Bot Regulations 2008

· ..

THE GOVERNOR Cable:. 41024'"B·ENkUU" Tel. Gen: 255 22 22330000

Dlr: 25p 22 2233020/21 facsimile: 255 22 34085

· E-mall: [email protected]

Ref. No. GA.302/389/01

All Commerclal Banks

CIRCULAR NO. 1 (Issued on 28th November, ·2008}

UNITED REPUBLIC OF TANZANIA

BANK OF TANZANIA P.O. Box 2939 DAR ES SAlAAM

November 281 2008

STATUTORY MINIMUM RESERVES AGAINST DEPOSITS AND BORR.OWINGS

In accordance with Section 45 .of the Bank of Tanzania Act, 2006, and Sections 4 and 71 of .the Banking and Financial ltistltuttons Act. 2006, all banks In Tanzania - Mainland and Zanzibar. are reqolred to maintain statutory minimum reserves {SMR) on their total deposit liabilities and funds borrowed from the gene·ral public, pursuant to their authority to carry on banking buslr:tess.

1. GENERAL POLICY AND IMPLEMENTATION GUIDANCE

The statu.tory reserve requirement remains an Important instrument of · monetary control and financial. prudence in ranzanla. However, lfs ' utilization Is determined by long term objectives of monetary policy given the current monetary conditions and Inflationary pressures, while the more flexible open market operations are adopted for Implementing short- qnd medium term objectives of monetary policy.

The existing inflatlonar.y ,.pressl)res In tb.~ ecqnomy. qmldst the on-going global financial crisis have necessitated the Bank of Tanzania to make some odjustments to the l~vel and composition of SMR.

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christina.kongola

Sticky Note

Unmarked set by christina.kongola

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By this Circular, eaeh bank shall be required ·to maintain a statutory minimum reserves account with the Bank of Tanzania In the amount and manner In which the req'ulred cash reserves shall be calculated by banks as prescribed In this Circular. Henceforth, statutory minimum reserves requirement f.or each bank shall be:

1.1 Ten percen.t {1 0%) of the outstanding balance of Its total local and foreign currehcy deposit liabilities {of non-government entitles) and borrowings from the general public, all converted In local currency, and.

'. 1.2 Twenty percent (20%) of total government deposits also converted In

local currency.

1.3 Under the above arrangements, cash In vault shall not form part of t_be oyal!qble reserves. In the corr\putatlon of the required statutory minimum reserves.

1.4 Only balances In excess of SMR shall be available for clearing purposes. Any bank that wishes to withdraw the excess funds In Its SMR account shall.seek· and obtain approval from the. Director of Ban~ing Supervision.

1.5 No bank shall · be allowed to withdraw funds below Its· statutory minimum reserve requirement at the Bank of Tanztinla. Instead, banks are encouraged to make effective use of the Inter-bank cash market and other available liquidity bridging windows at the- Bank of Tanzania, namely: Intra-day, discount window and lombard facilities.

2. CALCULATION OF THE REQUIRED STATUTORY MINiMUM RESERV&S, SUBMISSION OF REPORT-5 AND PENALTY

2.1 Each bank shall calculate Its SM~ position dally, and shall. submit a weekly report to the Bank of Tanzania not lofer than the second Monday after the r~ference week. Such weekly reports shall be accomplished In the prescribed format In this Circular entitled 11Report on Required and Available Reserves", a copy of wh!ch Is attocned hereto as Annexure l.

2.2 In order to meet deadlines and avoid penalties for late reporting, each bank shall require Its head .office and all branches or units to record every ·transaction in their books of accounts on the same d9y,.

·.

.. to balance their accounts at the end of that day~ and submit the necessary data to the head office by the fastest means.

2.3 Any bank which. _violates the requirements of ·this Circular shall be Hable to penaltles·.as follows:

(a) For failure to submit the 11Report on Required .and Available Resery~s" on time - A fine of shillings one million (TZS J ,000,000) per day shall be_ Imposed for every day in which the failure continues.

(b) ; · For failure to maintain the minimum reserves required .under thls Circular - an Interest charge equlvah:mt to the weighted average yield of all Treasury bill maturities obtained In the most recent auction shall be applied on the amount of deficiency fot every day In which non"compllance continues.

(c) Misrepresentation or .submission of Incorrect Information In any of the returns by any bank shall attract the penalty charge amounting to shillings one million (TZS 1 ,000,000) per day of existence of such misrepresentation or submission of incorrect Information.

2.4 The penalty charges Imposed In section 2.3, subNsectlon (a), {b), and ·(c) above shall be recovered by the Bank of, Tanzania from any balances of or monies owed to .the bank concerned or as a civil debt.

3.0 REPEALING CLAUSE AND EfPEC.TIVE DATE

3.1. This Circular repeals Circular No.1 as amended on 12th November, 1999 and whlch became effective on 1Sih December, 1999.

3.2. This Circular also repeals the amendment on SMR requirement equivalent to ten percent on total government depo~its, which became effective on 9th June, 2008 ..

3.3. The Circular shall take effect on 15th January, 2009.

Sincerely,

~eWe'·· Prof. Benno Ndulu GOVERNOR

I.

,. .

-'i~AME OF INSTITUTION ........................................................... Ban.kCotfa ...........

BOT FOAM 16,3 (a) Submission: ·1. Dssdllns:Sacand Monday Ttllala a weakly report

after the reference week. 2. In trip/Jests to the Banking ·supervision Dlraotorate

REPORT ON GOVERNMENT DEPOSITS

FOR THE WEEK ENDING .......... ; ........... lin TShs Million}

PARTICULARS -MON TUE WED THU FRI WEEKLY

AVERAGE

CENTRAL GOVERNMENT A: DOMESTIC CURRENCY DEPOSITS (=1+2+3+4)

1. Demand daposlls 2; Time daooslls 3. Savln!ls depoe !Ia 4. Other deposits

B: FOREIGN CURRENCY DEPOSITS (converted Into Tshs> G: TOTAL CENTRAL GOVERNMENT_ (A plus Bl

LOCAL· GOVERNMENT D: DOMESTIC CURRENCY DEPOSITS (~1 +2+3+4)

1. Demand deposits 2. Tlina deposits 3. Savlnos deooslts 4. Olhsr daoostts -

E: FOREIGN CURRENCY DEPOSIT!;! (converted Into Tshs). F: TOTAL LOCAL GOVERNMENT CD plus E) G: GRAND T.OTAL GOVERNMENT (0 plus f) H: MINIMUM REQUIRED RESERVES {20% of G)

Signature ........................... Signature ........................ (Managing Dlreotor/Qeneral Manager) (Direotor of Finance)

Date ............................. Date ................................

Nl'..ME OP INSTITUTION ....................... : ...................................

a or Form 1 B-3 (b) Sank Coda ............

Thla fa 11 weekly report Bubmteafon: 1. Dlfltdllne:aeoond Monday after the reference week.

2. tn frfplfcs/e to tha Banking Supervision Directorate

REPORT ON REQUIRED SMR AND AVAILABLE RESERVES AGAINST TOTAL DEPOSITS AND BORROWINGS

I tin TSha Million) POR THE! WEEK ENOJNQ ......................

PARTICULARS MON rua WED THU FRS Wi!EKLY AVI!RAGE!

A: DOMESTIC CURRENCY DEPOSITS (Tshsl 1. Demand deposita 2. Tlma deposlfs '· ... 3, Sa\'lnoa deposita 4. Other di!QQ_alta 5; oEiP<iSiiB iiitiiirilia

B: BORROWINGS FROM THE PUBLIC (Tshs) C: TOTAL DOMESTIC OIJRI:NCY DEPOSITS AND BORROWING CA_!lfUa fh D: FOREIGN CURRENCY DEPOSITS (converted to Tshsl

1. Demand dePosita 2. Tlme deposita 3. Savings d~ls 4. Other deposlls 6. De~sfla of Banks

E: FOREIGN OURRENCY BORROWINGS FROM THE PUBLIC (converted Into Tsh~ F: TOTAl FOREIGN CURRENCY DEPOSITS AND BORROWING (D.JJius_El G:GRANDTOTAl(C~uaA

H: REQUJAEO SMA ON DEPOSITS AND BORROWING C10% OF Gl 1: REQUIRED SMA ON GOVERNMETIT_DEf>_OSITS tFORM1B-3talllne HI J:TOTAl STATUTORY MINIMUM ReQUIRED RESERVES (H+fl

Signature ............................ Slgnslurs ......................... (Managing IJirector/Qsnaral Manager) (Director of Flnan11a)

Oats ..... ""''"""'''""''' Data ................................

.. :;, .. ..:. ••• • ..... "::::.>;" •.••• ... :.' .. ·•-: ..... : .

THE BANKING AND FINANCIAL INSTITUTIONS (PUBLICATION OF FINANCIAL STATEMENTS) REGULATIONS, 2008

ARRANGEMENT OF REGULATIONS

Regulation Title PART I

PRELIMINARY PROVISIONS

1. Short title 2. Application 3. Interpretation 4. Objectives

PART II PUBLICATION OF FINANCIAL STATEMENTS

5. Quarterly fmancial statements 6. Audited financiai statements 7. Exhibition of audited financial statements

PARTD;l MISCELLANEOUS PROVISIONS

8. Failure to publish ftnancial statements 9. Penalty charge recovery 10. Penalty for misrepresentation 11. Sanctions. and penalties 12. Revocation

1

GOVERNMENT NOTICE NO ................... published on ........... .

THE BANKING AND FINANCIAL INSTITUTIONS ACT

(CAP. 342)

REGULATIONS

(Made under section. 71)

THE BANKING AND FINANCIAL INSTITUTIONS (PUBLICATION OF FINANCIAL STATEMENTS) REGULATIONS, 2008

Short title

Appiication

Interpretation

Objectives

PART I PRELIMINARY

1. These Regulations may be cited as the Banking and .financial Institutions (Publication of Finan,cial Statements) Regulations, 2008 and shall come into operation on the date of publication in the Gazette.

2. These Regulations shall apply to all banks and financial institutions.

IIi these Regulations, unless the conteA.'i requires otherwise

"Act" means the Banking and Financial Institqtions Act; "Bank" means the Bank of Tanzania; bank" has the meaning ascribed to it in the Act; "director" has the meaning ascribed to it in the Act;

'"'financial institution" has the meaning ascribed to it in the Act; "officer" has the meaning ascribed to it in the Act;

4. The objectives of these Regulations are to-

(a) en~u.re that every bank or financial institution maintains a level transparency adequate to enable depositors and creditors and the public at large to make informed decisions;

2

Quarterly financial statements

Audited Financial statements

Exhibition of Audited Financial Statements.

