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

    FSI Paper Examines Use of Suptech Initiatives by Financial Authorities

    The Financial Stability Institute (FSI) of BIS published a paper that examines the suptech developments by analyzing suptech initiatives of 39 financial authorities globally.

    October 17, 2019 WebPage Regulatory News
    News

    US Agencies Consult on Policy Statement on Allowance for Credit Losses

    US Agencies (FDIC, FED, NCUA, and OCC) are consulting on the policy statement on allowances for credit losses and on the guidance on credit risk review systems.

    October 17, 2019 WebPage Regulatory News
    News

    PRA Consults on Approach to Supervising Liquidity and Funding Risks

    In consultation paper (CP27/19), PRA published a proposal (CP27/19) to update the supervisory statement SS24/15 on the PRA approach to supervising liquidity and funding risk.

    October 17, 2019 WebPage Regulatory News
    News

    FSB Report Examines Implementation and Impact of G20 Financial Reforms

    FSB published fifth annual report on the implementation and effects of the G20 financial regulatory reforms.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Launches Consultation on Comprehensive Pillar 3 Disclosures

    EBA proposed the new comprehensive implementing technical standard (ITS) for public disclosures by financial institutions.

    October 16, 2019 WebPage Regulatory News
    News

    EBA Consults on Revised Technical Standards on Supervisory Reporting

    EBA launched a consultation on the revised implementing technical standards, or ITS, on supervisory reporting.

    October 16, 2019 WebPage Regulatory News
    News

    BoE and FCA Examine Use of Machine Learning in Financial Sector in UK

    BoE and FCA published a report on the results of a joint survey by BoE and FCA in 2019 to better understand the use of machine learning in the financial services sector in UK.

    October 16, 2019 WebPage Regulatory News
    News

    BCBS Report Examines Progress on Adoption of Basel Framework

    BCBS published the seventeenth progress report on adoption of Basel regulatory framework.

    October 16, 2019 WebPage Regulatory News
    News

    APRA Proposes Measures to Strengthen Capital for Bank Depositors

    APRA proposed changes to APS 111, which is the prudential standard on measuring capital adequacy and establishes the criteria for regulatory capital requirements of authorized deposit-taking institutions.

    October 15, 2019 WebPage Regulatory News
    News

    EIOPA Consults on Technical Advice for the 2020 Review of Solvency II

    EIOPA is consulting on an opinion that sets out technical advice for the 2020 review of Solvency II.

    October 15, 2019 WebPage Regulatory News
    RESULTS 1 - 10 OF 3981