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

As Tanzania works towards reducing state-run lenders to ensure a solid financial stability, the country’s central bank approved the merger of two small state banks, Twiga Bancorp and TPB Bank PLC.

In 2015, the East African country began plans to counteract a spike in bad loans and the decision to merge small banks is part of the plan to reduce non-performing loans that has hit bank profits, stifled private sector lending and undermined economic growth.

According to Bernard Yohana Kibesse the Deputy Governor, Bank of Tanzania. “We will see more mergers of government-owned banks until we remain with one or just a few banks owned by the government.”

Following the merger, Kibesse said, all “clients, employees, assets and liabilities of Twiga Bancorp will now be transferred to TPB Bank PLC.”

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

There is an ongoing fight against failing state institutions by President John Magufuli. Last year, the central bank took control of Twiga Bancorp, saying the majority state-owned bank was severely undercapitalised. By March this year, Magufuli ordered the central bank not to bail out struggling banks as the government tries to control rising non-performing loans.

In 2017, the rate of NPF for most of the small and medium sized banks in the country increased in the third quarter, compared to 2016. NPF loan rates ranged between 4 percent and 51 percent during this period. Banks unaudited financial statements noted.

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

Tanzania has about 40 banks. However, 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.