(b) promote and maintain public confidence in the Tanzanian banking sector; and

(c) enhance market discipline by providing financial information to various stakeholders.

PART II

PUBLICAtiON OF FINANCIAL STATEMENTS

5.-(1) Every bank or financial institution shall publish its quarterly financial state:n1ents and any other information in the form to be prescribed by the Bank at least once in one newspaper of wide circulation in Tanzania.

(2) The quarterly financial statements under sub-regulation (I) shall be published within forty-five days after the end of the quarter.

(3) A community bank shall, in addition to the requirements prescribed in sub-regulation (1), display its quarterly financial statements in public places within the areas in which the bank operates.

( 4) A copy of quarterly and annual audited finanCial statements duly signed by the ·chl.ef Executive Officer, Head· of Finance, Head of Internal Audit arid attested by two non-executive board members and newspaper cuttings thereof shall be submitted to the Bank in three days time after publication.

6.-(1) Every bank or financial institution shail publish its annual audited financial statement~ as prescribed by .the Bank at least once every year.in the newspapers of wide circulation in Tanzania.

(2) The all.nuai audited finanCial statements shall be publi~hed within fifteen days after approval of the board of directors of the bank or financial institution but not later than one hundred and five days after the end of the financial year.

7. Every bank or financial institution shall at all times exhibit copies of its last audited fimmcial statements in a conspicuous position in the· public part of its principal place of business and in its branches and agencies.

PART III MISCELLANEOUS PROVISIONS

Failure to publish financial .statements

8. Any bank or fmancial institution which fails to publish its financial statements as required under these Regulations shall ·be liable to a penalty of one million shillings for each day during which such failure continues. ·

3

Penalty ~harge recovery

Penalty for misr~presentation

Sanctions and Penalties

Revocation GN. No. 103 of 2.00i

9. The penalty charge to be imposed under regulation·-8 may be recovered by deducting from any balance of, or moneys owing to the bank or financial institution concerned or collected by written notice.

10. Any bank or financial institution that makes a misrepresentation in its financial statements shall be liable to a penalty of one million shillings for each day until such misrepresentation is corrected.

11. Without prejudice to the other penalties and aCtions prescribed by the Act the Bank may impose on any· bank or financial institution any of the following sanctions for non~compliance-

(a) suspension from lending and investing activities; (b) prohibition from participating in the inter bank clearing

ej(changes; . (c) prohibition from isst1.ing letters of credit dr guarantee; (d) suspension of capital expenditure; (e) prohibition from establishing or opening new branches; (f) suspension from access to the credit facilities of

·the Bank; (g) suspension of the declaration or payment of

dividends; (h) prohibition from accepting deposits;

· . (i) · suspension or removal from office ofthe defaulting director, or employee;

G) .disqualification of defaulting director or employee from holding any_position or office in any bank or financial institution in· Tailza:nia;

(k) revocation or banking licence; or (1) such other sanctions or penalties as the Bank may deem

appropriate.

