Banking Supervision
By BANK OF TANZANIA
Supervisory Methodologies, Acts, Regulations
and Circulars in Place
The Bank of Tanzania uses both on-site and off-site
inspection in supervising banks and financial institutions.
Supervisory
Methodologies
· On-site inspection:
Full scope or
targeted examination on individual banks or financial institutions. The risk
management framework of the individual bank or financial institution especially
Credit, Liquidity, Interest Rate, Foreign Exchange and Operational Risks are
reviewed. Apart from the risk framework review of the five key components of
the institutions, that is Capital adequacy,Asset quality, Management quality, Earnings capability and Liquidity (CAMEL) at least once a year for every institution
done on site. In addition, supervisors do verify compliance with laws and
regulations and assess the effectiveness of the institutions' internal control
system.
· Off-site inspection:
In the off-site
inspection assessment of financial soundness through analysis of the
statistical and other returns covering key areas of the institutions is done.
From the analysis an Early Warning Report is produced. The statistical returns
are submitted periodically (i.e. Daily, Weekly, Bi-weekly, monthly, quarterly,
semi-annually and annually or on ad hoc basis if the circumstances so demand).
·
· The Bank of Tanzania
Act, 2006, was enacted in 2006, the Act specifies
functions and objectives among others as to the regulation and supervision of
banks and financial institutions in Tanzania.
The Act is to provide
more responsive regulatory role of the Bank of Tanzania in relation to the
formulation and implementation of monetary policy; to provide for the
supervision of banks and financial institutions and to provide for other
related matters.
· The Banking and Financial
Institutions Act, 2006 (BFIA, 2006), (Cap 342), emanated from
the Banking and Financial Institutions Act, 1991 which was repealed and
replaced by BFIA, 2006. BFIA, 2006 consolidates the law relating to business of
banking, to harmonize the operations of all financial institutions in Tanzania,
to foster sound banking activities, to regulate credit operations and provide
for other matters incidental to or connected with those purposes.
The Act is to provide
for comprehensive regulation of banks and financial institutions; to provide
for regulations and supervision of activities of savings and credit
co-operative societies and schemes with a view to maintaining the stability,
safety and soundness of the financial system aimed at reduction of risk of loss
to depositors; to provide for repeal of the Banking and Financial Institutions
Act, (Cap. 342) and to provide for other related matters.
The Foreign Exchange Act, 1992 was enacted by the
Parliament of the United Republic of Tanzania for the purpose of making better
provisions for the more efficient administration and management of dealings and
other acts in relation to gold, foreign currency, securities, payments, debts,
import, export, transfer or settlement of property and for the purposes
incidental to and connected to those.
The Regulations apply
to all banks and financial institutions
· Banking and Financial
Institutions (Licensing) Regulations, 2008:
The Regulations
prescribe minimum conditions of entry or exit into banking industry in
Tanzania, opening representative office, subsidiary, new branches or equity
investment; appointing and change of Directors and Senior Management.
Generality, the regulations deals with licensing requirements for new entrants
into the banking system. The Regulations prescribe financial requirements in
order to establish a bank or financial institution, minimum capital
requirements and disclosure of sources of capital, change in shareholding
contributions to the country’s economy, banking licensing application process
and conditions to be fulfilled after grant of the banking licence.
· The Banking and
Financial Institutions (Capital Adequacy) Regulations, 2008
The Regulations came
into effect in December, 2008 and repealed the Capital Adequacy Regulations,
2001. The Regulations provide minimum capital requirements for various forms of
banking institutions in Tanzania (i.e. minimum capital for banks, other
financial institutions, microfinance companies and microcredit activities).
Further, the Regulations detail the capital adequacy requirements including
items for consideration in core and total capital adequacy ratios.
· The Banking and
Financial Institutions (Management of Risk Assets) Regulations, 2008:
The Regulations came
into effect in December, 2008 and repealed the Management of Risk Assets,
Regulations 2001. The Regulations provide for the minimum conditions for credit
and investment function in a bank or an institution. At a minimum putting in
place risk management policies for risk assets administration (i.e. identify,
measure, monitor and manage) the risk arising from their business and ensure
timely and adequate action are taken on problem assets, maintain risk
management standards that conform to internal norms and promote and maintain
public confidence in the banking sector.
