General Information & Client Service
  • Americas: +1.212.553.1653
  • Asia: +852.3551.3077
  • China: +86.10.6319.6580
  • EMEA: +44.20.7772.5454
  • Japan: +81.3.5408.4100
Media Relations
  • New York: +1.212.553.0376
  • London: +44.20.7772.5456
  • Hong Kong: +852.3758.1350
  • Tokyo: +813.5408.4110
  • Sydney: +61.2.9270.8141
  • Mexico City: +001.888.779.5833
  • Buenos Aires: +0800.666.3506
  • São Paulo: +0800.891.2518
December 04, 2018

IMF published a report on the Financial System Stability Assessment (FSSA) for the United Republic of Tanzania. Executive Directors concurred with the findings and recommendations of the 2018 FSSA. They welcomed the progress since the 2010 Financial Sector Assessment Program (FSAP), particularly toward strengthening financial prudential regulations and putting in place certain key elements of a framework for monitoring systemic risks and macro-prudential policy responses. To build on this progress and ensure that the Tanzanian financial system is stable, efficient, and inclusive, Directors called for policy action to lower risks and raise resilience of the banking system. In this context, they encouraged the authorities to implement the recommendations of FSSA.

The FSSA report highlights that the country's bank-dominated financial sector is small, concentrated, and at a relatively nascent stage of development. Financial services provision is dominated by commercial banks, with the ten largest institutions being preeminent in terms of mobilizing savings and "intermediating" credit. Medium-to-small banks rely systematically more on costlier, short-term, interbank financing and institutional deposits and have markedly higher operating costs. Stability analysis suggests that even under a benign baseline economic outlook, solvency positions of government-owned and smaller private banks could come under pressure while the number of under-capitalized institutions may increase. Although the largest banks appear relatively resilient in the face of shocks confidence spillovers under stressed times could increase the adverse impact of shocks on these systemic institutions.

These vulnerabilities underscore the importance of a strong financial system oversight and policy framework to preserve financial stability. Consideration of additional policy action to lower risks and raise the resilience of the banking system and non-financial firms is recommended. Key priorities include measures to reduce nonperforming loans (NPLs), increase provisioning, increase institutional and systemic buffers to manage domestic and foreign currency liquidity risks, and prompt payment on government-guaranteed loans and resolution of government arrears. The report further notes that assessment against international standards spotlighted areas requiring enhancements to banking supervision. Building on the broadly adequate regulatory framework, priorities to enhance supervisory processes include revising the risk-based supervision framework to introduce a single, non-formulaic risk rating system; implementing the consolidated supervision regulation; and adequately and consistently enforcing prompt corrective action regulations. Directors encouraged further efforts to align the prudential framework with international standards and best practices. They welcomed the authorities’ plans for Basel II/III implementation in line with the East African Community harmonization commitments and encouraged the authorities to advance the framework for identification of domestic systemically important banks (D-SIBs).

The February 2018 circular of the Bank of Tanzania for loan classification and restructuring could present financial stability challenges down the road and should be followed up with further guidance on the criteria for restructuring and upgrading the problem loans. The circular also weakens the framework and policies of the Bank of Tanzania on overseeing problem loan management by providing banks the ability to upgrade the classification of NPLs. It is recommended that the Bank of Tanzania follow up on the circular with further guidance on criteria for such credits to qualify for restructuring and upgrade. Additionally, the report states that financial crises management can be significantly enhanced by operationalizing the existing framework. Development of agency-specific contingency plans by members of the Tanzania Financial Stability Forum and of plans for the use of extraordinary powers to maintain financial stability during a systemic crisis by the Ministry of Finance and Bank of Tanzania is paramount. Operational independence and effectiveness of the Deposit Insurance Board (DIB) would be enhanced by appointing its Board and increasing advanced planning for payouts and liquidation. Bank of Tanzania should require recovery plans from banks and should prepare resolution plans for D-SIBs, once identified.

 

Related Link: FSSA Report

Keywords: Middle East and Africa, Tanzania, Banking, Insurance, Macro-prudential Policy, FSAP, FSSA, NPL, D-SIBs, Stress Testing, Bank of Tanzania, IMF

Related Insights
News

OFR Adopts Data Collection Rule on Centrally Cleared Repo Transactions

OFR adopted a final rule to establish a data collection covering centrally cleared funding transactions in the U.S. repurchase agreement (repo) market.

February 20, 2019 WebPage Regulatory News
News

FHFA Finalizes Rule on Federal Home Loan Bank Capital Requirements

FHFA published, in Federal Register, the final rule to adopt, as its own, portions of the regulations of the Federal Housing Finance Board pertaining to the capital requirements for the Federal Home Loan Banks.

February 20, 2019 WebPage Regulatory News
News

SRB Publishes Framework for Performing Valuations in Resolution

The framework provides independent valuers and the general public with an indication of the expectations of SRB on the principles and methodologies for valuation reports, as set out in the legal framework.

February 19, 2019 WebPage Regulatory News
News

US Agencies Extend Consultation Period for the Proposed SA-CCR

US Agencies (FDIC, FED, and OCC) extended the comment period for a proposed rule to update their standards for how firms measure counterparty credit risk posed by derivative contracts.

February 18, 2019 WebPage Regulatory News
News

FED Extends Consultation Period for Stress Testing Rule

FED has published in the Federal Register a notice proposing amendments to the company run and supervisory stress test rules.

February 15, 2019 WebPage Regulatory News
News

EBA Single Rulebook Q&A: Third Update for February 2019

EBA published answers to two questions under the Single Rulebook question and answer (Q&A) updates for this week.

February 15, 2019 WebPage Regulatory News
News

SEC Proposes Rule on Risk Mitigation Techniques for Uncleared SBS

SEC proposed a rule that would require the application of specific risk-mitigation techniques to portfolios of security-based swaps (SBS) that are not submitted for clearing.

February 15, 2019 WebPage Regulatory News
News

FSB Report Examines Financial Stability Implications of Fintech

FSB published a report that assesses fintech-related market developments and their potential implications for financial stability.

February 14, 2019 WebPage Regulatory News
News

US Agencies Amend Regulatory Capital Rule to Allow Phase-In for CECL

US Agencies (FDIC, FED, and OCC) adopted the final rule to address changes to credit loss accounting under the U.S. generally accepted accounting principles; this includes banking organizations’ implementation of the current expected credit losses (CECL) methodology.

February 14, 2019 WebPage Regulatory News
News

FASB Proposes Taxonomy Improvements for the Credit Losses Standard

FASB proposed the taxonomy improvements for the proposed Accounting Standards Updates on Targeted Transition Relief for Topic 326 (Financial Instruments—Credit Losses) and Topic 805 (on Business Combinations—Revenue from Contracts with Customers).

February 14, 2019 WebPage Regulatory News
RESULTS 1 - 10 OF 2617