12. · The Publication of Financial Statements Regulations, 2000 are hereby revoked.

~~~X Dar ls Salaam, ; ~·; ·~··~btb~~hl'b'e;~~&:m

BENNO J. NDULU Governor

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THE BANKING AND FINANCIAL INSTITUTIONS (INDEPENDENT AUDITORS) REGULATIONS, 2008


Regulations Title

PART1 PRELIMINARY PROVISIONS

1. Short title 2. Applicatiqn 3. Interpretation 4. Objectives

PART II APPOINTMENT OF lNDEPENDENT AUDITORS

5. Appointment of independent auditors 6. Change ofindependentauditor

PART III DUTIES OF INDEPENDENT AUDITORS

7. Opinion of independent auditor 8. Additional duties 9. Special reports 1 0. Computation of capital position 11. Audit program

PART IV

APPLICATION BY INDEPENDENT AUDITORS

12. Application Letter 13. Assessment ofthe application

1

GOVERNMENT NOTICE NO .................. published on ........ .

THE BANKING AND FINANCIAL INSTITUTIONS ACT (CAP.342)

REGULATIONS

(Made under Section 71)

THE BANKING AND FINANCIAL INSTITUTIONS (INDEPENDENT AUDITORS)

Short title

Application

Interpretation

Cap.286

Cap. 212 Cap. 286

. REGULATIONS, 2008

PART I PRELIMINARY PROVISIONS

1. These regulations may be cited as the Banking and Financial Institutions (Independent Auditors) Regulations, 2008 and shall come into operation on the date of publication in the Gazette.

2. These regulations shall apply to all banks, financial institutions and approved independent auditors.

3. In these regulations, unless the context requires otherWise;

"Act" means the Banking and Financial Institutions Act; "Bank" means the Bank ofTanzania; "conflict of interest" means a situation in which someone in a position of trust,

has competing professional, business or personal interest, making it difficult to fulfil his duties impartially;

"independent auditor" means an accounting or auditing firm which is recognized by the National Board of Accountants and Auditors to be practicing in auditing and related activities and has been approved by the Bank to audit banks and financial institutions;

"officer" has the meaning ascribed to it in the Act; "statutory audit" means an audit performed in accordance with the requirements

of the Companies Act, and the National Board of Accountants and Auditors;

"undercapitalized" means a bank or financial institution whose capital does not meet the requirements of the Banking and Financial Institutions (Capital

3

Objectives

Appointment of independent auditors

Change of independent auditor

Opinion of Independent auditor

Additional duties

Adequacy) Regulations) 2008.

4. The objectives of these Regulations are to establish-(a) criteria for approving independent auditors of banks and financial

institutions; and (b) duties of banks, financial institutions and approved independent

auditors.

PART II APPOINTMENT OF INDEPENDENT AUDITORS

5.-(1) Every bank or financial institution shall appoint annually an independent auditor who has no conflict of interest and notify the Bank within seven days of such appointment.

(2) Where a bank or fmancial-institution fails to appoint an independent auditor under sub-regulation (1), or to fill any vacancy for an independent auditor which may arise, the Banlc may appoint, on behalf of the bank or financial institution, an independent auditor and fix his remuneration which shall be paid by the bank or_financial institution.

(3) A bank or financial institution shall not remain without an independent auditor for more than ninety days from the date when the position falls· vacant. ·

(4) An independent auditor shall not audit the same bank or financial institution for a continuous period exceeding four years.

6. A bank or financial institution shall not in the course of performance of the audit work, change its independent auditor except with the prior written approval of the Bank.

PART III DUTIES OF INDEPENDENT AUDITORS

7. A.n ·independent auditor shall provide ai1 opinion as to whether the financial statements of the bank or financial institution-

( a) represent true and fair view of the financial position and performance of the bank or financial institution; and

(b) have been prepared in accordance with International Financial · Reporting Standards.

8. Subject to section 22 of the Act, the Bank may require an independent auditor to-

( a) submit directly to the Bank such additional information in relation to his audit as the Bank may consider necessary;

(b) carry out any other special investigation and submit a report on any of the matters arising thereof and the bank or financial institution

4

Special reports

Cap. 197 Cap. 171

Computation of capital position

Audit pJ:ogram

Application Letter

Cap. 286

concerned shall-remunerate the auditor in respect of the discharge by him of all or any of such additional duties.

9. The independent auditor shall iminediately report to the Bank if he becomes aware of-

( a) any serious breach of or non-compliance with the provisions of the Act, the Bank of Tanzania Act, Foreign Exchange Act, or regulations, guidelines, circulars or·directives issued by the Bank or any other relevant legislations;

(b) any criminal offence involving fraud or other dishonesty committed by a bank or fmancial institution or any of its officers or employees;

( c} any losses incurred which have caused the bank or financial institution to be undercapitalized;

(d) any serious irregularities which may jeopardize the rights of a depositor or creditor of a bank or financial institution; or

(e) circumstances that make him unable to confirm ability ofthe bank or financial institution to settle claims of depositors or "creditors out of its assets. ·

10. The independent auditor s1J.all compute capital position of the bank or financial instiwtion as· at the end of each financial year taking irito account the requirements of the Act and all relevant prudential regulations issued by the Bank and provide a statement on its adequacy as part of the notes to· the accounts.

11. The audit program and reporting by an independent auditor shall, among other things, include computation of capital adequacy, related parties transactions, assessment of movement of loan provisions, liquidity ratios and profitability outlook, consistent with the requirements of the Act, regulations and circulars is.sued by the Bank.

PART IV APPLICATION BY INDEPENDENT AUDITORS

12. Any auditing firm seeking to be approved by the Bank as an independent auditor under these regulations shall submit an application letter together with- · ·

(a) a short history of the firm, details of its legal and National Board of Accountants and Auditors registration status;

(b) details of the structure and organization of the firm, its principal place of business and branches in Tanzania, and in the case of an international audit fi~, d~tails of the head office including legal and professional status of the parent firm;

(c) names, particulars and detailed curriculum vitae of partners and senior professional staff demonstrating previous experience in the audit of banks and financial institutions;

(d) list of major audit assignments that have been performed for the last

5

ASsessment of · the application Cap.286

Disqualification from appointment

three years and total fees received for the last year from each audit assignment that was performed.

(e) details of any existing relationship either directly or indirectly between the finn or partner and any bank or financial institution regulated by the Bank;

(f) any other information the Bank may require.

13. When assessing an application the Bank shall consider whether the firin has at least ten staff with education and experience in accountancy and auditing, and at least four of whom are registered with National Board of Accountants and Auditors ..

PARTV DISQUALIFICATION FROM APPOINTMENT

14. An audit firm shall not qualify for appointment as an ip.dependent auditor of a bank .or financial institution if any of its partner or member is-

( a) a director, officer or employee of any bank or financial institution; or

(b) a business partner of a director, officer or employee of that bank or financial institution; or

(c) an employee or employee of a director , officer or employee of that bank or financial institution; or

(d) a director, officer or employee of an associate of that bank or financial institution; or

(e) a person who, by himself or his business partner or his employee, . regularly P.erforms the duties of secretary or accounting for that bank or financial institution; or

(f) a firm or member of a firm of auditors of which any partner or employee falls within the above categories. or

(g) any other person whose appointment as an independent auditor may create conflict of interest.

Delisting approved auditors

of 15. An independent auditor shall be removed from office or from the list of approved independent auditors if he-

( a) fails to compiy with the requirements prescribed in the Act and these R~gulations, or

(b) fails to meet the requirements of International Standards of Auditing.

PART VI MISCELLANEOUS PROVISIONS

Notice 16. An independent auditor of a bank or financial institution shall forthwith give written notice to the Bank, of-

6

(a) his resignation from office and the reasons thereof; (b) his decision npt to seek re-appointment and the reasons thereof; or (c) any qualification ofhis opinion on the financial statements.

Notification 17. An independent auditor shall notify the Bank within 30 days of ~:~~!ange of changes in its organization structure involving the partners and staff specified

in regulation 12 and 13. ·

Notificati.on of relationship

Revocation GN. No. 102 of2001

18. An independent auditor shall· immediately notify the Bank if the finn or any partner ·establishes any relationship with a bank or finanCial institution.

19. The Independent Auditors Regulations, 2001 are hereby revoked.

7

£1~~ x BENNO J. NDULU

Governor

THE BANKING AND FINANCIAL INSTITUTIONS (PHYSICAL SECURITY MEASURES) REGULATIONS, 2008


Reguiation Title PART I


1. Short title 2. Application 3. Interpretation 4~ Objectiv~s

PART II REQUlllliD MINIMUM SECURITY MEASURES.

5. Minimum requirements in security policy 6. Burglary and robbery 7. Training on security measure!) 8. Appointment of security officer 9. Responsibility of Board of Directors 10. Minimum security devices 1 i: Exemption 12; Maintenance of records 13. Reporting to the BaTilc 14. Interrial audit ~anual 15. S~ong rooms 16. Attributes of a strong room


17. Sanctions and penalties

1

financial institution; "robbery" means taking something of value from a person by means of force, violence or intimidation.

Objectives 4. The principal objective of these regulations is to prescribe

Minimum requirements in security policy

. minimum.:.security measures to be instituted by all banks and financial institutions for the purpose of-

( a) preventing acts of robbery and burglary; (b) assisting in identifying and apprehending persons who comniit

acts of robbery or bm:glary; (c) preventing injury and loss oflives to staff and customers; (d) ·preventing damage or loss of assets, which could result into

major los~es to individual in.Stitutions, the banking sector and the national economy, and;

(e). creating security awareness among management and staff in all banks and financial institutions thereby promoting a security conscious working environment.

PART II REQUIRED MINIMUM SECURITY MEASURES

5.-(1) Every bank or financial institution shall have a written physical security policy and procedure manual, which shall be submitted to the Bank for review and clearance.

(2) The physical security policy and procedure manual under subregulation (I) shall at least address the following-

( a) security measures for transporting of cash and other valuables; (b) measures for ensuring the safekeeping of all currency,

negotiable instruments, and other valuable items; (c) measures for ensuring security of strong rooms/vaults; (d) procedures for assisting in identification of persons committing

acts of robbery or burglary against the bank or financial institution;

(e) p~ocedures for preserving evidence that may aid identification and prosecution of persons committing acts of robbery or burglary against the bank or financial institution;

(f) provide for initial and periodic training of management and staff in their responsibilities under the .security program for proper employee conduct during and after a robbery or burglary;

(g) procedures for selecting, testing, operating and maintaining appropriate security devices as specified in regulation 1 0;

(h) criteria and procedures for selecting security company or.

3

Burglary and robbery

Training on security

measures

Appointment of Security Officer

Responsibility of Board of Directors

Minimum Security Devices

Exemption

Maintenance of records

(h) criteria and ·procedures for selecting security company or institution to provide security services to a bank or financial institution should such services be needed; and

(i) provide for need of having security program.

6. The physical security policy and procedure manual shall exhaustively address event~ of burglary and robbery.

7. Every bank or financial institution shall train its Management and staff on physical security measures and such training shall cover the importance of security measures, including at minimmn.

(a) how the secm:jty systems and devices work; (b) what to do in the event of robbery or burglary; (c) how to be a.good witness; (d) how to preserve evidence; (e) how to deal with t~eatening messages and kidnappings; and (f) what measures to take in the evt:?nt of fire o1,1tbreak.

