing loans? The reported 3.0% ratio is based on bank-level financial statements and banks’ own classification of what constitutes a non-performing loan. In markets with weak credit registries and limited collateral enforcement, the gap between reported NPLs and actual loan performance can be significant. Why did the Capital Adequacy Ratio fall? The report notes the decline but does not provide a detailed explanation. Was it driven by asset growth that outpaced capital growth? By higher-risk-weighted assets? By dividend payouts? What is the cost of inaction on AI? The World Bank report makes clear that the opportunity cost of delaying AI adoption is substantial. The report argues that AI might be able to “do in a decade what might otherwise take a century.” For a country like Tanzania, the idea of compressing that timeline is transformational. What is the relationship between digital payments and bank profitability? Digital payments reduce transaction fees, increase competition, and put downward pressure on pricing. The net effect on bank profitability is ambiguous. In Kenya, M-Pesa’s success has been accompanied by significant pressure on bank margins. The way forward The EY report outlines a structured implementation strategy for Tanzanian banks: Develop a clear AI strategy that aligns with each bank’s business objectives Invest in modern digital infrastructure, secure cloud computing, and premium data management systems Conduct pilot tests to evaluate performance, measure ROI, and identify implementation challenges Providing AI and NLP training for staff, viewing AI as a tool that complements rather than replaces employees Developing AI tools in Swahili and English to improve customer understanding and service accessibility Forming strategic partnerships with global technology companies, cloud providers, and AI tools The Bank of Tanzania could issue sector-specific AI guidelines covering cybersecurity, data privacy, algorithmic transparency, and ethical use. Adoption could be accelerated through targeted incentives, including tax relief for AI infrastructure, innovation grants, and funding for bank-university research. The World Bank report notes that Africa is already taking action. At the Global AI Summit on Africa in 2025, “49 African countries and the African Union endorsed the Africa Declaration on Artificial Intelligence, emphasising the need for safeguards for AI deployment to protect human dignity, rights, freedoms, and environmental sustainability.” An industry at inflection point The EY Tanzania Banking Sub-Sector Report 2025 portrays an industry at a critical inflexion point. The sector has demonstrated remarkable resilience and growth; assets up 24.5%, deposits up 25.8%, profitability healthy, asset quality improving. But the forces shaping the sector’s future- digital payments, AI, regulatory change, competitive dynamics are accelerating. The banks that invest in technology, data, governance, and talent will capture the opportunities. The banks that don’t will fall behind. The World Bank report makes clear what is at stake. “Developing economies have more to gain than they have to fear from AI,” writes Grill. “Even if AI fails to live up to all its hype, developing economies would still be better off than they are today.” But the warning is also clear: “Nothing worthwhile ever comes without risk.” The risk for Tanzania’s banking sector is not just that some banks will fail to capitalise on AI. It is that the sector as a whole, and the economy it serves, will miss the opportunity to “do in a decade what might otherwise take a century.” The numbers in the EY report are impressive. But the questions are more important. And the answers will determine whether Tanzania’s banking sector enters the next decade as a leader or a laggard. Read the full report here