IMF Executive Board Concludes the United Republic of Tanzania’s 2018 Financial System Stability Assessment
IMF News, December 6, 2018
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Bibliographic details
- Published: December 6, 2018
Press release details
- Press Release No. 18/455
- Date: December 6, 2018
- IMF Communications Department — MEDIA RELATIONS
- PRESS OFFICER: Lucie Mboto Fouda
- Phone: +1 202 623-7100
- Email: MEDIA@IMF.org
- The Executive Board discussed the FSSA on November 19, 2018.
Context and recent macro-financial developments
- Economic growth in Tanzania has been relatively strong in the past decade.
- Prudent macroeconomic policies and consecutive Fund programs contributed to low inflation and contained public sector debt.
- More recently, a slowdown in economic momentum has emerged.
- Difficulties with fiscal management have led to a build-up of expenditure arrears, which contributed to a higher level of nonperforming loans.
- Since the 2010 Financial Sector Assessment Program (FSAP), authorities have:
- strengthened financial prudential regulations;
- put in place elements of a framework for monitoring systemic risks and macroprudential policy responses;
- initiated a transition of the monetary framework toward an interest-rate based operating target.
Financial stability assessment — key vulnerabilities and risks
- Bank asset quality has deteriorated in recent years and provisioning needs have increased.
- Credit growth has decelerated.
- Dollarization of bank balance-sheets could create liquidity pressures under adverse shock scenarios.
- Vulnerabilities could amplify the impact of external and domestic shocks, including:
- tighter global financial conditions;
- lower trading partner growth;
- prolongation of domestic economic uncertainties;
- delays in addressing difficulties related to fiscal management.
Executive Board assessment and recommendations
- Executive Directors concurred with the findings and recommendations of the 2018 FSSA.
- Directors welcomed progress since the 2010 FSAP, notably:
- strengthening financial prudential regulations;
- putting in place elements of a framework for monitoring systemic risks and macroprudential responses;
- initiating a transition toward an interest-rate based monetary operating target.
- Directors called for policy action to lower risks and raise the resilience of the banking system and encouraged authorities to implement the FSSA recommendations.
Key specific recommendations and observations by Directors:
- Improve asset quality, address non‑performing loans and increase capital buffers in the banking system.
- Caution against potential excessive use by banks of the regulatory relief provided by the Bank of Tanzania’s circular for loan classification and restructuring.
- Issue further guidance to prevent banks from overstating capital ratios and earnings.
- Enhance surveillance and monitoring of liquidity risks in foreign exchange, and introduce regulations aimed at limiting them.
- Complement FX liquidity regulations with macroprudential requirements and promote proactive foreign exchange risk management by banks and corporates.
- Complete operational guidance for emergency liquidity assistance, including in foreign exchange.
- Further align the prudential framework with international standards and best practices.
- Advance plans for Basel II/III implementation in line with EAC harmonization commitments.
- Advance the framework for identification of domestic systemically important banks.
- Strengthen enforcement of prompt corrective action regulations within an adequate legal framework.
- Address remaining shortcomings in the AML/CFT framework and further develop risk‑based AML/CFT supervision.
- Ensure adequate staff and resources are available for bank supervision.
- Deepen financial markets, increase access to formal financial services and address financial infrastructure gaps to enhance financial inclusion and support growth prospects.
Near-term FSAP priorities
- Reduce nonperforming loans and increase provisioning and buffers to manage liquidity, credit, and concentration risks.
- Strengthen banking supervision and problem bank oversight.
- Deepen financial markets and modernize the monetary policy framework.
- Introduce new prudential tools to enhance systemic liquidity.
Footnotes (as included in the source)
- The Financial Sector Assessment Program (FSAP), established in 1999, is a comprehensive and in-depth assessment of a country’s financial sector. FSAPs provide input for Article IV consultations and thus enhance Fund surveillance. FSAPs are mandatory for the 29 jurisdictions with systemically important financial sectors and otherwise conducted upon request from member countries. The key findings of an FSAP are summarized in a Financial System Stability Assessment (FSSA), which is discussed by the IMF Executive Board. In cases where the FSSA is discussed separately from the Article IV consultation, at the conclusion of the discussion, the Chairperson of the Board summarizes the views of Executive Directors and this summary is transmitted to the country’s authorities. An explanation of any qualifiers used in a summing up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
- At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings-up can be found here: http://www.imf.org/external/np/sec/misc/qualifiers.htm.
IMF Executive Board Concludes the United Republic of Tanzania’s 2018 Financial System Stability Assessment, Press Release No. 18/455, December 6, 2018.
