Featured Product

    IMF Assesses Financial Stability of the United Republic of Tanzania

    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

    Featured Experts
    Related Articles
    News

    PRA Finalizes Policy on Prudent Person Principle Under Solvency II

    PRA published the policy statement PS14/20, which contains the supervisory statement SS1/20 and the feedback to responses to the consultation paper CP22/19 on expectations for investment by firms in accordance with the Prudent Person Principle, or PPP, as set out in the Investments Part of the PRA Rulebook.

    May 27, 2020 WebPage Regulatory News
    News

    EBA on Extending Large Exposure Limits for French Systemic Banks

    EBA published an opinion following the notification by the French macro-prudential authority, the Haut Conseil de Stabilité Financière (HCSF), of its intention to extend a measure introduced in 2018 on the use of Article 458(9) of the Capital Requirements Regulation (CRR).

    May 27, 2020 WebPage Regulatory News
    News

    ECB Highlights NPL Resolution as Key Policy Issue in Post-COVID Europe

    As part of a Research Bulletin on the recent policy-relevant work, ECB published an article that examines the lessons learned from past crises for nonperforming loan resolution in the post COVID-19 period.

    May 27, 2020 WebPage Regulatory News
    News

    RBNZ Publishes Financial Stability Report for May 2020

    RBNZ published the financial stability report for May 2020. This review of the financial system in the country highlights that the economic disruption associated with COVID-19 will present challenges to the financial system.

    May 27, 2020 WebPage Regulatory News
    News

    ECB Updates Guidance on Reporting of Securities Holdings Statistics

    ECB updated the guidance notes for reporting related to the statistics on holdings of securities by reporting banking groups (SHSG).

    May 26, 2020 WebPage Regulatory News
    News

    ECB Publishes Results of Financial Stability Review in May 2020

    ECB published results of the financial stability review in May 2020. Among other issues, the financial stability review assesses operations of the financial system so far during the COVID-19 pandemic.

    May 26, 2020 WebPage Regulatory News
    News

    Regulators and Private Sector Meet to Discuss COVID Policy Responses

    Financial policymakers and international standard-setters met virtually with private-sector executives to discuss international policy responses to COVID-19 pandemic.

    May 26, 2020 WebPage Regulatory News
    News

    ESMA Responds to IASB Consultation on Interest Rate Benchmark Reform

    ESMA published a letter responding to IASB on the exposure draft on the phase 2 of the interest rate benchmark reform.

    May 25, 2020 WebPage Regulatory News
    News

    HKMA Consults on Supervisory Policy for OTC Derivatives Transactions

    HKMA is consulting on revisions to the Supervisory Policy Manual module CR-G-14 on margin and other risk mitigation standards for non-centrally cleared over-the-counter (OTC) derivatives transactions.

    May 25, 2020 WebPage Regulatory News
    News

    EBA Examines Impact of COVID Crisis on Banking Sector in EU

    EBA published thematic note presenting a preliminary assessment of the impact of COVID-19 outbreak on the banking sector in EU.

    May 25, 2020 WebPage Regulatory News
    RESULTS 1 - 10 OF 5221