Tanzania's central bank shuts down 5 banks over poor performance

DAR ES SALAAM, Jan. 4 (Xinhua) -- The Bank of Tanzania (BoT) on Thursday revoked business licenses and took possession of five banks for being undercapitalized and violating the Banking and Financial institutions Act of 2006 and its regulations.

Ben Ndulu, the BoT Governor, said the central bank has also discontinued operations and placed under compulsory liquidation of the five banks.

In its mandate under section 41(a) of the Banking and Financial Institutions Act 2006, BoT also appointed the Deposit Insurance Board (DIB) as the liquidator of the banks.

Ndulu mentioned the closed banks as Covenant Bank for Women Tanzania Limited, Efatha Bank Limited, Njombe Community Bank Limited, Kagera Farmers' Cooperative Bank Limited and Meru Community Bank Limited.

"These banks are critically undercapitalized. Continuation of their operations in their current capital position is detrimental to the interests of depositors and poses a risk to the stability of the financial system," Ndulu told a news conference in the commercial capital Dar es Salaam.

Ndulu said BoT will continue to protect the interests of depositors and maintain the stability of the banking sector.

According to the central bank, the move to close the five non-performing banks is aimed at protecting the stability of the banking system.

Ndulu said the decision has been made after BoT learnt that the banks have inadequate capital, which was contrary to the Banks and Financial Institutions Act of 2006 and its regulations.

Ndulu said BoT will start issuing compensation to depositors in a month's time saying only those who had depositing insurance will be compensated.

The five closed banks had only 0.38 percent of all capital in the banking sector which cannot affect the sector, said Ndulu.

The closure of the banks follows the directives by President John Magufuli last month that all non-performing banks should be closed down.

In May last year, the central bank revoked the business license of Mbinga Community Bank (MCB) PLC, which is located in Mbinga District, Ruvuma Region due to insufficient capital. Enditem