8. Every bank or financial institution shall appoint or designate a suitable officer who shall be responsible fo.r day-to-day security matters of the bank or financial institution.

9. The Board of Directors of every bank or financial institution shall ensure effective implementation and administration of the security program and other security issues.

10. Every bank or fmancial institution shall install at minimum security devices as indicated in the First Schedule to these Regulations.

11. Upon prior written request from a bank or financial institution the Bank may grant exemption from complying with the provision of regulation 1 0.

12.-(1) Every bank or financial.institution shall maintain records on implementation, administration and effectiveness of the security policy, security program and other security issues.

(2) The records under sub-regulation (1) shall at least cover the information ·reflected in the Second Schedule to these Regulations.

4

Internal Audit Manual

Strong Rooms

Attributes of a strongroom

Sanctions and . penalties

14. Every bank or financial :institution shall include in its internal audit manual comprehensive procedures · for auditing its physical security measures.

15. Every bank or financial institution shall ensure that its banking halls are built in a manner that limits customer's visibility and access to cash vaults, safes or strong rooms. ·

16. Notwithstanding the location or set up of banks and financial institutions' strong rooms as prescribed under regulation 15, every bank or fmancial institution shall ensure its strong rooms are built in accordance to the best or international construction standards and should include-

( a) fire alarm security system; (b) intrusion detection Security Systems; (c) 24 hours monito~ed surveillance cameras (CCTVs); (d) secured locks and keys to avoid duplication; and (e) Secured safes and storage equipments, which are rust free,

water resistant and fire proof.

PART IV MISCELLANEOUS PROVISIONS

17. Without prejudice to other penalties and sanctions prescribed by the Act the violation of any of the provisions of these regulations shall attract one or more of the following sanctions and penalties-

( a) suspension of the right to establish or open new branches; (b) suspension of the right to accept deposits; (c) revocation ofbanking.license; (d) suspension from office of the defaulting director, officer or

employee; (e) perpetual disqualification from holding any position or office in

·any bank or financial institution under the supervision of the Bank; and

(f) imposition of other penalties on the bank or financial institutions in such amounts as may be determined by the Bank to be appropriate and reasonable;

5

FIRST SCHEDULE

(Made under Regulation 10)

MINIMUM SECURITY DEVICES

Every bank or financial institution shall install and appropriately maintain and operate in all its banking premises, the following security devices:- . .

I. A means of protecting cash and other liquid assets, such means may include vault, .safe or other secure space;

2. A combination lock for all safe and vault or strong room doors, with at least dual control;

3. Time locks or time delay locks for safe and strong.;.room doors, with special time for opening and closing; ·

4. An alarm system or other appropriate device for promptly notifying the nearest responsible law enforcement agency or a contracted security company or institution, of an attempted or perpetrated robbery, burglary

5. Intruder Alarm System;

6. Surveillance cameras or any other device for monitoring movements;

7. Panic buttons for all tellers;

8. Bullet proof glass for tellers' cubicles;

9. A means of controlling unauthorised persons to access various areas in a bank or financial institution.

6

SECOND SCHEDULE


RECORDS ON IMPLEMENTATION. ADMINISTRATION AND EFFECTIVENESS OF THE SECURITY PROGRAM AND OTHER SECURITY. ISSUES

Every bank or financial institution shall maintain records covering at least the following:-

I. Incidences of robbery or burglary the bank or financial institution experienced during the year. Please provide details; .

2. 1

Type of security devices the bank or-financial institution has installed. Please list;

3. Frequency during the year the bank or fin~ial institution tested each of its security devices to detennine its effectiveness and efficiency;

4. Frequency during the year the bank or financial institution canied. out maintenanc-e of its security devices;·

5. Plans the bank or financial institution has to improve testing and maintenance of security devices in the coming year; ·

6. Frequency during the year the bank or financial institution carried out training of its management and staff on security issues;

7. Type of training on security matters during the year the bank or financial institution ~onducted for its management and staff;

8. Members of management and staff who were trained during the year. Please list them by titles or positions; ·

9. Plans on training of security inatters the bank or financial institution has for next year; I 0. General annual security vulnerability assessment;

11. Any other security issues the bank or financial institution would wish to repOJ;t.

~a~-as. Sala~-' . . .. ,. _,_ · o:~;i. • -. ~December ~2000

7

GJN~-- X BENNO J. NDULU

(]overnor

./ l

Tiffi BANKING AND FINANCIAL INSTITUTIONS (PRO:MPT CORRECTIVE ACTION) RRGTJT.ATTONS, 2008


Regulation Title

PART!

PRELIMINARY·PROVISIONS

I. Short title 2. Application 3. Interpretation 4. Objectives

PART II

CORRECTIVE ACTIONS

5. Mandatory actions for adequately capitalized institution

6. Discretionary actions for adequately capitalized institution

7. Mandatory actions for underc~pitaHzed institution

8. Discretionary actions for undercapitalized institution

9. Mandatory actions for significantly undercapitalized institution

I 0. Discretionary actions for significantly undercapitalized institution

11. Critically undercapitalized institutions

12. Submission ofrecapitaHzation plan

. 1

GOVERN1\.1ENTNOTICE.NO ... ; .............. published on ........ .

TIIE BANKING AND FINANCIAL INSTITUTIONS ACT (CAP. 342)

REGULATIONS

(Made under sections 34 and 71)

TH:E BANKING AND FINANCIAL INSTITUTIONS (PROMPT CoRRECTIVE ACTION) REGULATIONS~ 2008


Short title 1. These regulations may be cited as the B~king ~d financial Institutions (Prompt Corrective Action) Regulations, 2008 and shall come into operations qri the date of publication in the Gaze tie.

Application 2. These regulations shall apply to all banks and financial institutions.

Interpreta- 3. In these Regulations, unless the context requires otherwise-tion

"Act" means the Banking and Financial Institutions Act; ·"adequately capitalized" in rel~tion to a ·bank or financial institution,

means core capital of not less than ten percent of total riskweighted assets, and off balance sheet exposur-es determined in accordance with the Banking and Financial Institutions {Capital Adequacy) Regulations, 2008;

''Bank" means the Ban:k ofTanzania; "bank" has the meaning ascribed to it in the Act; "critically undercapitalized" in relation to a bank or financial institution,

means core capital of less than four percent of risk wei-ghted assets and off balance sheet exposure determined in accordance with the Banking and Financial Institutions '(Capital Adequacy) Regulations, 2008;

"core capital" has the meaning ascribed to it in the Act; "financial institution" has the meaning ascribed to it in the Act;

2

Objectives .

Mandatoxy actions for adequa~ely

capitalized institution

"signific?IJ.tly undercapitalized" in relation to a bank· or financial institution, means core capital of.less than six percent of total "riskweighted assets, off balance sheet exposure and capital charges for market risk determined in accordance with the Capital Adequacy Regulations, 2008;

"undercapitali7;ed'-; in: relation to· a bank or. financial instilulion, means . core capital of less than ten percent of total risk weighted assets and off balance she.et exposures determined in acc.ordance with the Banking and Financial fustitutions (Capital Adequacy) Regulations, 2008.

4. The objectives of these Regulations are to-( a) ensure timely and effective actions to deal with a weakening

bank or fmancial institution; (b) enhance transparency by establishing the minimum actions

the Bank shall take in addressing identified weaknesses in banks and financial institutions; and

(c) maintain confid~nce in the Tanzanian banking sector.

PART II <::;ORRECTIVE ACTIONS

5. Where in the opinion of the Bank, an adequately capitalized bank or financial institution is likely to incur a loss which may result in it bec_oming·undercapitalized, or is otherwise conducting its business in an unsound manner, the Bank shall-

(a) notify and require the bank or financial institution to submit to the Bank, within such period as it may spedfy, a written plan of corrective action which- ·

(i) identifies ~ the existing weaknesses in the administration or operations of the bank or financial institution;

(iii)

(iv)

(v)

(vi)

determines in detail the corrective required to remedy such weaknesses; and offers a realistic time-table for taking such measures. identifies the existing weaknesses administration or operations of the financial institution; determines in deta:il the corrective required to remedy such weaknesses; and offers a realistic time-table for taking such measures.

meas_ures

in the bank or

measures

(b) prohibit the bank or financial institution from declaring and paying any dividends which would, iri the opinion of the :Sank, likely cause the bank or financial institution fail to comply with the requirements prescribed under the Banking

Discretii:·nar y actions for adequately capitalized institution

Mandatory actions for undercapitali zed institution

Discretionar y actions for undercapitali zed institution

Mandatory actions for · significantly undercapitali zed institution

may-

and Financial Institutions (Capital Adequacy) Regulations, 1008;and .

(c) inteirsify its oversight and monitoring of the bank or financial institution in accordance with the principles of risk-based supervision.

6. In addition to actions prescribed in regulation S, the Bank

(a) .impose :civil money penalties; (b) issue cease and desist orders; or (c)· initiate suspension or removal of any director, officer or other

person or persons in the position of management;

7. Where· a bank or financial institution is undercapitalized, the Bank shall-

(a) take the measures prescribed in regulation 5, and (b) require the bank or financial institution to submit to the Bank

within forty five days of such notification a capital restoration plan which:

(i) specifies steps to be taken by the bank or financial institution to become adequately capitalized; and

(ii) specifies the levels of capital to be at:tained during each quarter in which the plan will be in effect.

8.-(1) Irt addition to actions prescribed in regulation 7, the Bank may appoint a suitably qualified person who shaH-

(a) advise-and assist the bank or financial institution in designing and fulfilling the capital restoration plan; and

(b) regtilarly submit to the Bank a progress report of the plan. (2) The Bank shall fix remuneration of the person appointed in

sub-regulation (l) ·and the bank or financial institution shall pay such remuneration.

9. · · Where a bank or financial institution is significantly undercapitalized, the Bank shall-

(a) take the measures prescribed in regulation 7; (b }- prohibit all transactions with connected parties except

repaym~nt to the bank or financial institution of any outstanding -credit accommodation or any transaction specifically permitted by the Bank to facilitate recap i taliza ti on.

(c) prohibit the bank or financial institution from awarding any bonuses or .increments in the salary, emoluments and other

4

Discretionar y actions for significantly undcrCllpitali zed institution

Critically undercapitali zed institution

Submission of recapitalization plan

benefits of its directors and officers; and (d) prohibinhe bank or financial institution from opening any

.branches or other expansion of operations.

10. In addition to any other actions prescribed in regulation 9~ the Bank may-

(a) impose restrictions on the growth of assets~ liabilities or l?oth ofthe bank or financial institution;

(b) restricfthe rate of interest on deposits; or. (c) require the l;:>arik or financial institution to cease lending or

any other business activity.

ll.-(1) Where a bank or financial institution is cr:iticalJy 1.1ndercapitalized, the Bank shal1-

(a) take the actions prescribed in regulation 9; (b) assist the institution in handling the crisis. (2) Not later than ninety days after a bank or financial institution

is determined by the Bank to be critically undercapitalized, the Bank shall appoint a statutory manager or liquidator unless-

( a) core ·capital is greater than two percent of its total riskweighted assets and off.:balance sheet exposure; and

(b) the bank or financial institution is operating in compliance with a capital restorati6n plan accepted by the Bank.

12. Where an und_ercapitalized or significantly undercapitalized bapk or financial institution fails to submit a recapitalization plan, or such plan is not accepted by the Bank~ the Bank shall, not later than ninety days from the date of the original notification, deem the bank or financial institution to be critically undercapitalizt?d and take the actions prescribed in regulation 11. ·

