THE Controller Auditor General (CAG) has uncovered various credits issuance and deposits taking loopholes, over expenditure among three state-owned commercial banks and a financial institution, as well as capital inadequacy ratio on the development bank.

These irregularities might result into increased risks of losses among commercial banks and the capital inadequacy bank to be put under the statutory administration of BOT.

In its audit report for financial year 2022/2023, the CAG has therefore recommended various measures that the government and the boards of directors need to take in order to ensure efficient operations of state owned banks in accordance with the industry’s laws and regulations as well as banks corporate policies.

Uninsured deports

The CAG review has found that TIB Development Bank and Tanzania Agricultural Bank (TADB) accept fixed deposits from customers that take more than one year to mature, but they are not protected by Deposit Insurance Board (DIB).

TIB Development Bank and TADB argued that the accepted deposits were maintained by the commercial banks where their accounts were held and therefore the premiums on their deposits are paid by commercial banks.

However, the CAG review noted that the deposits in commercial banks were owned by respective banks and not individual customers holding deposits. 

“I am concerned about the risk of exposing depositors not being covered by the insurance plan as required by the law and hence subjected to loss in case of bank failure,” CAG Charles Kichere revealed.

“I recommend that DIB hold a consultative meeting with TIB Development, TADB and Bank of Tanzania to agree on the appropriate modality of securing their customer’s deposits.”

Section 38 (1) of the Banking and Financial Institutions Act, 2006 requires every bank or financial institution to contribute to the DIB and to pay into the fund such annual amount and at such times, as the board may determine.

The CAG review found that DIB collected premiums directly from only 46 out of 48 banks for financial institutions but the two banks were missing.

TIB Development Bank’s inadequacy capital

The CAG report has also discovered that TIB Development Bank core capital as at 31 December 2023 was only 88.12bn/- which is below the minimum regulatory capital requirement of 200bn/- that fall short by 111.88bn/- equivalent to 127 percent. 

Regulation 22(1) of Banking and Financial Institutions (Development Finance) Regulations, 2021 details that a development finance institution shall commence operations with and always maintain a minimum core capital of not less than 200bn/-, or such higher amount as the bank may determine.

Further, the bank explained that the Ministry of Finance through Treasury Registrar (TR) aims to disburse 118bn/- through the government budget of 2023/24, to improve capital position as the core capital has been affected by the recurring losses.

Also, CAG noticed a balance of 37bn/- which is not recovered since 2019, a period of five years from the Treasury Registrar. 

In 2019 TR was obligated to pay 37bn/- to TIB Development Bank being an amount that it owed the TIB Corporate Bank Limited that ceased its operations and taken over by Tanzania Commercial Bank. 

However, until my audit on 6th March 2024, the amount was still not settled by TR, according to CAG report.

TIB Development Bank explained that the equity investment worth 37bn/- was recorded as receivable from the TR following the TR 99 Controller and Auditor General GR/PA/2022/23 commitment via letter with Re No CAB.25/337/01 dated 5 May 2021, but up to March 2024 the funds had not been released.

“Unfavourable capital adequacy ratio poses a risk for the development bank to lose its eligibility to operate, therefore, it might cause the Bank to be put under the statutory administration of BOT,”CAG report alerts. 

In addition, long outstanding receivable of 37bn/- is crucial to TIB Development Bank as it could improve the core capital of the Bank.

According to CAG Kichere, TIB Development Group continued making a loss before tax, in 2023 the loss amounted to 5.92bn/- (2022: 131.97bn/-). 

The Group has accumulated losses of 221.62bn/- b (2022: accumulated losses of 215.03bn/-). 

While Tanzania Commercial Bank (TCB) made a loss before tax of 41.40bn/- (2022 profit before tax of 6.87bn/-) an increase of 48.27bn/- equivalent to 703 percent. 

The reported loss by TCB was mainly contributed by impairment loss from non-performing loans inherited from merger of TIB corporate bank. 

Non-Performing Loans (NPLs)

The Non-Performing Loans (NPL) records indicate that TIB Development Bank had a ratio of 21.50 percent as of 31 December 2023 (2022: 20.28 percent), while Azania Bank had NPLs ratio improved to 7.44 percent as of 31 December 2023 (2022: 18.25 percent). 

“Despite the notable decrease in NPL ratios at Azania Bank from the preceding year, I observed that both banks still exceeded the acceptable threshold set by the Bank of Tanzania (BOT) which is 5 percent,” CAG said. 

TIB Development Bank and Azania Bank altogether had Non-Performing Loans of 206.04bn/- (2022: NPL 262.72bn/-), a decrease of 56.68bn/-. 

Loopholes in lending

The audit report has uncovered that TCB extended loans amounting to 728.07bn/- to five sectors namely personal, transportation and communication, hotels, restaurant and tourism, building and construction, as well as education, which exceeded the approved limits set out in the TCB Policy and were disbursed without obtaining the board’s approval. 

Also, the bank issued loans totalling 6.21bn/- to the sectors including warehousing and storage, water, electricity, fishing and health, which are neither approved by the board nor addressed in the existing Lending Manual. 

TCB explained that the sectors with their corresponding limits were updated in the Lending Manual 2023 to be in line with sectors allocated by the Regulator in their reporting schedules while the Lending Manual 2023 was already approved internally awaiting approval from the Regulator. 

TCB also stated that the updated sectors include all sectors mentioned as unapproved in the findings and the TCB undertakes to regularize sectors by encouraging borrowing in other sectors.

CAG observed that there is an increased risk of potential losses for loans issued to unapproved sectors since the loans disbursed above limit involve large volume.

“I recommend that TCB strengthens controls on management of the issued loans including monitoring and tracking the issued loans and ensure loans are issued after the appropriate approval of the Board of Directors and fall within the limit stipulated in the Policy,” said the CAG.

The CAG also said TCB provided loan facilities amounting to 6.56bn/- to six customers who had not provided collaterals as stipulated in the loans contract. 

Also, the bank extended additional loans amounting to 5.50bn/- 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 8.34bn/- were not perfect as required by the Lending Manual (2022). 

Also, the CAG review found that Azania Bank’s PLC collateral information used in the computation of the expected credit losses was incomplete as it missed documents such as the valuation reports and insurance covers involving 383.22bn/- from 60 borrowers. 

“I am of the view that incomplete collateral documents create a credit risk that the bank may not be able to recover the loan in the event of default. I recommend Azania Bank Plc and Tanzania Commercial Bank ensure the loans issued are backed up by adequate and quality securities; and controls on management of the issued loans including monitoring and tracking of the issued loans and its collaterals are strengthened,” said CAG Kichere.

The audit report also uncovers that SELF Microfinance had credit facilities amounting to 38.89bn/- that were extended to 4252 customers, but the microfinance did not submit the borrowers’ credit information to the Credit Reference Bureau (CRB) which provides a room for borrowers to engage into another credit facilities from other microfinances/banks. 

Also, SELF MF systems, Oracle and IMFAS systems that were aimed to generate reports with detailed information to be uploaded in the Credit Reference Bureau were not properly configured to generate such report, the report says.