DAR-ES-SALAAM, For the first time in its history, the Bank of Tanzania (BoT) has closed five banks at one go and placed three others on a watch list for six months because of their under-capitalization.

Announcing the revocation of the licences of the five bank0s here Wednesday, the outgoing BoT governor, Professor Benno Ndulu, mentioned the financial institutions as Covenant Bank for Women (Tanzania) Limited, Efatha Bank Limited, Njombe Community Bank Limited, Kagera farmers Cooperatives Bank Limited and Meru Community Bank Limited.

He explained, however, that before the move, the central bank spoke with Community Banks Association of Tanzania (COBAT), urging them to combine efforts and establish one large institution, and have the rest serve as branches, to reduce operational costs.

Prof Ndulu said that in 2012, the BoT had raised the minimum core capital requirement for community banks to two billion shillings (about 891,000 US dollars) from 250 million shillings and the banks were given a five-year grace period to achieve this.

That period ended in June 2017, but we deliberately made a six-month extension to 31 December 2017, for them to have ample time to ponder our advice, but they made their choice and eight banks did not fulfil that requirement, he explained.

He further explained that the five banks also failed to submit their strategic plans on how they could raise their capital, in conformity with the Banking Financial Institutions Act, 2006.

The BOT has appointed the Deposit Insurance Board (DIB) as liquidator of the five banks effective from Jan 4, 2018. The governor pointed out that continued operations under their current capital position was detrimental to the interests of depositors and posed a risk to the stability of the financial system.

The three banks to which the grace period was given are Kilimanjaro Co-operative Bank Limited, Tanzania Women's Bank (TWB) and Tandahimba Community Bank Limited. The BoT said Tandahimba entered into a three-year agreement with CRDB and was already doing well and making some profit. On Kilimanjaro Co-operative Bank, he said the bank shareholders�Kilimanjaro Co-operative Union�agreed to increase its core capital.

NMB Bank has shown an interest in investing in TWB, targeting to turn it into a special lending window for women entrepreneurs, Prof Ndulu said. On the reason behind failure of small banks, he said most of them had a minor scope of business and never gained any profit due to high running costs, bloated boards of directors and running big systems.