~-= ~ D~~ .. ~ala~, __ <?> .· .. - .. .

BENNO J. NDULU Governor

·~·'•~ •. ; ~ .necember,2008

5

I

7

/

THE BANKING AND FINANCIAL INSTITUTIONS (LICENSING) REGULATIONS, 2008


Regulations Title

1. Sheri Title 2. Application 3. Interpretation 4. Objectives

5. Financial Capacity

PART l PRELIMINARY PROVISIONS

PART II CRITERIA FOR LICENSING

6. Integrity in Financial and Business Dealings 7. Character and Experience 8. Proof of Source of Capital 9. Contribution to the country,s economy 10. Disclosure of Intended Products and Services 11. Training and Succ.ession Plan •:>is-

12. Feasibiiity Studies.

13. Pre-flling Meeting 14. Application Letter 15. Other Documents 16. Legal opinion 17. Principal Contact 18. · Granting of Licence

PART III APPLICATION FOR LICENCE

-;;:·

1

I

PART IV CONDITIONS NECESSARY TO BE FULFILLED AFTER GRANT OF A LICENCE

19. Submission of Memorandum and Articles of Association 20. Deposit of Paid Up Capital 21. Commencement of Business 22. Undertaking by Board

PARTV ORGANIZATION, OWNERSHIP AND MINIMUM CAPITAL

23. Legal form of Licensed Institution 24. Board Membership 25. Changes ofDirectors and senior Management 26. Restrictions on Ownership 27. Employment of non-Tanzanians 28. Minimmn Capital

PART VI MINIMUM CONDITIONS FOR OPENING REPRESENTATIVE OFFICE, BRANCH,

AGENCY, ADDITIONAL OFFICE OR SUBSIDIARY

29. OpeningofSubsidiary and Branch 30. Application for Opening Subsidiaries and Branches 31. Supporting Documentation 32. Activities of a Subsidiary 33. Representative Office _

34. 35. 36. 37. 38.

- - 39. 40. 41. 42.

PART VII SCOPE OF. AUTHORITY FOR LICENSED INSTITUTIONS

Powers of a Licensed Institution Relationship With Foreign Banks Management Agreements Fiduciary Functions Additional Actjvities Acquisition of a Company Engaged in Allied Undertakings Investment in a Company Engaged in Allied Undertakings Establishment of Foreign Branch or Subsidiary Segregation of Assets

2

43. Sanctions 44. Revocation

PART VIII MISCELLANEOUS· PROVISIONS

~·

SCHEDULES

3

,1

I I I I

I :

GOVERNMENT NOTICE NO ........................ published on .................... .

f

Short title

Application

Interpretation

_,

THE BANKING AND FINANCIAL INSTITUTIONS ACT [CAP 342]

REGULATIONS

(Made under section 71)

THE BANKING AND FINANCIAL INSTITUTIONS (LICENSING) REGULATIONS, 2008

PART 1 PRELIMINAR ?-PROVISIONS

1. These Regulations may be cited as the Banking and Financial Institutions (Licensing) Regulations, 2008 and shall come into operation on the date of publication in the Gazette;

2. These regulations shall apply to all banks and financial institutions.

3. In these regulations unless the context requires otherwise: "Act" means the Banking and Financial Institutions Act; "allied undertakings" include such activities as may be specified by the

Bank to be allied or related to the business of banking; · "Bank" means the Bank of Tanzania; "bank" and "banking business" have the meaning ascribed to them inthe Act; "conflict of interest" means a situation in which someone in a position of

trust has competing professional, business or personal interest, making it difficult to fulfil his duties impartially;

"core capital" or "tier 1 capital" has the meaning ascribed to it in the Act; "director" has the meaning ascribed to it in the Act; "disclosed reserves" has the meaning ascribed to it in the Act; "financial institution" has the meaning ascribed to it in the Act; "financial intermediation" has the meaning ascribed to it in the Act; "fit and proper person" means a person with th~ attributes required of a

member of the board of directors and management of a bank or financial institution as per the criteria set out in the First Schedule to these Regulations;

,.

Objectives

Financial capacity

"licensed institution" means any institution which has been licensed by the Bank to carry out banking business; · .

·"member of a family" means a parent, spouse, brother, sister, .child, uncle,. aunt, nephew, niece, stepfather,. stepmother? stepchild,. adopter and adopted child of the person concerned, and in case of an· adopted child his adopter; .

"person" has the meaning ascribed to it in the Act; . "related party"

(a) in relation a body corporate means-(i) its holding company or its subsidiary;

(ii) a subsidiary of its holding company; (iii) a holding co~ party of its associates; (iv) any person who controls the company or body

corporate whether alone or with his related party or with other related parties of it;

(b) in relation to an individual means-(i) any member of his family;

(ii) any company or other body corporate controlled · directly or· indirectly by him whether alone or with his related parties; and

(iii) any related party of his related parties. "supplementary capital" or "tier 2 Capital" has the meaning ascribed to it

in the Act; "subordimited debt" means a debt satisfYing conditions as may be

determined by the Bank for inclusion as supplementary capital; "total capital" has the meaning ascribed to it in the Act.

4. The objectives of these Regulations are to-( a) establish licensing criteria and conditions to ensure that only

soqnd and prudently managed banks and financial institutions are.Iicensed to·operate in Tanzania;

(b) specify procedures that the Bank shall use to investigate and scrutinise banking business licence applications.

PART II CRITERIA FOR LICENSING

5.-(1) The Bank shall investigate and scrutinize the financial capacity of the applicants.

(2) The soundness of an applica11-fs financial position, their business affiliatm; and the financial condition of those businesses shall be measured on-

( a) levels of capital as shown on balance sheets; (b) the potential financial support tha~ t1laY be made availahl.c

shoUld the licensed institution require capital injection for whatever reason, including losses in its operations.

5

Integrity financial business d~~iings

Ch;'lf8.cter ~xperjenc«

(3) The Bank, shall asse~s th~ ability of the appli~ap.t and their bu~jn(;?s~ ·l;!ffili~t~s to pay their ·CU.rt~.Q.t obligatiou~ from their income, reasonabillty.of~alu~tion they as.sign to tp,e1r ~ssets, and their net:-worthin relation to other liapilities. .

.... (4) +t sh~U b~ jn the interest of the Bank to e.stablish that shares in a licem>ed in~~itV-tio.n are not purchaseQ. with borrowed money.

(5) Sl.lb~regulation (4) shall not apply to licensed bank or financial instit:tJtio4 going .PJJP,lic, provided that shan~s t9 be purchased at the Initial :Publio Ofter sta.ge shall P.ot be pledged as collateral.

(6).The applic::$t shall indicate and declare to the Bank sources of fun4s f()r b11ying ~h8{es.

·in 6. The J3a,nk shall review the history of the applicant to determ.ine and their reputation, exp~Jjence in banking operations, financial so~dness

arid integrity in past and present business practices. ·

a,nd 7.-(1) The Bank shall make an assessment, in ac~ordance with the criteria set out in the First Schedule to these Regulations as to whether the propos¢ members of the board of directors or senior management of a proposed il.lstitution are fit and proper persons. · (2) The ~~ shall evaluate the proposed members of the board of directors or senior management team with' respect to their experience l;l,nd apility to manage fun4s, institute proper credit e.valJJatio~, collection procedures~ accounting sy~t~ms, eff'1c~ve i11temal ~qptrql, audit progrru,nmes a.rld manag_ement infonnation syst~rns.

(3) The Bank may interview the prppos~d boqrd or senior management team members and enquire as to past performance, reputation. and skills.

·· ( 4) The Bank shall make an assessment of proposed board or senior management team members regarding their fortrl.al education, professional qualifications, work experience, reputation, crirp.inal record and conflict of intereSt.

(5) The Bank shall requiry board or senior management team members to comprise people of Sl)fficiently strong ch~acter who are able to oversee the licensed institution's operations effectively by having the requisite ballking busin~ss experience.

(6) The Bank ~hall further assess whether individuals proposed as · h<;>l;ll'q or s~.plor ll1anagement team memb~rs hav~ tl;te necessary adrn~nistrative, organizational and decision-making skills, and ability to demonstrate reliability and sound char~cter.

Proof of source · ofcapi~I 8. Every shareholder of a proposed institution shall provide to the

Bank assurance that the proposed paid up capital shall be fully paid up prior to the Bank's issuance of a permit or an authority to commence banking operations.

6

Contribution to the country's economy

9.-(1) Every application shall convey to the Bank intentions of the proposed institution with regard to contributions towards the country's economic development.

(2) The Bank shall take into account the extent· to which lending policies and internal controls of the applicant are designed to promote directly or indirectly the financial or economic activities in the rural sector including rural-based industries, mining and tourism.

Disclosure intended products services

of 10. Each applicant shall indicate the financial products and and services to be offered and how ·such. products and services shall be of

benefit to the country.

Training and su_ccession plan

Feasibility studies

11.-.(1) Every applicant shall submit a training plan for imparting banking skills and expertise to staff indicating specific time frame.

(2) The applicant shall submit a clear plan and strategies on mode, time and contents of the extent to whi~h Tanzanian staff shall occupy senior management positions in the licensed institution.

12.-(1) Every applicant shall provide details of feasibility studies, business plans and projected balance sheets, income statements and cashflow statements for four years.

(2) At minimum each applicant shall provide-( a) draft policies and procedural manuals establishing how the

licensed fmancial institution shall operate in a manner consistent With the principles established in Risk Management Guidelines issued by the Bank;

(b) description of accounting system ~d information and communication technology to be used in the operations of the institution and proposed future investment;

(c) number of employees, job descriptions of senior management positions and an organization ch.art; ·

(d) des~ripuon of internal control procedures that the licensed institution shall implement;

(e) narrative description of shareholders, board and senior management and strategy for the successful operation of the licensed institution;

(f) plans and strategy on supporting rural based activities; (g) Sources.offunds of shareholders and subscribers; (3) Every applic~t shail submit ·business plan and financial

projections prepared in accordanc_e with the guidelines provided in the Fourth Schedule to these Regulations.

7

Pre-filing meeting

Application letter ·

Other documents

Legal opinion

Principal contact

PART III APPLlCATION FC>It LICENCE

l3.-(1) A pre-filing meeting between promoters and the Bank sh~ll be held prior to formal submis::;ion of the application.

. (2). An application shall not by considered until such a meeting is held or a waiver is granted. ·

14. A pt!f$On int~nqing tp carry on b:'!.nking busine$.S ·in Tanzania shall submit to t4e B~- a l~tter of application as prescribed in the Second Schedule to tb.eseRegula.tions.

l5. An a,pplication shall be signed by the directors of the applicant or a person authorized by the appilcant and submitted together with-

( a) authe11ticat.ed legal documents or board rysolution authorizing the signatory; .

(b) .one copy of each of the d9cllinents listed in the Third Sdledule to these Regulaticms;

(c) banker's cheque for three million shillings or any other amop.p.t as may be determined by the Bank from time to time, pay~ble to the Bank as'non-refinlciable application fee; :md

(d) evidence regarding sotirce and availability of funds to subscribe to the capital. of the bank or financial institution.

16. The Banl:c may require the applicant to provide legal opinion on any issue related to the a,pplic~J.tion of the licen-se as it may determine.

17. An applicant shall designate and inform the Bank its principal contact and spoke~person of the proposed institution.

Granting licence · of 18.-(1) The Ba.nlc shC!J-1, within ninety days aft-er receipt of a

complete application or where further information has been required, after receipt of such iiUQnnation, grant a licence or reject the application.

Submission of MEMARTS

· (2) In case of rejection,, the Bank shall in writing provide the applic:ap.t an .~xplanation of the .ground upon which the rejection is based. · · (3) A licence once i~~ueu ~hall remain in force unle~-os suspended

or revoked as provided in th~ Act.

PART IV CONDITIONS NECESSARY TO BE FULFILLED AFTER

GRANT OF A LICENCE

19.-(1) An applicant shall obtain the Bank's approval before filing and registering its Memorandum and Articles of Association with the Registrar of Companies.

8

Oeposit of .paid up tapital

Commencement ofbusin~ss .

Undertaking by . board

. , .,·;/(: );\;'i<¥~~f;;¥~~:;i:.;~

(2) ){'· c&py' of:iY.I:grnofkndbtn and ArtiCles qf Association registered shall be submitted to the Bank. after being registered by the Registrar of companies.

20. A licensed institution, not later than thirty days after grant of · t:heJ~cence shall deposit if4 paid up capital either in Tanzanian shilHngs or ih foreign currency, in a Tanzanian. registered barik or financial institution, in Treasury Bills or other· Government securitie,s of not more than 364 d~ys held with the Bank.

