The surprise fall of Bank M

Dar es Salaam. At one point, Bank M was a shining star in Tanzania’s banking industry, but that is now history.

The Bank of Tanzania (BoT) has taken over administration of Bank M Tanzania Limited due to liquidity concerns, and this may have come as a surprise to many. 

Bank M has been a profitable entity for nine of the 11 years that it has operated in the country. 

As a corporate and investment bank, Bank M has been largely involved in the issuance of loans to large companies, while mobilising deposits from both individuals and corporate bodies alike. 

The business model paid off and the bank, which received its commercial banking license from BoT in February 2007 before opening for business in July of the same year, made losses only during the first two years of its operations. 

During its first year of operations (in 2007), the corporate and investment lender had total assets worth Sh31.2 billion. It recorded a loss of Sh1.56 billion, largely due to start up costs. 

In its second year of operations (2008), Bank M’s assets more than doubled to Sh67.3 billion and the loss was cut to Sh1.3 billion. It 2009, it registered its maiden profit of Sh522 million and assets rose to Sh106.5 billion. 

By the end of 2016, the bank’s assets had reached Sh1.05 trillion while its annual net profits ballooned to Sh16.6 billion. 

In unexpected turn of events, that profitable nature started to change. 

During the year ending December 2017, Bank M’s profit declined to Sh12.14 billion. 

Its net profit plunged to a measly Sh1.3 billion during the first half of 2018, from Sh8.5 billion during a similar period in 2017. 

A closer look at the bank’s financial statements could reveal that something may not have been working at the bank. 

The bank – under unknown circumstances – came out to register serious disparities between what it had in deposits from customers and what it had actually given out in loans. 

As of June 30, 2018, total loans were more than deposits by 32.7 per cent. 

It held Sh422.7 billion in customers’ deposits as of June 30, 2018 compared to Sh628.4 billion that it had issued out in loans, advances and overdrafts, according to Bank M’s financial statement for the first half of the current calendar year. 

As a result, Bank M ended up having more liabilities that required it to pay out more than what it was actually able to collect from the loans. 

With the failure to honour its obligation through customers’ payments and withdrawals, some banks started panicking and customers ran. 

BoT said yesterday that the decision to take over the management of Bank M by suspending its board of directors and management and appointing a statutory manager, was based on its (BoT’s) determination that it (Bank M) has critical liquidity problems and was unable to meet its maturing obligations. 

“Continuation of the bank’s operations in the current liquidity condition is detrimental to the interests of depositors and poses systematic risk to the stability of the financial system,” BoT said. 

The management takeover means that Bank M will not open for business for a period of 90 days starting yesterday (August 2, 2018). 

This is the second time within this year that BoT is making serious decision against banks. 

In January this year, BoT revoked the licences of Covenant Bank, Efatha Bank, Njombe Community Bank, Kagera Farmers’ Cooperative Bank, and Meru Community Bank, on the basis of their undercapitalization. BoT said then that the decision came upon determination that the aforesaid banks were critically undercapitalized, hence violating the requirements of the Banking and Financial Institutions Act, 2006 and its regulation. 

Expansion plan 

In its five-year composite business plan, Bank M envisaged its growth organically as well as through acquisitions within Tanzania and in the promising neighbouring countries like Uganda, Zambia, Rwanda and Kenya; and it was eventually emerging as a regional bank in Sub-Saharan Africa. 

In 2016, M Holdings which is owned by various shareholders of Bank M Tanzania, received approval from Central Bank of Kenya (CBK) to acquire 51 per cent of stake at Kenya’s Oriental Commercial Bank Limited. 

Bank M Tanzania also owns 40 per cent of stake in 1st Housing Finance (Tanzania) Limited which it owns jointly with the International Finance Corporation (IFC), Asia’s Housing Development Finance Corporation Limited (HDFC) and the Karimjee family and Sanjay Suchak. 

Bank M shareholders

Information, posted on the Bank M website before it (the website) went off yesterday, showed that the bank is owned by 15 individuals/companies.

Vimal Mehta owns a 16.03 per cent stake while Equity & Allied Limited and Sean Patrick Breslin come in second and third positions respectively with 12.17 and 11.63 per cent shareholding respectively. Other shareholders and their shareholding percentages in brackets include: Africarriers Limited (11) Sanjeev (10.53), Noble Azania Investment Limited (7.3), Khaskar Nair (7.09), Sumaria Properties Limited (4.87) and Simon & Roisin Gregory (4.45).

The list also include Pride Tanzania Limited (3.46), Ramesh Patel (3.26), Gissings Directors Pension Scheme (2.47), Shiva Sanjeev Kumar (1.42) and Caitrin Breslin (0.90 per cent).