Tanzania's banking sector under scrutiny

Tanzania's banking sector has come under scrutiny after the recent suspension of two banks within a week. The Bank of Tanzania recently revoked the business license for Mbinga Community Bank, citing a lack of sufficient capital. This action followed the liquidation of FBME on allegations of money laundering by the US government. The fragility of the banking sector in Tanzania has raised concerns about regulatory challenges and the need for consolidation to ensure stability. In a recent interview with CNBC Africa, Mkhululi Ncube, a Financial Institutions Specialist at RMB, shed light on the issues plaguing the sector. Ncube emphasized the importance of effective regulatory standards and bank consolidation to enhance monitoring and supervision. One of the key points highlighted by Ncube was the high levels of non-performing loans in Tanzania, averaging around 8%. The collapse of banks like Mbinga Community Bank can be attributed to elevated asset risks and under-capitalization, limiting shareholders' ability to recapitalize the banks. Ncube underscored the importance of strong shareholders and consolidation in strengthening the banking system. He also discussed the impact of asset quality on non-performing loans, noting that banks focusing on SME and retail unsecured loans face higher risks due to insufficient credit information. Banks with legacy loans, like CRDB, struggle with NPLs exceeding 10%, while those focusing on big corporates maintain lower NPL levels. The interview also touched on the case of FBME, once the largest bank in Tanzania by assets, facing allegations of money laundering. Ncube highlighted the proactive steps taken by the Tanzanian central bank to place FBME under curatorship and eventually liquidate the bank. He stressed the importance of maintaining accountability and regulatory oversight to prevent single institutions from tarnishing the entire banking sector's reputation. Ncube called for enhanced collaboration between regulators across East Africa to effectively regulate banks and mitigate risks. The challenges facing Tanzania's banking sector reflect the broader issue of regulatory effectiveness and the need for proactive measures to ensure stability and accountability. The recent developments underscore the importance of addressing under-capitalization, non-performing loans, and regulatory gaps to safeguard the financial system. As Tanzania strives to enhance its banking landscape, a collaborative approach and strategic reforms will be crucial to fostering a resilient and sustainable banking sector in the region.