21. A licensed institution shall not .commence business untU all senior management staff have been vetted and the business premises, security facilities, communication facilities, processing equipments, accounting. and internal control systems are. in place arid ·have been inspected or reviewed by the-.Bank.

22.-(1) Every memtJer of the board of directors of a licensed institution shall execute a ·legally binding undertaking to fulfil his obligations towards maintaiq,ing a safe, sound and profitable institution .

.: (2) Without prejudice to sub-regulation (1) a member shall also undertake to comply with the provisiorts of the Act, Bank of Tanzania Act, other laws, Regulations, policies,' circulars, orders and instructions made there under.

PARTV ORGANISATION, OWNERSHIP AND MINIMUM CAPITAL

Legal form of licensed institUtion

Board mem.~ership ·

Z3. A licensed. institution shall be organized in the foim of a ·company lllp.ited by shares and incorporated tinder the laws ofTanzania ..

24.-.(1) The bo~rd of directors of a 11~ensed insti~tion shall have a membership of not less than five, tWo of whom shall have banJdng or related experi~nce and, majoritY ofwlJ.om shall be non-executive. · (2) ~'The chairperson of the licensed institution)ihall be a non-exec').ltive member ofth~ board~

Change of . .. 25.-(1) A licensed institution shall not appoint any per$on to the ~~r:o~ . and·. post of sen..ior mamtgement 6r board of qirectors without obtaining .prior manatom~uL approval of the<Bank,

Restrictions on ownership

(2) A licensed in~titution Shall, within seven days of the departure of any meJ:I?.l:>er,of the sehior" ~anagement or board of directors, notify the Bank ·of such departure together with rea:Sons thereof.

26: ... (1) A person ·shrui·:not own or control directly or indirectly a beneficial interest of more than twenty percent of the voting shares of any

9

Ero.ployment

bank or financialinstituti_on, ~~cept as provided undyr s~ction 15 of th Act. . ., ' . . . I

· . (2) For th~ ptlrpps~; bf ~U.b,r"¢suUi~f9~· (i) indirect. OW11er$hip d1 control shall mean ownersh.iji or .Control through relaJec;l parties. . !

. ~·· .· . . . . . I

of non., ' 27. A licensed ihstit1,1tio~ $.hali not employ a non-Tanz~an o:

ren~w any cqntr~ct of such p<1ison unless it seeks and obtains prio1 ~ro~~~a~ · . Tani:ifli<l.!lS

. Minimum ca~ital

' (2) Tq!( n4mber · o:f non-Taw;anians in the in~titution shall nq1 · exceed. fiv~ at aily ti1U~·

. 28.-(l).Every licensed institution shall com~ence operations with a core, c.apjt?l $p~pified i_p. the B~n,king and Finaridal t~~titutions (Capital Adeq~a~y) Regulatiqns, 2608 or such higher .amount as· the Bank may prescribe~· · (2) Where c~pital is remitted in foreign currency, it shall be

. reflected in the books of the licensed institution in Tanzahian shilling .. using eX.chang~ rate prevmli~g on the date of rell.1ittance. ' .

PART VI MINIMUM CONI)JTIONS FOR OPENING REPRESENTATNE OFFICE, BRANCH,

. . ... AGE;NCY,. ·. ' ; ..

Opening of sub"sidiaries and branches .

Appli~~tion for opening

:subsidiaries and brail_ches

S~ppQr$g documentation

·· . .ADI)ITIONAL OFFICE OR SUBSIDIARY

z~. A lipensed. institutioi1 shall not invest in capital expenditUre for the ·purpose of open.ip.g a representative office, subsidiary, branch, .agency or additional office in or outside TmlZallia. without the prior a:pprqyaJ of ¢e a~.

30.. The · B.ank may apprqve an application for opening a subsidiary,, l:Jranch, a.gency or additional office only . after proven successful,· sound and profit~ble operation· ?Jid it may, aS a condition of approval require additional capital.

·31. - An a,ppliqati()n- for establislun~rit of a subsidiary, branch, ~gency or an additional offi.cc sh~l b¢·suppor.t.ed by-. . (a) projepted b~anc~. sheet ancf income · statetnt;nt for the next

· ihree yea,rs; · (b )-Pcinsolic;Iated .projected bahmce sheet and income statement fo:r

the next three years; "(c) proposed organiza,tion stn,Icture; (d) d~taiied . bu.dget . and programme for the

establishment; · (e) names and particulars, including cuniculwn vi~e for persons

proposed to take up s~nior positions; and (f) any other information 'the Bank may require.

Activities of a subsidiary.

32. A subsidiary of licensed institution shall not activities other than those'permitted by Section 24 ofthe Act.

Representative office

Powers.ofa licensed institution

Cap. 212

Relationship with foreign banks

Management igreements ·

FiducilU)' fimctions

Additionai activities

33.:-(l) A foreign bank or fmancial institution shall not op n . representative office in Tanzania without prior approval of the Bank d= where approval has been granted; such representative office shall no· conduct banking b~iness or finaiicial intermediation. · . '

(2) .An application for establishment of a representative offic ir.: Tanzania shall include a detailed budget for.the office,_ ·curriculum itae: for the· pr9posed officers and staff and other information as may "f?e' required.by the Bank.

PART VII SCOPE OF AUTHOIUTY FOR LICENSED INSTITUTIONS

34. A licensed institution shall have all such powers necessary to carry out the permitted activities specified in section 24 of the . Act, in additiop. to the general powers vested in companies incorporated under t e Companies Act.

. 35. A _licensed institution shall not establish a relationship wifh any correspondent bank or financial institution abroad without pri~r approval of the Bank.

. 36. A management or technical assistance agreement involving licensed institution shall be. subject to prior approval of the Bank an go-yerned by the laws ofTanzania.

37. A licence institution with a core capital of not tess than twen two billion five ·hundred million shillings may be authorized by the· B to. perform· duties and · functi~ns of a trustee and such other fiduci functions as the Bank may authorize.

38 .• -(1) A licensed institution with a core capital of not less than thirty bimo~ shillings may be authorized by the Bank to-

( a} acquire up to one hundred per yent of the equity ofa company organized primarily for the purpose of underwriting debt or equity secUrities of other companies;

(b) acquire majority or all of the equity of a bank or 'financial institution; ·

(c) inves~ in .the equity of a company which is engaged in activities that are not allied o.r not related to bankirig; Provided ~t the equity investment of the bank shall not ex~eed five percent of the total subscribed share . capital of the investee company

11

Acquisition of a company . . engage<! in allkd undertakings

lnvestm,e11t in ~ com,pany · engaged in a!Jied undertal,<ings

Establishment of foreign b11\llch or subsidiary

Segregation of assets

(2) Wh~x:e a licensed institution intends to deal in securities, it· shaH fo.rm a subsidiary for such purpose.

39 .. A licensed institution with a core capital. between fifteen billion $billings and thirty billion shillings may, with the prior approval of the Bank acquire up to one hundred per· cent ofthe total subscribed share capital of the company engaged in activities classified as allied undertC!.kings.

_,

40. A lic~nsed Institutions with a core capit~ ranging fr<~m ten · billion shillings to iess thm fifteen· billion shillfugs may, w.lth the priQJ,". approval of the Bank, invest in the eq~ity of co[Ilpanies engaged in activities classified as allied unde.rtakings sU:l;>ject to the limits provided in the Banking and Financial Institutions (Credit Concentration a,nd Other Exposure Limits) Regulations, 2008. ·

41. A licensed institutions with '!. core capital of not less than fifty billion shillings may be authorized by the Bal;l,k to establish a l;)rqn,ch or a subsidiary ~broad.

42. A licerised institution author.ized by the Bank to act as an agent shall account .for and keep money, se~urities and other valliables, which it has received in such capacity d:uly separated from it~ own. assets and liabilities. ·

PAA'TVIII MISCELLANEOUS.PROVISIONS

Sanctions penalties·

~d 43. Without prejudice to the other penalties and actions prescribed by the Act, the Bank mcty impose one or more of the following sanctions where any ofth¢se provisions are contravened- ·

(a) penaltY 6n the licepsed institution or directors, officers or

(b) (c)

. (d) (e). (f) (g) {h)

(i)

(j)

employees responsible for non-:compliance in such amounts as ma_y be determ1ned by .the :$~; prohibition from declaring or paying dividends; ~uspension of the priviiege to issue letters of credit or guar~Wtee;

suspenSion of access to the c1-edit facilities of the Bank; suspension oflellding and investment operations; suspension of capital expenditur-e; susp~nsion of the privil~e to accept new deposits; suspension from office of the defaulting drrector, officer. or employee; di$qua1ification from holding any position or office in any licen.S,ed or financ#l institution in Tanzania; and. revocation of banking liccnct;:.

12

Revocation GN. No. I !8 ofl997

G) revocation of banking licence.

44. The Banking and Financial Institutions Regulations, 1997 are hereby revoked.

FIRST SCHEDULE


CRITERIA FOR DETERMINING THE CHARACTER AND EXPERIENCE REQUIRED FOR. A MEMBER OF THE BOARD OF DIRECTORS AND SENIOR MANAGEME}l"T OF BANK OR

FINANCIAL INSTITUTION

1. In order to determine, for the purpose of these Regulations, the character and moral suitability of persons proposed to be members of the Board or senior management, the B<_tnk shall have regard to the following qualities, in so far as they are. reasonably determinable, ofthe person concerned-

( a) adequate education background; (b) general character; (c) professional skills, competence and soundness of judgment for the

fulfilment of the responsibilities ofthe office in question; and (d) the diligence with which the person concerned is likely to fulfil those

responsibilities. 2. For the purpose of and without prejudice to the generality of the provisions of

paragraph (1), the Bank may have regard to the previous conduct and activities of the person concerned in the business or financial matters and, in particular to evidence that such person-

( a) (b)

(c)

(d)

(e)

has committed any act ofb~ptcy; was a director or in a senior management position of a bank or financial

institution that has been liquidated or is und~r liquidation or statutory management; has COIJJ.mitted or been convicted of the offence of fraud or any other

offence of which dishonesty is an element; has contravened the provision of any law designated for the protection of

members of the public against financial loss due to the dishonesty or incompetence of, or malpractices by, persons engaged in the provision of banking, insurance, investment or other fmancial services; any other criteria, which the Ba.nl< may prescribe; from time to time.

4. The following documents shall be submitted to the Bank with respect to each proposed director and senior management team, together with other documents the Bank may require

( a) (b) (c)

(d) (e)

detailed curriculum vitae; certified copies of academic and professional certificates; photocopy of the pages of the pru1sport which contain personal information including photograph, nationality, date and place of birth and issuer of the passport; two certified passport size photographs; and references from two persons who are not relatives, vouching for good moral character, integrity and performance.

13

The Governor Bank ofTa~ania P.O. Box ~939 Dar es Salaam TANZANIA

SECOND SCHEDULE


Re: Application for a Licence to carry out Banking business

Sir,

We, the undersigned, hereby apply for a licence to establish a bank/financial in~titution in Tanzania to be known as · with principal place of business at

The proposed institution shall have an a~thorized share capital of shillings and paid up capital ()f ~hili~~ which shall be contributed by the following subscribers:

Subs~ribeq Shares

1. 4. 3. 4; 5. 6. 7. 8. 9. 10 11. 12. 13. 14. 15. 16.. 17 18. 19. 20.

Total

Name Subscriber

of Number Amount

14

Amount Paid-up

Percentage of Ownership.

We jointly and severally make a fmn conunitment to deposit a total amount of paid up capital for the

proposed institution with any bank registered in Tanzania such deposit to be made n.ot later than thirty da)IS after grant of this ap~lication.

In support ofthis application, we submit herewith the documents listed in the accompanying checklist. We certify the correctness of all the information indicated in such documents to the best of our knowledge and belief.

We hereby authorize the Bank of Tanzania and any of its authorized ag~nts or staff members to make an enquiry or obtain any information from any source for the purpose or' determining the correctness of all the representations made in connection.with this application or of assessing its merits.

To facilitate communication between us, we have authorized ................. ;. to represent all ofus in: regard to this application. It is understood th~t any notice to him shall constitute sufficient notice to all of us.

Enclosed is a cheque for three million shillings being payment of our application fee.

Yours faithfully,

15

THIRD SCH]!;DULE

(Made underRegulatiop. 15)

Checkiist of Documents

I. Letter of appli~ation in the pr~scribed form.

2. Proposed Memorandum and Articles of Association.

3. Proof of source and availability of funds for inves.tment as capital of the proposed institution.

4. List of subscripers and proposed members of board of directors and Chief Executive Officer.

