Commercial banks in Tanzania have recorded poor performance caused by reduced liquidity and bad debts.
The banks' deposits have declined after the loss of government deposits. The largest private bank, CRDB, for example, posted a loss of Tsh1.9 billion ($1 million) in the third quarter of this year. Twiga Bancorp also registered a loss of Tsh18 billion ($8.26 million) over the past year.
"This poses a systematic risk to the stability of the financial system; the continuation of Twiga operations in its current capital position is detrimental to the interest of its depositors," the Bank of Tanzania (BoT) said in a statement.
The central bank, in its monthly report for October notes that the decrease in money supply was largely reflected in net foreign exchange holdings of the BoT and commercial banks.
President John Magufuli has now directed the central bank to stop supporting under-performing lenders, including Twiga Bancorp, which is state-owned, saying they pose a risk to the economy.
Government cuts support
"These banks are violating regulations," he said. "Don't hesitate to take action, even on those that belong to government. They wait for government bailouts. If they can't survive, let them die."
Dr Magufuli also directed the BoT to monitor mobile-money transfers closely to ensure the government receives its share of revenue from the about Tsh5.5 trillion ($2.5 billion) transacted monthly. He also asked the central bank to scrutinise foreign-exchange bureaus to curtail money laundering.
The International Monetary Fund has called on Tanzania to consider securing new loans -- on both concessional and non-concessional terms -- to finance the country's needs.
A team from the IMF on a 10-day visit to Tanzania from late October held discussions with senior government officials on how to address these macroeconomic challenges. The team was led by senior IMF economist Mauricio Villafuerte.
"In particular, it noted the importance of mobilising external financing to step up the pace of planned capital spending," a statement from the team reads.