May 16, 2018 / 12:10 PM / 10 months ago

Tanzania's central bank approves merger of two state-owned banks

DAR ES SALAAM (Reuters) - Tanzania’s central bank said on Wednesday it has approved the merger of two small state banks, Twiga Bancorp and TPB Bank PLC, as part of a plan to improve financial stability and reduce the number of state-run lenders.

Tanzania's President elect John Pombe Magufuli addresses members of the ruling Chama Cha Mapinduzi Party (CCM) at the party's sub-head office on Lumumba road in Dar es Salaam, October 30, 2015. REUTERS/Sadi Said

The decision is part of a drive to counteract a spike in bad loans since 2015 that has hit bank profits and stifled private sector lending, in turn undermining economic growth.

“We will see more mergers of government-owned banks until we remain with one or just a few banks owned by the government,” deputy Bank of Tanzania governor Bernard Kibesse told a news conference. All “clients, employees, assets and liabilities of Twiga Bancorp will now be transferred to TPB Bank PLC.”

The central bank took control of Twiga Bancorp in October, saying the majority state-owned bank was severely undercapitalised. The decision followed a call by President John Magufuli for action against failing state institutions.

Magufuli ordered the central bank in March not to bail out struggling banks as the government tries to control rising non-performing loans.

Bad debts as a proportion of the total banking industry loan portfolio rose to 11.7 percent in December 2017, more than twice the maximum target of 5 percent, up from 10.6 percent in June 2017, according to central bank data.

The International Monetary Fund said in January the growth of credit to the private sector had stagnated, partly due to the deteriorating quality of the loans.

It urged the government to tackle bad debts to reduce financial sector vulnerabilities and revive credit growth.

Tanzania has about 40 banks but its financial services sector is dominated by lenders such as CRDB Bank and NMB Bank.

Netherlands-based Rabobank Group is NMB’s biggest shareholder with a 34.9 percent stake, while the Tanzanian government owns 31.9 percent.

“We would like more mergers and acquisitions to take place between the existing banks in Tanzania, including those that are privately owned, so that we remain with a few efficient banks,” he said.

The central bank revoked the licenses of five “critically undercapitalised” community banks in January to safeguard the sector’s stability.

Editing by Elias Biryabarema and Matthew Mpoke Bigg

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