Rough year for banking sector

Dar es Salaam. The year 2018 has been rough for the banking sector in the country with the Bank of Tanzania (BoT) closing several banks. The central bank also took administration of some banks due to liquidity and under capitalisation.

The rough situation in the banking sector was never an overnight circumstance; it has been there for several years. However, it started getting worse in January 2018 when the BoT closed down five microfinance institutions by revoking licences after their capital fell below the legal requirement.

The BoT revoked the licences of Covenant Bank, Efatha Bank, Njombe Community Bank, Kagera Farmers’ Cooperative Bank, Mbinga Community Bank and Meru Community Bank.

The decision, according to the statement released by the BoT, states: “The decision came upon determination that the aforesaid banks were critically undercapitalised, hence violating the requirements of the Banking and Financial Institutions Act, 2006 and its regulation.”

Bank M was also placed under BoT administration in August, becoming the third bank since 2014 as authorities continue to take tough measures to secure the financial sector.

The central bank took over the administration of Bank M Tanzania Limited after the regulator realised that the institution was facing serious liquidity issues.

The bank joined the list, which includes FBME and Twiga Bancorp, whose operations were placed under BoT administration.

Twiga Bancorp has since been moved to TPB while FBME was put under administration in 2014.

Twiga Bancorp was merged with the Tanzania Postal Bank (TPB Bank) after one year of BoT management while FBME, which had its licence revoked, is currently facing liquidation after being found guilty of money laundering.

In August, the central bank ordered three state-owned banks namely TPB Bank, Twiga Bancorp and TWB Bank to merge and the banks have already started implementing the directive. The merger is expected to bolster efficiency in their management and get them back to profitability.

The Non Performing Loans (NPLs) of most banks in the country have also been cited as among major reasons that contribute to declining profit margin. With the banking sector struggling with NPLs, in August, introduced revamping measures, which include reduction of discount rate.

The discount is that which is applicable to lending to commercial banks to seven per cent from nine per cent, which took effect from August this year. And things have started looking well for the banking sector as the end of the year draws closer. Most of the banks have recorded positive results for the quarter that ended in September.

This came as a surprise as the banking sector has been struggling with high NPLs since 2016 considering that the second quarter (June 30, 2018) was far from impressive.

According to analysis of the banking sector, results for the period of September conducted by Zan Securities, read: “Loans and advances to customers grew during the period due to decreased lending rates. It seems the decision of the BoT to lower interest rates to seven per cent is starting to bear fruit.”

Many banks recorded strong bottom line growth during the quarter. The only notable exceptions were the National Bank of Commerce Limited, which recorded a de-cline of 162.3 per cent in net income QOQ and Access Bank Tanzania, which posted net income growth of -515.33 per cent.

According to Zan Securities, the banks will have to deal with these challenges effectively if they are to continue performing well.

Tanzania is home to at least 58 commercial banks. The sector’s net profit went down from Sh438 billion in 2015 to Sh423 billion and Sh286 billion in 2016 and 2017, respectively.