State owned commercial banks’ efficiency and stability are set for a big boost under the institutional consolidating that has started through mergers, the central bank said on Wednesday.
Bank of Tanzania’s (BoT) Deputy Governor Bernard Kibesse told reporters in Dar es Salaam that the mergers aim at retaining few but strong banks, which are highly competent in the provision of financial services.
He said the merging process has already begun with the merger of TPB Bank and Twiga Bancorp and will proceed with other state-owned banks to boost efficiency and financial stability in the banking industry. “
Other state owned banks will be combined to create strong, well capitalised and focused banks,” said Dr Kibesse who oversees financial stability and deepening. In October 2016, the central bank put Twiga Bancorp under statutory management after its capital dwindled beyond acceptable level. “
The government wants to get rid of many but underperforming banks and remain with strongly positioned banks with identity in the market,” he said.and well positioned financial institutions will reduce operational costs and lending interest rates, spearheading development agenda, as a result.
According to Dr Kibesse, the central bank’s intention is for the economy to have few but large banks with strong financial muscles. “We want even the private sector to follow suit and consolidate operations instead of having many small banks that lend at high rates,”
Dr Kibesse said, adding that the central bank is ready to approve any efficiency, soundness and stability centred merger. NMB Bank said last month it was ready to participate in the consolidation of the country’s banking sector, arguing that it’s healthier for large banks to take over the small ones.
CRDB Managing Director Charles Kimei also hinted on consolidation about two years ago, saying the situation on the ground impeded operations of small banks. According to the central bank’s financial stability report last December, the outstanding amount of bad loans increased by 12 per cent.
The overall lending rate was 17.51 per cent in March, the same as in similar month last year but slightly higher than 17.27 percent in the preceding month. Overall weighted average deposits rate declined to 8.57 per cent from 10.89 per cent and 8.91 per cent in March and February 2017, respectively.
President John Magufuli last year ruled out the possibility of the government bailing out underperforming banks. The government is currently the majority shareholder of TIB Development Bank, TIB Corporate Bank, TPB, Tanzania Women Bank and Tanzania Agriculture Development Bank.
It also has stakes in NBC Bank, NMB Bank and CRDB Bank.
The central bank revoked the licences of five “critically undercapitalised” community banks in January and put three others in a watch list for six months to protect the country’s financial stability.
It liquidated the Covenant Bank for Women (Tanzania) Ltd, Efatha Bank Ltd, Njombe Community Bank Ltd, Kagera Farmers’ Cooperative Bank Ltd and Meru Community Bank Ltd and put on watch Tanzania Women’s Bank, Kilimanjaro Cooperative Bank Limited and Tandahimba Community Bank Limited.