CAG: Here's what ails Tanzania's state-owned banks

Dar es Salaam. Three state-owned banks – TIB Development Bank, Azania Bank and Tanzania Commercial Bank (TCB) – are burdened by risky loans, capital inadequacy and non-compliance with regulatory requirements, according to the Controller and Auditor General (CAG).

The Citizen sought comments from the managements of the three lenders, but it was only Azania that came up with a detailed explanation.

So far so good for Azania

As for Azania Bank, the management says much as it welcomes the CAG’s audit findings, there was nothing to worry as there has been a lot of improvements during the past few months after the audit.

The bank’s managing director, Ms Esther Mang’enya, said while the CAG noted two key issues in respect of Azania Bank in his audit report for the fiscal year 2022/23, which includes collaterals and NPLs, the issues have been taken care of.

The missing recent collateral valuation, the bank says, relates to mortgage and project financing where customers borrow for construction of houses or property.

“Loans for constructions are issued on tranches. The Bank conducts final valuation and gets valuation report when the construction is completed,” said Ms Mang’enya, reminding the public that Azania Bank is the pioneer of mortgage loans, and it has remained to be among the leading mortgage loans providers.

As for insurance cover, Ms Mang’enya said Azania Bank does Bancassurance business where all insurance covers relating to loans are issued and therefore ensures that all the collaterals are insured all the time.

On the NPL aspect, Azania Bank says it is encouraging that it has been going down from as high as 18.25 percent in 2022 to only 7.44 percent in 2023 as rightly noted by the CAG.

However, it says the lender’s NPLs are historic, stemming from Azania’s 2019 acquisition of Bank M.

“The high level of NPL is historic from acquisition of assets and liabilities of Bank M in 2019 whereby the NPL ratio during acquisition was 32 percent,” she said.

The target of the management, Ms Mang’enya said, was not maintain the tempo and reduce it further to five percent at the end of year 2024.

Faults TIB NPLs, Core capital

The banks’ performance according to CAG Charles Kichere were being affected by the quality of the loan portfolios with non-performing loans amounting to over Sh241 billion.

By the end of December 2023 TIB Development Bank had an NPL ratio of 21.5 percent.

“I am concerned that the deterioration of the quality of the loan portfolio erodes the banks’ core capital which in turn affects the capital adequacy ratio and performance of the banks,” the CAG said.

He highlighted that TIB Development Bank’s core capital as of December 2023 was Sh88.12 billion which is below the minimum regulatory capital requirement of Sh200 billion.

He however that the bank explained that they expect disbursement of capital from the Ministry of Finance through the Treasury Registrar (TR).

“Unfavourable capital adequacy ratio poses a risk for the Bank to lose its eligibility to operate, therefore, it might cause the Bank to be put under the statutory administration of BoT,” Mr Kichere warned.

Despite being adversely mentioned however, TIB Development found no reason of issuing its side of the story, with several attempts by The Citizen going unanswered for the past one week.

TCB’s risky loans, Cost to Income ratio

Mr Kichere also indicated that a review of TCB books also showed that the bank’s core capital and the total capital were 13.26 percent and 13.26 percent, respectively.

Based on the ratios, the bank met the required core capital but remained below the minimum required level for the total capital which is 14.5 percent.

“Non-achievement of the total capital ratio is attributed to non-performing loans and continued reported loss which is eroding the core capital.”

Mr Kichere added that TCB’s performance assessment revealed that the bank’s cost-to-income ratio was 81.82 percent which exceeded the required minimum ratio of 55 percent.

He emphasised the urgent need for TCB to safeguard its long-term viability by closely monitoring capital adequacy, managing NPLs and reigning in operating expenses to align with regulatory standards.

Audited financial statements for TCB Bank however showed that the bank did well with an NPL ratio of 3.7 percent by the end of 2023, at Sh35.02 billion.

According to the CAG, however, TCB provided loan facilities amounting to Sh6.56 billion to six customers who had not provided collaterals as stipulated in the loan contract.

Besides, the Bank extended additional loans amounting to Sh5.50 billion to two customers without revising their mortgage deeds to secure the new liabilities. “Further, valuation reports and spouse consent of the pledged securities of six corporate customers involving Sh8.34 billion were not perfect as required by the Lending Manual (2022),” he said.

The CAG’s comprehensive analysis further uncovered practices at TCB, including the issuance of loans exceeding the limit of Sh734.28 billion without board approval.

While the bank cited updates to sector-specific lending limits in the Lending Manual 2023, the CAG emphasized the heightened risk of potential losses associated with loans disbursed to unapproved sectors, particularly due to their large volume.

“The bank issued loans totalling Sh6.21 billion to the sectors including warehousing and storage, water, electricity, fishing, and health. These sectors were neither approved by the board nor addressed in the existing Lending Manual,” he said.