5. Proof of citi~ep,ship of every. ~ubscriber an<;! every proposed director and senior management officer. This includes.detaiied currk:uhim vita,e, photocopy of the pag~~ of the passport which contain personal information and two recent passport ~iz~ photographs. · ·

6. Audited balance sheet, inc;:ome stitement and cash flpw for the last three years, of every subscriber who owns five per ~ent or rp.qre of the share capital of the proposed institution engaged in business

7. Certified copies of annual returns of every subscriber who owns five per cent or more of the share capital of the proposed institution and every proposed member <;>f the board of directors and Chief Executive Officer together with accompanying·schedules or fmancial statements filed duri,ng the last three years with relevant Authority.

8. Certified copies of tax returns cif every subscriber who owns five per cent or more of the share capital of the proposed institution and every proposed member of the board of directors and Chief Executive Officer together with accompanying schedules or financial statements filed di.rring the last three years with relevant Tax authorities iogether with respective Tax clearance -c~rtificates.

9. Statements J;Tom two persons who are not relatives vouching for the good moral character and financial responsibility of the subscribers who owns five per cent or more of the share capital of the propo.sed iruititution anc:l the proposed directors and Chief Executive Officer.

10. Home Col.llltry Regulator Certification if the applicant is a foreign bank or financial institution.

11. Declaration that the fu11cis to be invested have not been obtained criminally or associated with any criminal activity:·

12. Business plans for the first four years qf operations including the strategy for growth, branch expansion plans, dividend payout policy, career development progranune for the staff and budget for the first year. . · .

13. Projected annual balance sheets, projected annual income statements and projected annual cash flow statements for the first four years of operation,

14~ Brief description of economic benefits to be derived by Tanzania and the community from the proposed banl<: or fmancial institution.

16

FOURTH SCHEDULE


General guidelines ~or preparation of Business plan

l. The business plan should be prepared by the promoters and will be reviewed by the Bank to determine whether approval should be given to ·operate a bank or fmancial institution. The plan should identify the institution's markets, its proposed services, management capabilities, growth plan, and strategies for profitability. ·

2. The business plan should present data, which accurately reflect the economic condition of the delineated market and address statutory and regulatory changes, which may affect the operations of the proposed bank or financial institution. Proposal should reflect the realities of the market place.

3. A business plan should contain sufficient information to demonstrate that the proposed bank or financial institution has reasonable likelihood of success. In this regard a detailed listing of all assumptions such as used in preparing the· business plan should be attached to the submission (e.g. a margin analysis and cost of funds). Therefore, organizers must ensure that the business plan projections are well supported and goals and objectives are properly defmed -on initial submission.

Market Analysis

4. Analyse the market to be served. Describ.e the market in which you expect to provide services in terms of economic characteristics for example size, income and industry patterns. Include anticipated changes in the market, the factors influencing those changes, and the effect they will have on the proposed institution. to the extent necessary for making business decision, describe differences in the product market to be served for example, differences in the depository and credit market. Analysis will be base.d on use of the most current economic data available. Sources of information used are reviewed for credibility and are important in reviewing the data.

5. Ana,lyse the competition. List the competitors inside the market to be served, those outSide who might affect the markets served and any potential competition. Give your perception and analysis ofthe market st:r;ategies and expected results in terms of relative strength, market shares and prices.

6. Explain. the strategies you wiii foiiow to capture a share of each product market and the results ~ou expect to achieve. Use a sample format to present a summary ofyoqr expectations.

Plans and Objectives

7. Review major planning assumptions used in the analysis and in setting the plans and objectives for a new institution. Tndudt' at least the following mC~rket growth, intere::~l ruLe::~, co~l of funds and

competition.

8. Projections should show the expected asset and liahilily mix, volume for each type of services, fixed asset investments and officer and staff remuneration. Projections must be based on the planning assumptions which must be submitted as part of the application, m!U'ket analysis, aud strategies discussed above. Discuss the advantages and disadvantages of the proposed asset/liabilities mix, including a net interest margin analysis, and any actions whiCh will be taken to reduce major risks through appropriate finids management techniques and systems.

17

9. Discuss the fonnula or basis used to arrive at the proposed capital structure and an explanation of why the promoters believe the proposed <miOUnt is sufficient in light of given market factors, strategies, and expenses. Promoters are expected to raise an amount sufficient to effectively compete in the market are and adequately support planned operations ~n addition to all organizational expenses. The Bank may require a higher amoljnt to maintain capital adequacy to support operations projected through the end ofthe institution's fourth year.

10. Discuss ·pl;;tns for raisipg capital initially e;md to financ\? groWI:h wiFl;lin th~ first four yea,rs. Explain how the plans willk~ep the institution in cqnfor$ity wjth th~ Bank's C;:tpit~l Adequacy Regulations, 2001 specifically addressing compliance with the r~sk-bas~d capital guidelines.

. . . '. . . . '

Credit Policy apd Procequres

II. Credit policies are a set of broad statements establishing the concept and objective parameters for type, limits for maturities, loan pricing criteria client and collateral stand<'U"dS to· be fulfilled by borrowers, aggregate and individual concentration limits, and loan authority and procedures for collection and charge-offs.

12 Credit manual must be prepared comprising of detailed guidelines for implementing the stated policies. The manual generally will address types of business desired, proper borrower financial inforniation; :credit files maintenance; enforcement of repayment schedule~; and periodic review -and other reports to be generated and distributed.

13. Credit policies and manuals need to cover all the steps of credit production and administration which include initiation, investigation and analysis, procedures for approval, rene'Yals and extensions, documentation, perfection of collateral, funds disbursement and recovery.

14. The structure should in principle reflect the nattll'e and scope of the intended activities of the ipstitution and the mechanism by which the management envi~ages to govern the institution and to monit.or as to what extent the objectives or the institution are achieved.

15. The structure should show the relfitionships between the board and management. It should also ·show the composition of various departments of the institution. The structure sh,ould also indicate the number of staff envisaged for each unit. Support units such as internal audit, legal services and others should be indicated.

16. The promoters s}lould be able to show the names of specific p<:<rsons that are envisaged to take certain key positions in the instit1,1tion. If the ~ctual persons cannot yet be identified, promoters should indicate the requirement ciearly in terms of training, experience and personal characteristics.

17. Promoters are required to disclose how the proposed bank or financial institution will develop the professional and technical skills of their staff and Tanzanians will be employed, trained and occupy positions of senior or managerial ranks in the institution. All future plans should be indicated.

Financial Projections

18. Promoters must prepare projected balance sheets, income.statements and ca5h flow statements. They must submit statements that reflect their assets, liabilities, and capital projections for the number of years projected to reach profitabilityj however, a minimum of four years must be displayed.

19. At a minimum, the intbnnation ih the following Conu:; musL bt:: provided. Additional data should be included to reflect important element or your planned asset and liability mix for

18

example, the loan and deposit schedules might be expanded. Average balances, rather than year-end estimates, should be used. Average balances may be computed by projecting monthly or quarterly account balances and averaging (annualizing) for the appropriate number of periods used. ·

PROJECTED BALANCE SHEET [In'OOO Tanzanian Shillings]

PARTICULARS Year 1

Assets Cash Balances with the Bank Balances with other banks

- in Tanzania - abroad

Investment in-debt securities: - ·· Treasury bills

- Other Securities (use separate schedule] Loans, Advances and Overdrafts (Net]

- loans and Advances - overdrafts - allowance for losses (as a deduction]

Bank Pre.mise.s. Furniture and Equipment - use separate schedule 1

Other Assets (Use separate schedule]

·TOTAL ASSETS

Liabilities Deposit liabilities other than banks

- current accounts - savings deposits - time deposits

Deposits from other banks - in Tanzania - abroad - other deposits (use separate schedule]

Total deposits Other liabilities (use separate schedule] Capital. Paid-up capital:

- Ordinary - preference

Reserves: - share premium (discoWit] - retained earnings - capital reserves - others (specify]

19

Year Year Year ~ 3 4

Total Equity

TOTAL LIAiULlTES AND CAPITAL

Off-balance sheet conimitment:S

PROJECTED INCOME STATEMENTS [In'OOO TanZanian Shillings]

PARTICULARS Year 1

Total Interest Income Interest Experises

- deposits (use separate schedule] - borrowings - Others (specify]

Total Interest Expenses Net Interest Income Provision for loan losses Bad debt written off Non-Interest Ip.come

- foreign exchange gain/losses - commission and fees (use separate schedule] - others (use separate schedule]

Total Non- Interest Income. Non-Interest Expenses

- officers' salaries and benefits - employees' salary and· benefits - deprecia~ion expenses - maintenance costs - others (use separate schedule]

Total Non-Interest Expenses Operating Income (Losses] Extra Ordinary Int;ome/Losses (specify] Net Income/Loss before Income Tax Income taxes Net Income/Loss after tax

20

Year Year Year 2 3 4

PROJECTED CASH FLOW STATEMENTS [In'OOO Tanzanian Shillings]

PRACTICE Year 1

Part 1 Cash flow from ()perating activities Net Income (Loss] Acljustments to reconcile income

- provisions - net change in loans and advances - gains/Loss on sale of assets - net change in deposits - net change in short-term negotiable

securities - net change in other liabilities - net change in other assets - others (spe~ify]

Net cash provided _fused)~ operating activities

Part II Cash flow from investing activities

- dividend received - purchases of fixed assets - purchases of investment securities - proceeds from sales of investment

securities - others~(sjpecify)

Net cash provided (used) by investing activities

Part III Cash flow from financing activities

- Repa)'!llent oflong-term debt - Proceeds from issuance of long-term debt - Proceeded f_i-om issuance of share capital - Proceeds from sale of fixed assets - Payment of cash dividends - Net change in other borrowings - Others (specify]

Net Cash provided( used) by tlilfu'"'lcing activities

21

Year Year Year 2 3 4

Part IV Cash imd Cash Equivalents Net decrease/increase in cash and cash equivalents . ,.

- Cash and Cash equivalents at the beginning of the year

- Cash atid Cash equivalents, current year-to-dat~

gr. Es Salaam 0 .' . "b.~ ..•• nec~wr~;r; 200~

22

. illjJ.JJ'h: ~ x__

l3ENNO J. NPULU Governor

GUIDELINES FOR BOARD OF DIRECTORS OF BANKS AND FINANCIAL INSTITUTIONS, 2008

BANK OF TANZANIA

1.0 INTRODUCTION

1.1 The proper conduct of a bank or financial institution (herein after referred to as banking institution) requires that the board of directors function appropriately and at high standards. The responsibility for the oversight and direction of banking institutions rests with the Board of directors. In discharging his responsibilities effectively, a director, must command a high level of integrity, honesty, competence and ability to adhere to good corporate governance principles. From a banking industry perspective, corporate govern!l-nce involves the manner in which the business and affairs of individual institutions are governed by their boards of directors and senior management, and in particular, how banking institutions:

(a) set corporate objectives;

(b) operate the bank's business on a day-to-day basis;

(c) meet the obligation of accountability to their shareholders and take into account the interests of other recognized stakeholders;

(d) align corporate activities and behavior with the expectation that banks will operate in a safe and sound manner, and in compliance with applicable laws and regulations; and

(e) Protect the interests of depositors.

