Panic as Tanzania closes five banks

Saturday January 6 2018

The Bank of Tanzania.

The Bank of Tanzania. Non-performing financial institutions risk losing their licences. PHOTO | FILE 

By BEATRICE MATERU
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Five Tanzanian community banks were last week closed over undercapitalisation, while three others remain in the crosshairs of the central bank.

The Bank of Tanzania (BoT) on Wednesday announced it had revoked the business licences of the five lenders that failed to raise Tsh2 billion ($891,180) capital, and placed them under the Deposit Insurance Board as a liquidator.

They are Covenant Bank For Women Ltd, Efatha Bank Ltd, Njombe Community Bank Ltd, Kagera Farmers’ Co-operative Bank Ltd and Meru Community Bank Ltd.

Central Bank’s outgoing Governor Prof Benno Ndulu, said the decision was taken to fulfil requirements of the Banking and Financial Institutions Act of 2006, which seeks to protect the stability of the banking system in the country.

“The decision was reached after BoT learnt that the banks have inadequate capital,” Prof Ndulu said last Thursday during a farewell party with journalists in Dar es Salaam.

He added: “We had advised banks, especially community banks, to form partnerships with investors, and or among themselves so as to minimise their operational costs, board size, simplify their overall system eventually creating capital for their sustainability and growth.”

No severe impact

According to BoT, the action has no severe impact on the banking and financial sector.

“The closed banks make a total of 0.38 per cent in the overall banking bond, which is about Tsh67.8 billion [$3 million],” said BoT director Kened Nyoni.

Three other banks namely, Kilimanjaro Co-operative Bank Ltd, the state-run Tanzania Women’s Bank Plc and Tandahimba Community Bank Ltd which has partnered with CRDB, have until June 30 to raise the Tsh2 billion capital or have their licences revoked.

The decision comes three weeks after President John Magufuli and Prime Minister Kassim Majaliwa on separate occasions directed the Central Bank to take measures against non-performing financial institutions in the country.

“We have 58 banks in Tanzania. We would rather have a few viable banks than many that are failing,” said President Magufuli.