Banking Supervision
The Bank of Tanzania uses both on-site and off-site inspection in supervising banks and financial institutions.
• In on-site inspection a full scope examination where the supervisors review 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. In addition, supervisors do verify compliance with laws and regulations and assess the effectiveness of the institutions' internal control system.
• 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 weekly, monthly, quarterly, semi-annually and annually or on ad hoc basis if the circumstances so demand).
1: ACTS:
• Bank of Tanzania Act, 1965 as amended in 1978 was repealed and replaced by the Bank of Tanzania Act, 2006, which expressly specifies functions and objectives among others as to the regulation and supervision of banks and financial institutions in Tanzania.
• The Banking and Financial Institutions Act, 2006 (BFIA, 2006) which consolidated 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 Foreign Exchange Act, 1992 was passed by the Parliament 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.
2: REGULATIONS:
• Banking and Financial Institutions Regulations, 1997: The Regulations prescribe conditions of entry or exit into banking industry in Tanzania. In general it deals with licensing requirements for new entrants into the banking system.
• The Management of Risk Assets Regulations, 2001: The Regulations came into effect on 1st May, 2001 and repealed "The Guidelines on Management of Risk Assets, Classification of Loans and Other Risk Assets, Provisioning for Losses and Accrual of Interest" issued on 18th October, 1991.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 Capital Adequacy Regulations, 2001: The Regulations came into effect on 1st May, 2001 and repealed "Guidelines for Measuring Capital Adequacy" issued on 1st October, 1993 and the Addendum to to Circular No. 3 on Capital Adequacy issued on 27th March, 1996. The Regulations provide for capital adequacy requirements for various forms of banking institutions in Tanzania.
• The Liquid Assets Ratio Regulations, 2000: These Regulations came into effect on 1st September, 2000. The main objective of the Regulations is to provide guidance on measuring and monitoring liquidity of banks and financial institutions.
• The Publication of Financial Statements Regulations, 2000: The Regulations came into effect on 1st September, 2000. The main objective of the Regulations is keep the general public informed on the condition and performance of banks and financial institutions. Quarterly publications are required for un-audited balance sheet, income statement and cash flow statement while audited financial statements are to be published once annually.
• The Independent Auditors Regulations, 2000: These Regulations became effective on 1st September, 2000. The main objective of these Regulations is to 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 Credit Concentration and Other Exposure Limits Regulations, 2001: The Regulations came into effect on 1st May, 2001 and repealed "The Guidelines on Concentration of Credit and Other Exposure Limits" issue on 22nd December, 1992. 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 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 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 Foreign Exchange (Bureaux de Change) Regulations, 1999: The Regulations govern bureaux de change operations in Tanzania.
3: CIRCULARS:
• Circular No.1: Reserves Against Deposits and Borrowings, 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.5:Foreign Exchange Exposure and Placements, Purchases, Sales and Balances which sets limits on placements with the correspondent banks by the banks and financial institutions, and requires the institutions to maintain a net open position not exceeding 20% of the core capital.
• 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 under the Banking and Financial Institutions Act, 1991. The aim is to capture accurately and uniformly compiled information. It became effective on 30th June, 2000.
• 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.
Licensing Conditions
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.
SOURCE: http://www.bot-tz.org/BankingSupervision/SupervisoryMethodololgies.asp
• In on-site inspection a full scope examination where the supervisors review 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. In addition, supervisors do verify compliance with laws and regulations and assess the effectiveness of the institutions' internal control system.
• 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 weekly, monthly, quarterly, semi-annually and annually or on ad hoc basis if the circumstances so demand).
1: ACTS:
• Bank of Tanzania Act, 1965 as amended in 1978 was repealed and replaced by the Bank of Tanzania Act, 2006, which expressly specifies functions and objectives among others as to the regulation and supervision of banks and financial institutions in Tanzania.
• The Banking and Financial Institutions Act, 2006 (BFIA, 2006) which consolidated 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 Foreign Exchange Act, 1992 was passed by the Parliament 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.
2: REGULATIONS:
• Banking and Financial Institutions Regulations, 1997: The Regulations prescribe conditions of entry or exit into banking industry in Tanzania. In general it deals with licensing requirements for new entrants into the banking system.
• The Management of Risk Assets Regulations, 2001: The Regulations came into effect on 1st May, 2001 and repealed "The Guidelines on Management of Risk Assets, Classification of Loans and Other Risk Assets, Provisioning for Losses and Accrual of Interest" issued on 18th October, 1991.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 Capital Adequacy Regulations, 2001: The Regulations came into effect on 1st May, 2001 and repealed "Guidelines for Measuring Capital Adequacy" issued on 1st October, 1993 and the Addendum to to Circular No. 3 on Capital Adequacy issued on 27th March, 1996. The Regulations provide for capital adequacy requirements for various forms of banking institutions in Tanzania.
• The Liquid Assets Ratio Regulations, 2000: These Regulations came into effect on 1st September, 2000. The main objective of the Regulations is to provide guidance on measuring and monitoring liquidity of banks and financial institutions.
• The Publication of Financial Statements Regulations, 2000: The Regulations came into effect on 1st September, 2000. The main objective of the Regulations is keep the general public informed on the condition and performance of banks and financial institutions. Quarterly publications are required for un-audited balance sheet, income statement and cash flow statement while audited financial statements are to be published once annually.
• The Independent Auditors Regulations, 2000: These Regulations became effective on 1st September, 2000. The main objective of these Regulations is to 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 Credit Concentration and Other Exposure Limits Regulations, 2001: The Regulations came into effect on 1st May, 2001 and repealed "The Guidelines on Concentration of Credit and Other Exposure Limits" issue on 22nd December, 1992. 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 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 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 Foreign Exchange (Bureaux de Change) Regulations, 1999: The Regulations govern bureaux de change operations in Tanzania.
3: CIRCULARS:
• Circular No.1: Reserves Against Deposits and Borrowings, 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.5:Foreign Exchange Exposure and Placements, Purchases, Sales and Balances which sets limits on placements with the correspondent banks by the banks and financial institutions, and requires the institutions to maintain a net open position not exceeding 20% of the core capital.
• 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 under the Banking and Financial Institutions Act, 1991. The aim is to capture accurately and uniformly compiled information. It became effective on 30th June, 2000.
• 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.
Licensing Conditions
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.
SOURCE: http://www.bot-tz.org/BankingSupervision/SupervisoryMethodololgies.asp
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