August 2, 2018 / 9:55 AM / a year ago

UPDATE 2-Tanzania's Bank M taken over by central bank

(Updates with details, analyst)

By Omar Mohammed

NAIROBI, Aug 2 (Reuters) - Tanzania’s central bank has taken over the management of Bank M as it has critical liquidity problems and is unable to meet its obligations, the regulator said on Thursday.

Tanzania’s financial sector has seen a rise in bad loans since 2015 that has hit bank profits and stifled private sector lending. Bank M’s takeover is the second such action by the central bank in the last year.

The central bank said it had suspended Bank M’s board of directors and its management, and appointed a statutory manager to handle its affairs with immediate effect.

“Continuation of the bank’s operations in the current liquidity conditions is detrimental to the interests of depositors and poses systemic risk to the stability of the financial system,” it said in a statement.

Bank M, which had total assets of nearly $500 million, according to a May 2018 note by Teneo Intelligence, will remain closed to normal business for up to 90 days, to give the regulator time to weight its options, the central bank said.

Neither its shareholders nor its management were available for a comment.

The closure of Bank M deals a blow to banking sector sentiment in East Africa’s third-largest economy as the bank was among the top players, said Faith Atiti, Senior Research Economist at Nairobi-based lender CBA Group.

“The deterioration in confidence could occasion a flight to quality in the market with preference to bigger banks perceived stable,” Atiti said.

“In case there are questions around governance which hasn’t been established at present, then depositors will be even more picky.”

Tanzania has more than 40 banks but its financial services sector is dominated by lenders such as CRDB Bank and NMB Bank.

The International Monetary Fund (IMF) in January urged Tanzania’s government to tackle bad debts as a priority to reduce financial sector vulnerabilities and revive credit growth, which has deteriorated substantially, contributing to the declining quality of the loans.

Editing by Duncan Miriri and Angus MacSwan

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