The BoT announced yesterday that it has revoked the licence of Bank M and transferred all its assets and liabilities to Azania Bank Limited.
When we hear about mergers and acquisitions (M&As), they usually involve large companies taking over the assets of smaller firms to consolidate their market positions. But in a role reversal, the BoT has taken the unusual decision to transfer assets and liabilities of Bank M to Azania Bank Ltd, transforming it overnight into one of the five biggest banks in Tanzania.
By acquiring the assets and liabilities of Bank M, Azania Bank, which is majority owned by pension funds, has effectively taken over a bank that was more than twice its size, akin to a small fish swallowing a much bigger fish.
"Following the acquisition of Bank M's assets and liabilities, Azania Bank Limited, which was a medium-size bank or Tier II bank, will now become one of the five largest banks in Tanzania," Dr Bernard Kibesse, Deputy Governor of the BoT (Financial Stability and Deepening), told a news conference at the central bank's headquarters in Dar es Salaam.
Azania Bank Ltd has assets worth 468.64 billion/- and customer deposits amounting just over 300 billion/-, according to its latest financial statements for the quarter ending September 2018, making it one of the relatively smaller banks in the country.
The bank, which has 346 employees and 14 branches, is owned by the Parastatal Public Servant Service Fund (PSSSF) with a 62 per cent stake, followed by the National Social Security Fund (35.27 per cent), East African Development Bank (1.54 per cent) and individual shareholders.
While Azania Bank has mostly focused on retail banking and corporate banking to a smaller extent, Bank M mainly catered for corporate customers.
At the time it was caught up in regulatory trouble in August last year, Bank M was one of the 10 largest banks in Tanzania with assets of over 1 trillion/- and liabilities exceeding 600 billion/-.
“Bank M had a big liquidity problem and could not honour its maturing obligations, hence the decision of the central bank to put the bank under administration. We had meetings with the management of Bank M, its shareholders and board about the critical liquidity problem facing this bank, but they failed to resolve this matter,” Kibesse said.
“After acquiring the assets and liabilities of Bank M, Azania Bank will now have a capital of 164 billion/, which is way above the minimum capital requirement of 15 billion/- ”
Insider lending under spotlight
Kibesse said during the five-month period that Bank M was under the administration of the BoT, the central bank was able to recover over 40 billion/- from loan repayments.
"By transferring the assets and liabilities of Bank M to Azania Bank, Azania Bank will now have a much bigger asset base and more liquidity," he insisted.
He explained that all individuals and corporate clients who had taken loans from Bank M were now required to repay those loans to Azania Bank, while Bank M's customers will similarly be transferred to Azania Bank.
Kibesse issued a seven-day deadline to a long list of beneficiaries of insider lending from Bank M to report to the BoT to discuss settlement of their loans. Insider lending occurs when a bank makes a loan to one or more of its own officers or directors.
"Shareholders of a bank can give each other loans perhaps with fewer conditions than normal bank customers. We want the (Bank M) shareholders to repay their loans," he said.
"BoT has a special interest to sit down with these Bank M shareholders and we want them to come and tell us their loan repayment proposals. Actually, there is a long list of them (shareholders)."
He assured Tanzanians on the stability of the banking system, saying it was adequately capitalised, with the BoT keeping a watchful eye to protect the financial services sector from failing banks.
Tanzania has more than 40 banks but its financial services sector is dominated by a handful of lenders led by CRDB Bank and NMB Bank.
In December last year, the International Monetary Fund said nearly half of Tanzania’s 45 banks were vulnerable to adverse shocks and risk insolvency in the event of a global financial crisis. In January, the central bank had revoked the licences of five “critically undercapitalised.” community banks in January to protect financial stability.
The IMF advised the government to enhance surveillance and monitoring of liquidity risks in the foreign exchange market and undertake measures to mitigate them.
Non-performing loans ratio industry-wide increased from 6.8 per cent in 2014 to 11.5 per cent in 2017 while at end-2017, 24 banks had NPLs ratios exceeding 10 per cent, the IMF said.