The objectives of
these Regulations are generally to provide prudential guidance on management of
risk assets and bases for providing for losses on loans and other risk assets.
· The Banking and
Financial Institutions (Liquidity Management) Regulations, 2008:
The Regulations came
into effect in December, 2008 and repealed the Liquid Assets Ration
Regulations, 2000. The main objectives of the Regulations are to provide guidance
on measuring and monitoring liquidity of banks and financial institutions. i.e.
to ensure that banks and financial institutions have in place liquidity
management policies adequate to enable them meet all known obligations and
commitments and plan for unforeseen development, to ensure that banks and
financial institutions implement liquidity management standards that conform to
international norms and maintain public by ensuring that banks and financial
institutions have sufficient liquidity all the times.
· The Banking and Financial Institutions
(Publication of Financial Statements) Regulations, 2008:
The Regulations came
into effect in December, 2008 and repealed The Publication of
Financial Statements Regulations, 2000. The main objectives of the
Regulations are to ensure that every bank or financial maintains a level
transparency adequacy to enable depositors and creditors and the public at
large to make informed decisions, promote and maintain public confidence in the
Tanzanian banking sector and enhance market discipline by providing financial
information to various stake holders. The regulations focus on keep the general
public informed on the condition and performance of banks and financial
institutions. Publications will be on Quarterly for un-audited balance sheet,
income statement and cash flow statement while audited financial statements are
to be published once annually. The publications should be in the paper of
general circulation in Tanzania and in conspicuous position in the public part
of its principal place of business and its branches and agencies.
· The Banking and Financial Institutions
(Independent Auditors) Regulations, 2008:
These Regulations
became effective in December, 2008 and repealed the Independent Auditors
Regulations, 2000. The main objectives of these Regulations are establish criteria
for approving independent auditors of banks and financial institutions, and
duties of the bank, financial and approved independent auditor. The Regulations
guide banks and financial institutions to appoint independent auditors that are
recognized and registered by the National Board of Accountants and Auditors and
also by the Bank of Tanzania. Bank auditing requires more than commercial
enterprise auditing and as such only audit firms that meet registration
requirements by the Bank of Tanzania may be appointed to audit banks and
financial institutions.
· The Banking and Financial Institutions
(Credit Concentration and Other Exposure Limits) Regulations, 2008:
These Regulations
became effective in December, 2008 and repealed the Credit Concentration and Other Exposure Limits Regulations,
2001. The main objectives of these Regulations are to encourage risk
diversification and limit excessive concentration of risk by any bank or
financial institution, promote arm’s length relationship in dealing between a
bank and its insiders, and prescribe limits for investment in equity and fixed
assets. The Regulations provide for risk diversification and curtail excessive
concentration of risk exposure of any bank or financial institution to one
customer or group of customers, industry economic sector or activity, thereby
stability of the financial system.
· The Banking and Financial Institutions
(Foreign Exchange Exposure Limits) Regulations, 2008:
These Regulations
became effective in December, 2008 and repealed Circular Number 5 the Foreign Exposure and placement Purchases, Sales and
Balances, 2000. The main objectives
of these Regulations are to ensure that banks and financial institutions have
in place adequate policies and procedures to identify, monitor and manage
foreign exchange risk and maintain risk management standards that conform to
established international norms. The Regulations
· The Banking and Financial Institutions
(Physical Security Measures) Regulations, 2008:
These Regulations
became effective in December, 2008. The principal
objective of these Regulations is to prescribe minimum security measures to be
instituted by all banks and financial institutions for the purpose of: -
preventing acts of robbery and burglary, assisting in identifying and
apprehending persons who commit acts of robbery or burglary, preventing injury
and loss of life to staff and customers, preventing damage or loss of assets,
which could result into major losses to individual institutions, the banking
sector and the national income, and creating security awareness among
management and staff in all banks and financial institutions thereby promoting
a security conscious working environment.
