January 4, 2018 / 10:24 AM / 17 days ago

Tanzania shuts 5 small community banks to protect financial stability

DAR ES SALAAM, Jan 4 (Reuters) - Tanzania’s central bank on Thursday revoked the licenses of five “critically undercapitalised” community banks to protect financial stability in East Africa’s No. 3 economy.

There are about 40 commercial banks and a dozen community banks, which target savings from specific communities or sectors such as farming, but the financial sector is largely dominated by just a handful of big banks.

The central bank said it would liquidate the Covenant Bank for Women (Tanzania) Ltd, Efatha Bank Ltd, Njombe Community Bank Ltd, Kagera Farmers’ Cooperative Bank Ltd and Meru Community Bank Ltd.

“The aforesaid banks are critically undercapitalised,” the central bank said in a statement.

It said continuation of operations of the banks in their current capital position was “detrimental to the interests of depositors and poses a risk to the stability of the financial system.”

None of the institutions were immediately available for comment.

The closure of the banks comes after President John Magufuli ordered the central bank to take action against failing financial institutions.

This brings to eight the number of banks whose business licences have been cancelled since 2017.

Analysts said a steep increase in bad loans coupled with a sharp decline in credit to the private sector are threatening to undermine economic growth.

The central bank announced new rules last June for capital buffers, a move that will force banks to hold more capital to withstand financial shocks following a sharp rise in non-performing loans.

Tanzania’s economy grew at an annual rate of 6.8 percent in the first half of 2017 from 7.7 percent in the same period in 2016.

The International Monetary Fund said last month Tanzania’s banking sector was well-capitalised, but some small and mid-sized banks faced a sizable reduction in capitalisation ratios. (Reporting by Fumbuka Ng‘wanakilala; Editing by Duncan Miriri and Robin Pomeroy)

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