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Focus shifts to Kenyan branch after fall of Bank M in Tanzania

Saturday August 04 2018
oriental

M Oriental Bank Koinange Street branch in Nairobi, Kenya on August 2, 2018. PHOTO | SALATON NJAU | NMG

By BUSINESS DAILY
By REUTERS

The takeover of the management of Bank M by Tanzania’s central bank has shifted attention to the operations of its Kenyan affiliate, M Oriental, which the Tanzanian lender acquired in 2016.

The Bank of Tanzania on Thursday announced it had taken over the management of Bank M, citing critical liquidity problems and its inability to meet its obligations. But in Kenya, the bank was operating normally, and Central Bank of Kenya (CBK) officials would not comment on the matter.

By press time, three of M Oriental’s branches in Nairobi, including its headquarters, operated normally, with its officials saying it had not been affected by developments in Tanzania.

With the 2016 acquisition of the majority stake in the then Oriental Commercial, Bank M became the first Tanzanian lender to enter the Kenyan market after the CBK approved M Holdings Ltd’s application to form a non-operating holding company for the purposes of acquiring a 51 per cent stake in Oriental.

As at the end of 2017, M Oriental had seven branches in Kitale, Nakuru, Mombasa and Nairobi, run by 105 employees. Its profit after tax grew by 287 per cent to Ksh96.5 million ($965,000) in 2017 from Ksh33.6 million ($336,000) the previous year. The bank’s customer deposits stood at Ksh7.46 billion ($74.6 million), having grown at the rate of 7.59 per cent from Ksh6.93 billion ($69.3 million) 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 reopened under an arrangement that converted 70 per cent of the deposits to equity.

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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 new bank 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 networth 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 said.

Kenya in 2016 witnessed the collapse of three banks — Dubai, Imperial and Chase — in succession, raising concerns over the safety of customers’ savings.

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 past 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 weigh 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 the banking sector sentiment in the Tanzanian 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,” Ms Atiti said. “In case there are questions around governance which haven’t been established 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 in January urged Tanzania 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.

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