How Tanzania tycoons misled Oriental into half-hearted marriage

M Oriental Bank along Koinange street,Nairobi. [Elvis Ogina. Standard]

The East Africa Community has rarely seen Tanzanians take up the bold step into the Kenyan market. And if anything, it has been characterised by the biggest country by land mass finding ways of keeping Kenyans out.

But that seemed to change in 2016 when Tanzanian businessmen walked across the border laden with Sh2.5 billion to buy into one of Kenya’s struggling banks.

At the time, the 2015 banking crisis that saw Imperial Bank, Chase Bank and Dubai Bank all go belly up, was ravaging the market with contagion effect that hit medium and small lenders hard.

It looked like a prudent move, a game changer that has lately seen Tanzanian billionaire businessmen like Aunali and Sajjad Rajabali buy a stake in Equity Bank, Lake Oil buyout of Hashi Energy as well as Village Supermarket, setting up at Nairobi’s Village Market.

The upbeat investment by top shareholders at Bank M of Tanzania was supposed to build up to Sh5 billion by September 2016 that would earn the Tanzanians a 51 per cent stake in the company, resulting in a new strategy.

“Our focus is not mainly focused on growing the balance sheet but more into making profits by avoiding non- performing loans and keeping our customers. We just want to remain who we are, family business focused,” Bank M Tanzania Chief Executive Sanjeev Kumar said in 2016 during the launch of M Oriental Bank.

He said then that the lender would start operations with eight branches which were originally Oriental Commercial Bank’s and to open six more in the near future.

M Oriental even stopped offering automatic teller machine (ATM) services in a strategic shift to target wealthy family-run businesses, unique business model away from retail fanfare which has been overcrowded by Kenya’s other 42 lenders.

The new owners who came in under a consortium called M Holdings Limited even insisted on adding a bold letter M before the Oriental brand to give it the Tanzanian feel as its new look banner caught the eyes of motorists on Mombasa Road next to its Sameer Business Park offices for months.

Liquidity problems

However, soon after the noise died down, the Kenyan bank, which had been keen on getting additional capital started noticing gaps in their buyer’s portfolio bank back in Tanzania.

Bank M of Tanzania’s liquidity started thinning following John Magufuli’s order that billions of shillings held in commercial banks by ministries, public corporations and local government authorities be transferred to State-owned Bank of Tanzania.

The move saw reduction of profitability for many commercial banks as well as Bank of Tanzania’s move to take over management of small bank Twiga Bancorp Limited.

In January this year, the BoT revoked the banking licence of Covenant Bank, Efatha Bank, Njombe Community Bank, Kagera Farmers’ Cooperative Bank, and Meru Community Bank, on the basis of their under-capitalisation.

Bank M finally joined its struggling peers when it fell short of minimum capital of TSh50 billion (Sh2.1 billion) on Thursday last week.

Tanzania’s new central bank governor, Prof Florens Luoga said continued operations threatened the financial sector and puts a risk to depositors’ cash subsequently putting it under receivership for 60 days as the regulator assess options for its resolution.

“The owners of the Bank and shareholders can come in and pump liquidity to meet 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.

And as the Tanzanian bank fell from the technical knockout, details of its Kenyan deal unravelled fast with the Kenyan lender seeking to distance itself from the failed bank to avoid panic and contagion.

The Kenyan lender denied any direct links with the Tanzanian lender in terms of business or as a subsidiary even with the bold M screaming on its banner in parenthesis as a reminder to a once cosy relationship.

“We wish to clarify that, further to media reports regarding Bank M Tanzania plc being placed under administration, Bank M Tanzania Plc has no shareholding in M Oriental Bank Limited and, neither do we have any Shareholding in their Bank,” M Oriental said in a statement.

“Moreover, we do not have any link, commercial relationship or exposure to Bank M Tanzania Plc,” the notice read.

Apparently, while the public was fed with the impression that the Tanzanian Bank had bought out Oriental, it was actually just a few shareholders in the Tanzanian Bank that agreed to the deal.

Simon Gregory and Mr Kumar crafted a consortium in Kenya called M Holdings that bought a 33.8 per cent stake in Oriental which meant that they were the only parties linking the two banks across the border. This consortium also included Shakti Capital, Mustafa Rshid, Sujay Limited and Comafric Holdings.

“The correct position is that CBK gave an approval to M Holdings Limited – a Kenyan owned and registered company in 2016 to acquire up to 51 per cent stake of M Oriental Bank Limited. However, they subsequently opted only to acquire 33.8 per cent,” Shanti Shah Chair M Oriental said.

Pasha Investments (7.68 per cent), Nali Nkumar M Shah (6.51 per cent), Sag Investment (4.32 per cent), Rupen Mulchand Haria (4.11 per cent) and Bank One Limited (3.68 per cent) lead the top shareholding in the bank.

Sources tell Weekend Business that after the lapse of the timelines for the Tanzanians to up their stake and the depressing books of Bank M, the Kenyan shareholders were even considering buying out the consortium or getting another equity investor.

Oriental Bank has suffered the pain of going under receivership having sunk in when it operated under the name Delphis Bank and was saved by the close-knit family ties who even put in their own funds to revive the bank and were not too eager to see it fail again.

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

The lender has also seen the pain of Imperial Bank and Chase Bank depositors who have had to wait for resolution for up to three years and have been glad that the Central Bank of Kenya took a back seat to let them handle confidence in the market.

CBK leaned on the same strategy it employed on Family Bank when the lender faced trouble over a malicious rumour in 2016 letting management talk to depositors to stem a bank run rather than making a pronouncement that would jolt the market.  

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