· The Banking and Financial Institutions
(Prompt Corrective Action) Regulations, 2008:
These Regulations
became effective in December, 2008. The main objectives
of these Regulations are to ensure timely and effective actions to deal with a
weakening bank or financial institution, enhance transparency by establishing
the minimum actions the Bank shall take in addressing identified weaknesses in
banks and financial institutions, and maintain confidence in the Tanzanian
banking sector.
· The Banking and Financial Institutions (Internal Control and
Internal Audit) Regulations, 2005:
The Regulations came
into effect on 25th March 2005. They provide for internal
controls and internal audit functions for banking institutions. The Regulations
also prescribe roles of various stakeholders in as far as internal control and
internal audit functions are concerned.
· The Banking and Financial Institutions
(Microfinance Companies and Micro-credit Activities) Regulations, 2005:
The Regulations came into effect on 25th March 2005. It provides for
microfinance and micro-credit activities in Tanzania.
The Regulations
govern bureaux de change operations in Tanzania.
- Circular
No.1: Reserves Against Deposits
and Borrowings, became effective in December, 2008 and
repealed which requires banks to maintain statutory
minimum reserves on their total deposits, including foreign currency
deposits, received and funds borrowed from the general public. Non-bank
financial institutions are not required to maintain minimum reserves.
- Circular No.7: Instructions for Filling
Regulatory Returns:
The Circular became
effective in December, 2009 and repealed Circular No.7: Instructions for
Filling Reports Under the Banking and Financial Institutions Act, 1991. The Circular guides banks and financial institutions on how to
properly fill returns submitted to the Bank of Tanzania the aim is to capture
accurately and uniformly compiled information for its off-site regulation of
banks and financial institutions, and for compilation of FSAP statistics. The
returns are submitted periodically (i.e. Daily, Weekly, Bi-weekly, monthly,
quarterly, semi-annually and annually).
·
Circular No. 8: The Money Laundering Control.
This Circular became effective on 1st September, 2000 and aims at
guiding banks and financial institutions on uncovering, reporting and
controlling money laundering. (Revoked Following enactmentment of
the Anti-Money Laundering Act, 2006)
Any individual or company wishing to establish a bank or
financial institution in Tanzania must submit the following information to the
Directorate:-
1.
Letter of Application in prescribed format.
2.
Proposed Memorandum of Association (unregistered with the Registrar
of Companies).
3.
Proposed Articles of Association (unregistered with the Registrar
of Companies).
4.
Proof of Availability of Funds for Investment as Capital of the
Proposed Institution e.g bank certification.
5.
List of Incorporators/Subscribers and Proposed Members of Board of
Directors and Other Senior Officers.
6.
Information Sheet of Every Incorporator/Subscriber and Every
Proposed Member of the Board of Directors, and Senior Officer.
7.
Proof of Citizenship of Every Incorporator/Subscriber and Every
Proposed Director and Senior Officer. This Includes Detailed Curricula Vitae
(CV), Photocopy of the First Five Pages of a Passport, a Passport Size
Photograph and Historical Background.
8.
Audited Balance Sheet and Income Statement of Every
Incorporator/Subscriber and Every Proposed Member of the Board of Directors and
Senior Officer who is Engaged in Business.
9.
Certified Copies of Annual Returns of Every
Incorporator/Subscriber and Every Proposed Member of the Board of Directors and
Senior Officer (together with accompanying schedules/financial statements)
Filled During the Last Five Years with Income Tax Office for Income Taxation
Purposes.
10.
Tax Clearance From the Income Tax Office
11.
Statement From Two Persons (not relatives) Vouching for the Good
Moral Character and Financial Responsibility of the Incorporators/Subscribers
and the Proposed Directors and Senior Officers.
12.
Business Plans for the First Four Years of Operations Including
the Strategy for Growth, Branch Expansion Plans, Dividend Payout Policy and
Career Development Programme for the Staff, Budgets for the First Year Must
Also be Included
13.
Projected Annual Balance Sheets for the First Four Years of
Operations.
14.
Projected Annual Income Statement for the First Four Years of
Operation.
15.
Projected Annual Cash Flow Statements for the First Four Years of
Operation.
16.
Discussion of Economic Benefits to be Derived by the Country and
the Community From the Proposed Bank/Financial Institution.
