FI­NANCE The wind­ing road to bank con­sol­i­da­tion in Tan­za­nia

The sec­tor is strug­gling with too many bad loans and small lenders, but the gov­ern­ment seems wary of rais­ing cap­i­tal re­quire­ments due to weak in­vestor in­ter­est

The Africa Report - - CONTENTS - Joseph Bu­rite in Dar es Salaam

Aim­ing is not the same as hit­ting, so goes a pop­u­lar Kiswahili proverb. In Tan­za­nia, this is true for the bank­ing sec­tor, which is a source of anger for pol­i­cy­mak­ers, not least Pres­i­dent John Magu­fuli. “The Pres­i­dent is say­ing he wants banks which are ef­fi­cient. That’s the point. So if the bank is not ef­fi­cient, then we don’t need that bank to op­er­ate in our coun­try,” pres­i­den­tial spokesman Gerson Msigwa tells The Africa Re­port. “There are some banks which were only mak­ing busi­ness with gov­ern­ment, just in trea­sury bills and all, but not serv­ing the peo­ple,” Msigwa adds. Since his 2015 rise to power, Magu­fuli has railed against weak lenders and or­dered the cen­tral bank to close strug­gling in­sti­tu­tions. Shar­ing the same con­cerns, the In­ter­na­tional Mone­tary Fund ( I MF) s a i d a ddre s s i ng non­per­form­ing loans (NPLS) should be Tan­za­nia’s pri­or­ity in or­der to re­duce fi­nan­cial sec­tor vul­ner­a­bil­i­ties and re­vive credit growth. In this land of the Serengeti, bad loans are a stench that will not eas­ily go away. There has been a re­cent down­turn in key sec­tors, in­clud­ing trade and trans­port. By the close of 2017, the NPL ra­tio was 11.7%, up from 10.6% in June 2017, which is more than dou­ble the reg­u­la­tory bench­mark of 5%. An­nual growth of credit to the pri­vate sec­tor was a mere 1.7% in De­cem­ber 2017, com­par­ing poorly with a growth high of 23.6% in 2016. Spurred into ac­tion, the cen­tral bank liq­ui­dated five com­mu­nity banks in Jan­uary and put an­other small lender un­der a pro­vi­sional li­cence. It has also called for con­sol­i­da­tion among the 59 li­censed fi­nan­cial en­ti­ties, 40 of which are fully fledged com­mer­cial banks. Yet for some play­ers who are ea­ger to see con­sol­i­da­tion, the cen­tral bank should not stop there. “I think we could ex­pect more from Bank of Tan­za­nia,” says Ineke Busse­maker, CEO of the Na­tional Mi­cro­fi­nance Bank. “The min­i­mum cap­i­tal re­quire­ments are still what they are. [In­creas­ing them] could be an op­tion, and then you would see a nat­u­ral con­sol­i­da­tion,” she says. Charles Kimei, CEO of CRDB, Tan­za­nia’s largest lender by as­sets agrees. “But now the banks are deal­ing with im­ple­ment­ing In­ter­na­tional Fi­nan­cial Re­port­ing Stan­dard (IFRS) 9, they have been forced to do a lot of pro­vi­sion­ing […], so now that is the ma­jor mar­ket de­vel­op­ment that is go­ing to force con­sol­i­da­tion,” Kimei says. IFRS 9 is a new global fi­nan­cial re­port­ing stan­dard that came into ef­fect this Jan­uary. Some of Magu­fuli’s re­forms – tak­ing gov­ern­ment and paras­tatal cash from com­mer­cial banks while also tight­en­ing bud­get im­ple­men­ta­tion – have hurt the sec­tor. “Es­pe­cially for the smaller banks, cost-cut­ting is an is­sue and the only way to man­age is also to ex­plore economies of scale,” Kimei says. “We are ex­pect­ing ac­qui­si­tions. We can do some ac­qui­si­tions and some other deals,” he con­cludes. While CRDB and NMB, two of the largest lenders, main­tain an in­ter­est in merg­ers and ac­qui­si­tions, the third-largest, Na­tional Bank of Com­merce – a unit of Bar­clays Africa – is fo­cused on con­sol­i­dat­ing Bar­clays’ other, epony­mous, unit in the coun­try. Other in­ter­na­tional banks in Tan­za­nia, in­clud­ing Stan­dard Char­tered and Stan­bic, have largely stayed away from ex­pan­sion in the coun­try.


Tan­za­nia re­quires bold ac­tions to en­sure the vi­a­bil­ity of its banks and avoid con­ta­gion, the IMF said in its lat­est coun­try re­view. But the gov­ern­ment, while en­cour­ag­ing con­sol­i­da­tion, is un­likely to use statu­tory pow­ers to achieve it. Benny Mwaipaja, spokesman for the min­istry of fi­nance, tells The Africa Re­port: “When two of the banks merged, it was just an ad­vice that the other banks should fol­low the same, if at all they find them­selves in cri­sis.” The cen­tral bank is also im­ple­ment­ing the Basel II cap­i­tal re­quire­ments, which will al­low the reg­u­la­tor to

set cap­i­tal ad­e­quacy ra­tios based on in­di­vid­ual risk as­sess­ments. Un­der­stand­ably, the reg­u­la­tor’s cau­tious ap­proach may be in­formed by a re­cent ex­pe­ri­ence with Twiga Ban­corp, an un­der­cap­i­talised state-owned lender brought un­der statu­tory man­age­ment in Oc­to­ber 2016. Whereas the cen­tral bank stated that it would find a buyer “soon,” it found no tak­ers un­til this May, when it agreed to merge it with an­other state-owned lender, Tan­za­nia Postal Bank.


Vol­un­tar y con­sol­i­da­tion has its pro­po­nents, too. “I con­cur that the bank­ing in­dustr y in Tan­za­nia should con­sol­i­date,” says Hilde­brand Shayo, head of re­search at TIB De­vel­op­ment Bank. “Most of the small banks are not ad­e­quately cap­i­talised and it has been dif­fi­cult for these small banks to meet reg­u­la­tory re­quire­ments for min­i­mum cap­i­tal, which is cur­rently capped at Tsh15bn ($6.6m) for com­mer­cial banks.” Shayo adds that prob­lems of as­set qual­ity may be ham­per­ing con­sol­i­da­tion, a fac­tor Busse­maker is also acutely aware of. “Is­sues of val­u­a­tions and as­set qual­ity are there,” Busse­maker says, “but as long as there’s no com­pelling rea­son, they reckon that the mar­ket is just what it is.” For Pa­trick Mususa, ex­ec­u­tive di­rec­tor of The Tan­za­nia In­sti­tute of Bankers, the dis­cus­sion that mat­ters is not con­sol­i­da­tion but the rate of fi­nan­cial in­clu­sion. “At only nine mil­lion Tan­za­ni­ans with bank ac­counts, we still have a long way to go to achieve ef­fec­tive mo­bil­i­sa­tion of both cap­i­tal and liq­uid­ity in the fi­nan­cial sec­tor,” Mususa says. Surely, aim­ing is not the same as hit­ting.

NMB, one of the two largest lenders, is still in­ter­ested in merg­ers and ac­qui­si­tions

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