DODOMA, Barely a week after the Bank of Tanzania (BoT) revoked FBME Bank licence, the Central Bank has struck again, this time, rescinding Mbinga Community Bank licence before placing it under Depository Insurance Board receivership.

However, economists were quick to warn that if the current trend continues, then more banks are likely to fold.

A statement issued by BoT, yesterday, said that the move, to be executed immediately, was taken after the bank became undercapitalized and facing acute liquidity problems, to warrant further operation continuance.

"The capital and liquidity shortfalls threatens the money sector and endangers the safety of customer deposits," BoT said in the statement. The Central Bank also said that it will continue to protect the interests of depositors, aiming at bringing resilience in the financial sector.

Economists-cum-bankers recently warned of slim chances of survival for financial institutions in the current environment after BoT increased capital requirements and introduced operational risk buffers.

"I think that given the difficulties in obtaining good working capital, because (small banks) are not very profitable ... they will be forced somehow to go into acquisitions or mergers," Tanzania Bankers Association (TBA) Chair, Dr Charles Kimei, said when interviewed by International Banker.

Dr Kimei, who is also CRDB MD, added: "...the only banks that will be able to survive are those which are wider to excel, which are large in terms of capital basis as well as funding and cash."

Another economist, Dr Hildebrand Shayo, said banks are facing nonperforming loans (NPLs) headwind that threatens their survival as they struggle with insufficiency capital. "NPLs are one of the drivers that harm businesses in any economy, because banks generate money through credit expansion.

"While major lenders have admitted (NPLs) problem, which has continued to increase in absolute terms, reaching the highest level as shown in quarter one reports," Dr Shayo, also a leading economist with TIB bank said.

Mzumbe University senior economist, Prof Honest Ngowi said government's austerity economic measures have disturbed some businesses, leading to general economic slowdown for various reasons, including contraction of fiscal and monetary policies. "NPLs lead to negative phenomenal... banks' earnings fall, may lead to financial instability. The financial sector may collapse," Prof Ngowi said.

Mbinga becomes the second bank to go under, this year, after Twiga Bancorp due to capital woos and liquidity problem. This week, FBME was forced to close by BoT due to money laundering allegations. Economists are worrying that banks such as Efatha, Women's Bank with over 50 per cent level of NPLs may face licence withdrawing, since bad loans reduces capital adequacy ratio