Tanzanian President John Magufuli ordered the country's central bank not to rescue any struggling lenders even though they have suffered from a rise in nonperforming loans over the last two years, Reuters reported.
"It's better to have a few viable banks than dozens of failing banks," Magufuli reportedly said during the opening of a new bank branch March 9. He also accused banks of misappropriating taxpayer money used in past bailouts, according to the March 10 report.
Bad loans totaled 11.7% of all loans in the country as of December 2017, up from 10.6% in June 2017 and more than twice the maximum target of 5%, the newswire wrote, citing data from the central bank. Rising NPLs have also taken a toll on new lending to the private sector, ultimately undermining economic growth, it added.
The International Monetary Fund has also urged the government to prioritize addressing growing NPLs to limit financial-sector vulnerability and revive credit growth, Reuters said. The Bank of Tanzania in early January shuttered five "critically undercapitalized" community lenders as their continued operation "poses a risk to the stability of the financial system" in the country.
The shutdown order followed Magufuli's mandate that the central bank take action against ailing financial firms, with eight small regional banks losing their licenses since 2017, Reuters noted.
