IMF: Six Tanzanian banks undercapitalised
Dar es Salaam. Six Tanzanian banks are currently undercapitalised, the International Monetary Fund has revealed in its new report.
The number of undercapitalised banks could rise over time due to various risks in the Tanzanian banking sector, the Bretton Woods institution said in its Financial System Stability Assessment (FSSA) report released on Friday.
The IMF did not mention the undercapitalised banks, which could eventually collapse -- if steps are not taken -- because they do not have sufficient funding or capital to support operations. Government-owned and other small banks are worse-off, the IMF noted. Undercapitalisation has bedevilled the banking sector in the past, prompting the Bank of Tanzania (BoT) to close at least six small and community banks in January 2018.
The banks closed were Covenant Bank, Efatha Bank, Njombe Community Bank, Kagera Farmers’ Cooperative Bank, Mbinga community Bank and Meru Community Bank.
Non-performing loans has been the major problem and the IMF says it might continue in the next three years. And the regulatory measures taken by the BoT to reduce NPLs could, in fact exacerbate the problem, the IMF noted in its report.
Early this year, the central bank suspended some sections of the Banking and Financial Institutions Regulations 2014 in three years (till December 2020) to allow banks restructure NPLs four times (as opposed to two times as required by the 2014 regulation).
“The recently introduced regulatory relief through end-2020 for loan classification and provisioning is a step back,” the IMF noted, warning banks not to over-indulge on the BoT’s relief.
Efforts to get the BoT to comment on the report proved futile but the IMF report includes a reply by the BoT, which questions the methodology used in preparation of the FSSA. The argument is that the methodology is different from that used in the past reports and which is also different from the one used by the very BoT in assessing the health of banks in the country.
“Authorities have pointed out that the methodology used in the 2018 assessment has been revised substantially from the 2006 methodology applied in previous reports,” a joint statement by Dumisani Mahlinza, the IMF’s executive director for Tanzania and Osana Odonye, a senior IMF advisor reads in part.
“Therefore, [Tanzanian authorities] argue that staff’s comparison of ratings in this assessment with those of past reports requires clarification,” they added.
In addition, the current report assessment applied a different model for stress testing as opposed to the BoT’s CIHAK model and produced different results, a point that staff agreed to reflect in the report.”
As far as regulatory measures taken by the central bank are concerned the Tanzanian authorities are reported to have said: “The BoT would like to emphasise that the circular for loan classification and restructuring is a temporary relief to banks and financial institutions, and undertakes to remain vigilant in monitoring implementation and addressing associated consequences, including abuse.”
