The Bank of Tanzania (BoT) has placed Bank M under receivership for failure to meet its debts.
The central bank Governor Prof Florens Luoga said Thursday that the lender failed to keep minimum reserves of Tsh50 billion ($21.9 million).
“The decision to take over the bank follows determination by the Bank of Tanzania that Bank M has critical liquidity problems and is unable to meet its maturing obligations,” BoT said in a statement on Thursday.
The central bank also suspended Bank M’s board and management and appointed a statutory manager.
“Continuation of the bank’s operations in the current liquidity position is detrimental to the interests of depositors and poses a system risk to the stability of the financial system,” BoT said.
The bank’s operations have been closed for up to 90 days as BoT determines an appropriate resolution option.
The mid-sized Tanzanian lender owns Kenya’s M Oriental Bank which it acquired in 2016.
The move is expected to shift attention to the operations of Bank M’s Kenyan affiliate, M-Oriental, which the Tanzanian lender acquired after it bought a 51 per cent stake in July 2016.
Central Bank of Kenya (CBK) officials did not respond to questions on the matter.
Kenya in 2016 witnessed the collapse of three banks – Dubai, Imperial and Chase – in succession, raising concerns over the safety of savings among Kenyan consumers.
With the 2016 acquisition of a majority stake in the then Oriental Commercial, Bank M, became the first Tanzanian lender to enter the Kenyan market after the CBK on June 22, 2016, cleared it to buy the majority stake in the Kenyan bottom-tier lender.
The takeover of the Kenyan lender happened after the CBK approved M Holdings Limited’s application to form a Non-Operating Holding Company in Kenya for purposes of acquiring a 51 per cent stake in Oriental Commercial Bank Limited.
On Thursday, a spot check at three of M Oriental’s branches in Nairobi, including its headquarters, operated normally and its officials maintained that it had not been affected by developments in Tanzania.
M Oriental had seven branches, including in Kitale, Nakuru, Mombasa and Nairobi as at the end of last year run by 105 employees.
M Oriental’s profit after tax grew 286 per cent to Sh96.5 million in 2017 from Sh33.6 million the previous year.
The bank’s customer deposits stood at Sh7.46 billion having grown at the rate of 7.59 per cent from Sh6.93 billion a year earlier.
Prior to the acquisition, Oriental Commercial Bank was classified as a small lender.
The bank which was formerly known as Delphis Bank had been placed under receivership in June 2001 but re-opened under a scheme of arrangement that converted 70 per cent of the deposits to equity.
“To our credit, we have been the only bank in the past few decades that went into receivership, recovered well and is posting profits,” M Oriental Bank Chairman Shanti V Shah said in 2016 during the relaunch as M Oriental.
M Holdings Group chief executive Sanjeev Kumar said in 2016 that following the acquisition of M Oriental, the bank would focus on large family businesses to grow its loan book and balance sheet.
“M Oriental Bank is being repositioned as a wholesale bank that is focused on large family businesses with a range of innovative products and services,” said Mr. Kumar during the unveiling of the bank’s new identity in Nairobi.
He said M Oriental would seek to replicate its niche business model that had seen the group’s Tanzanian unit attain success by restricting its services to high net-worth individuals and family businesses.
“We have created Bank M as a strong wholesale bank in Tanzania and we aspire to transform M Oriental as the preferred bank for large family businesses in Kenya,” he had said.