By TZ Business News Staff.
The Bank of Tanzania (BoT) on Friday, october 28, 2016, took over management of a second bank in a span of two years to maintain integrity of a banking sector described as sound and stable.
The BoT Governor, Prof. Benno Ndulu said the Central Bank has taken over management of the State-owned Twiga Bancorp because it had gone bust, and because the owners had failed to provide additional capital.
Twiga Bancorp is in serious debt, the Governor told reporters. The current financial statements contain a Tsh. 21 billion negative balance, he said.
“Twiga is a significantly [under-capitalized] institution as provided under the Banking and Financial Institutions Act, 2006 and its regulations. This poses a systematic risk to the stability of the financial system and that the continuation of Twiga operations in its current capital position is detrimental to the interest of its depositors,” the Governor said.
The Bank of Tanzania has therefore taken over the administration of Twiga Bancorp Limited (Twiga) effective 28th October, 2016 in the exercise of its powers under Sections 56(1)(g)(i) and 56(2) (a)-(d) of the Banking and Financial Institutions Act, 2006, Prof. Ndulu said, adding that this measure has been taken to safeguard the interests of not only the bank’s depositors, but also to protect the banking sector from harm.
BoT has consequently appointed a Statutory Manager to handle affairs of Twiga Bancorp and suspended the Board of Directors and Management of the bank.
However, the bank will not open for normal business for up to one week during which relevant arrangements for future operations will be made, he said. But he assured the public that BoT will continue to protect interests of depositors and maintain the stability of the banking sector.
This is the second bank to come under “Statutory Management” in a span of two years. On July 25, 2014 BoT took over management of the Tanzania headquartered Federal Bank of Middle East (FBME Bank) following American allegations it was linked to money laundering and the financing of terrorism.
Earlier in July 2014, the Financial Crimes Enforcement Network (FinCEN) of the US Treasury said FBME had facilitated a “substantial volume” of money laundering through the bank for many years and had systemic failures in its controls. Following the allegations, the Cental Bank of Cyprus took over control of the FBME Bank branches in Cyprus and the Bank of Tanzania followed suit.
Although the bank had set Tanzania as its headquarters, most of its activities were carried out through its Cypriot branches, FinCEN said. The bank is reportedly co-owned by one Ayoub Farid Saab (50 per cent) and F M Saab (50 per cent) and has branches in Cyprus, Tanzania and an office in Moscow.
BoT took over management of four FBME branches in Tanzania and appointed its Manager to run operations in the suspicious bank, although the takeover was under a different set of circumstances.
The Central Bank issued a statement at the time saying “the Bank of Tanzania, in compliance with the provisions of Section 56(1)(g)(iii) of the Banking and Financial Institutions Act, 2006 has taken over the management of FBME Bank Tanzania… The objective underlying this decision of the Bank of Tanzania is to ensure safety of customers’ deposits and to safeguard the stability of the entire banking system.”
Responding to a question at the press conference, the Governor said when the Central bank takes over management of a bank, it ceases to belong to the original owners.
FBME, which is still under BoT management, was in 2014 widely regarded as the largest bank in Tanzania on account of its $2 billion asset portfolio, although it has only four branches. The Bank of Tanzania Governor declined to comment on the FBME current status.
Prof. Ndulu described the banking sector as doing very well with ratios of total capital to total risk weighted assets and off balance sheet exposures being above requirements by nearly 38% as an average of the industry.
Describing the performance history of Twiga Bancorp, which could be safely described as the one ‘bad aple in the basket’, Mr. Kennedy Nyoni, a BoT Director from the Banking Supervision Directorate said Twiga Bancorp started its operations with the capital of Tsh. 7.5 billion which was the capital requirement for a bank of its kind at the times of its inception. It was originally a state-owned bureaux de change; it later transformed into a bank.
The State owned bank made losses and its starting capital evaporated. Mr. Nyoni did not say how the capital got lost or how the bank got its Tsh. 21 billion negative balance.The Central Bank asked the owners, the Government, to inject additional capital—which they did, but that too got lost. This time the owners have failed to inject additional capital as asked, which has led into the takeover.