Eyes on Oriental as Bank M goes under

L-R BANK M CEO Sanjeev Kumar director Mbank Simon Gregory and Chairman Shanti Shah toast during the launch of M oriental bank in Kenya at aNairobi hotel.22/6/2016. [PHOTO: GEORGE NJUNGE/STANDARD]

Uncertainty hangs over M-Oriental Bank after Tanzania’s new central bank governor put Bank M in receivership.

The Dar lender bought some shares in the Kenyan lender in 2016. The governor, Florens Luoga, said Bank M was short of liquidity and that its continued operations posed a risk to the financial sector as well as depositors' cash.

Bank M has been closed for two months as the regulator assess the available options.

“The owners of the bank and shareholders can come in and pump liquidity to meet the statutory requirement or they can come in and merge operations with another bank to create a stronger institution,” Prof Luoga told reporters in Dar es Salaam yesterday.

Common shareholding

Bank of Tanzania (BoT) also suspended the board and management of Bank M.

M-Oriental Bank, however, said there should be no worries since it was not a subsidiary of the Tanzanian lender and has common shareholding through M-Holdings, which is registered in Kenya

In 2016, Bank M filed an application to buy 51 per cent of Oriental Bank Kenya but got only 34 per cent by the time the period of taking up additional shares lapsed, according to sources.

Sources also indicate that not all shareholders were on board in the Kenyan acquisition and as a result, only select shareholders put in their money. M-Oriental is not new to banking woes, having sunk when it operated under the name Delphis Bank.

Delphis Bank, which was associated with Ketan Somaia, was the first institution to be placed under statutory management after the 1998 banking crisis when it failed to meet its obligations to other banks.

The bank, licensed to operate in Kenya in 1991 and ranked 37th in terms of market share as at December 31, 2015, with nine branches, fought its way out of liquidation on family business, which analysts say may stand behind it under the current turmoil.

The management is said to have considered buying out Tanzanians following President John Magufuli’s order that billions of shillings held in commercial banks by ministries, public corporations and local government authorities be transferred to BoT.

This saw reduced profitability of commercial banks, as well as BoT takeover of Twiga Bancorp Ltd.

Early this year, BoT revoked the licences of Covenant, Efatha, Njombe Community, Kagera Farmers’ Cooperative and Meru Community banks because of their undercapitalisation.