1.2 The Bank of Tanzania has legitimate interest in ensuring that banking institutions operate in a safe and sound manner. This goal can be largely attained if boards of directors effectively discharge their oversight roles. To assist board of directors of banking institutions, the Bank of Tanzania has decided to issue these Guidelines which spell out minimum standards required to be observed by directors of banking institutions. The objectives of these Guidelines are to:

(a) promote and maintain public confidence in banking institutions;

(b) establish standards for corporate governance processes and structures;

(c) provide guidance to directors for proper discharge of their fiduciary responsibilities.

1.3 These Guidelines are issued under Section 71 of the Banking and Financial Institutions Act, 2006 and are intended to apply to directors of all banking institutions in Tanzania.

2.0 THE DUTIES AND RESPONSIDILITIES OF BOARD OF DIRECTORS

2.1 · Duties and Responsibilities of the Board

The board of directors of a banking institution has the following major duties:

(a) Appointment ofExecutive Officers

One of the fundamental duties of the board is to appoint competent executive officers to manage the affairs of the banking institution while ensuring that the banking institution has an appropriate plan for executive succession. The board is obliged to appoint officers who portray high standards of ability, experience and integrity. A related responsibility is to remove the officers who prove incapable of effective and sound management.

(b) Effective Oversight of the Banking Institution's Affairs

The directors of a banking institution are responsible for safe custody and investment of depositors' funds. Consequently, they must commit sufficient time in the oversight of affairs of their institutions. Effective oversight entails possession of necessary skills to make sound and independent judgments and be able to apply immediate remedial measures when need arises. The board of directors should exercise their fiduciary duty and authority to question and insist upon straightforward explanations from management, and receive on timely basis sufficient information to judge the performance of management. In connection with effective oversight, directors are also responsible to establish and ensure effective functioning of various board committees and management in key areas.

(c) Regulatory Compliance

The business of banking is governed by a number of laws and regulations. Directors' responsibility in this respect is to e.stablish policies and monitor operations to ensure their banking institutions comply with laws and regulations. To fulfill this responsibility, directors must have a cleat understanding of the legal and regulatory framework under which their banking institutions operate. They must exercise duty of care to see to it that banking and other applicable laws and regulations are not violated and take actions to avoid the recurrence of any violations.

(d) Setting and Reviewing Policies and Objectives

The board of directors must establish policies and objectives that will direct the activities of a banking institution in all areas of operations. It is important that these objectives and other organization's values should be communicated throughout the organization. The policies must clearly quantify the acceptable risk and specify the capital required for safe operation of the banking institution. The board of directors should ensure that senior management adheres to objectives set by the organization.

(e) To develop a strategic plan

The board of directors in collaboration with management is obliged to prepare a strategic plan and adopt policies to achieve it. A strategic plan is a roadmap to assist a banking institution to achieve its mission and objectives. The plan should be reviewed whenever business and economic conditions call for

.2

change. The plan and the institution's mission m general should be communicated to all employees.

(f) To ensure arm's length transactions with insiders

Banking institutions should have policies that guide transactions with insiders and their related parties. Such policies should ensure, through adequate procedures, that transactions with related parties, in particular with shareholders, executive officers or members of the board and other. related parties, are made on an arms-length basis and are not made on terms contrary to the interest of the banking institution, its shareholders and depositors .. Financial transactions with insiders and their related parties must be beyond reproach and in full compliance with regulations concerning such transactions. The board of directors should monitor compliance with policies and procedures relating to insider transactions on a regular basis. ·

(g) Setting and enforcing clear lines of responsibility and accountability.

Boards of directors should clearly define the authorities and key responsibilities for themselves as well as senior management. Clear lines of responsibility are important in hastening implementation of decisions and appropriate response. The executive management must be aware that they are ultimately responsible to the board of directors for the performance of the banking institution ..

(h) Maintenance of Adequate Capital

Directors are responsible for ensuring that the banking institution is adequately capitalized at all times. This goes beyond meeting the minimum capital required by the Banking and Financial Institutions Act, 2006. The board of directors should also plan for capital needs commensurate with banking institution's risk profile and projected future activities.

(i) Effective utilization oflnternal and External Auditors' work.

The board of directors should recognise and acknowledge that independent, competent and qualified auditors, as well as internal control functions (including the compliance and legal functions), are vital to the corporate governance process in order to achieve corporate objectives. The board of directors should utilize the work of the auditors as an independent check on the information received from management on the operations and performance of the banking institution.

The internal and external audit functions are of great importance in enhancing the effectiveness of the board of directors and senior management by-

1. Utilizing, in a timely and effective manner, the findings and recommendations of auditors;

3

2. Ensuring independence of the internal auditor through his reporting to the board or board's audit committee;

3. Engaging external auditors to, among other things, assess and report on the effectiveness of internal controls; and

4. Requiring timely corrective measures by management of problems identified by auditors.

G) To ensure that the banking institution has a beneficial influence on the economy of its community.

One reason for approving banking institutions' charters is to meet specific community needs. Directors have a continuing responsibility to the community to provide services that will be conducive for well balanced economic growth.

2.2 Responsibilities and Legal Liabilities of Directors Besides "the joint responsibilities of the board of directors-: (a) each director is liable for non compliance with a memorandum of

undertaking to ensure safe and sound operations of his banking institution.

(b) each director is responsible for complying with secrecy provisions of the Banking and Financial Institutions Act 2006.

(c) each director should not involve himself in fraud or deliberate mismanagement.

(d) each director is responsible for ensuring that all credit facilities granted to him or his related parties by the banking institution to which he is a member of the board of directors, are given at an arm's length basis.

(e) each director is responsible for inhibiting himself from attending a meeting which intends to deliberate or approve a transaction in whicl:i he is the beneficiary.

(f) a director may be fined, removed from office, or disqualified from holding any position or office in any banking institution in case of violation of provisions of the Banking and Financial Institutions Act, 2006 or regulations issued thereunder.

(g) each director has a duty of care and loyalty to the banking institution's interests. Accordingly, a director is liable for damage caused when he breaches a duty of care.

(h) a director is liable for non-diligent and negligent performance of the job of director.

(i) each director is responsible for exercising rational and independent judgment.

G).

2.3 Board meetings

4

(a)

(b)

The board of directors should meet at least quarterly, to discuss the business affairs through reports as submitted by management in writing in a form prescribed by the board of directors.

The reports should include, among others-

(i) a summary of balance sheet, income statement and performance review against the budget, business plan, peers and the banking sector;

(ii) the extent to which a banking institution is exposed to various risks. At minimum the review should cover credit, liquidity, interest rate, foreign exchange and operational risks;

(iii) Review of loan portfolio including problem credit facilities, related part transactions and concentration of credits;

(iv) transactions that are significant with respect to the business of the banking institution if designated as such by the senior management, in line with the rules set down by the board of directors.

(v) the operations of the banking institution in the financial market and, in its "nostro" accounts.

(vi) litigation issues

(vii) human iesources issues

(viii) internal control issues

(ix) major changes in assets and liabilities as well as details regarding provisions for non performing assets; and

(x) compliance with laws, regulations, circulars, internal policies and procedures.

(c) At least annually, the board of directors should set implementation targets which are consistent with the banking institution's mission and the business plan.

2.4 Attendance at meetings of the board of directors

(a) Every member of the board should attend at least seventy five percent of the board meetings of the banking institution in each year. Each banking institution is required to review each year the suitability of a director who has failed to comply with the seventy five percent attendance rule, without valid reasons.

(b) A director who has, whether directly or indirectly, a personal interest in an existing or proposed transaction of the banking institution that is

5

brought for discussion before the board of directors, or in a decision that the board of directors is about to make, should declare his personal interest as aforesaid at the opening of the meeting of the board of directors at which the transaction is to be discussed.

(c) A director who is an interested party as aforesaid in paragraph (b) should not attend the meeting that discusses the matter that concerns him, and should not be counted for purposes of determining a quorum required for that discussion.

2.5 Evaluation of the Board of Directors

Board of directors should regularly review its mix of skills and experience and other qualities in order to assess the effectiveness of the board and its committees. Such review should be by means of peer and self-evaluation of the board as a whole, its committee and the continuum of each and every director including the chairman. The evaluation should be conducted annually and the report thereon should-be made available to the Bank when requested.

2.6 Immediate reporting to the Bank

A report should immediately be submitted to the Bank if there occurs-

(a) A change in the composition of the board of directors or its committees, including a change resulting from the resignation, dismissal or demise of a director. The report should comprise a statement by the Chairperson of the board of directors regarding the reasons for the resignation or dismissal, as well as a signed statement by the director regarding the reasons for his resignation or dismissal;

(b) Exceptional events that constitute a departure from the proper conduct of banking business, or infringement of the provisions of the law, or substantive violation of the interests of the institutions' stakeholders.

2.7 Terms of appointment, remuneration and retirement

The board of directors should put in place a policy spelling out clearly the appointment, remuneration, and retirement terms for the members of the board, of their institutions.

2.8 Risk management

(a)At least annually, the board of directors should review all policies relating to various types of risks and determine the ceilings of exposure permitted in the various risks and activity segments. Similarly, it shouldreview and approve the organizational arrangements for managing and controlling the institution's overall exposure to various risks in line with the Risk Management Guidelines 2005 issued by the Banlc

6

(b )The board of directors should ensure that it is informed of all new activities and approves strategic activities of the banking institution after it has clear

understanding of the. following:

(i) the risks involved in that new kind of activity,

(ii) the mechanisms the banking institution will use for the managing, measuring and controlling of the risks,

(iii) the quantitative restrictions required in connection with the risks embodied in the new activity,

(iv) the appropriate personnel, sources of fmance, and technical and technological infrastructure for the new activity, and;

(v) the management of the new activity and whether can be adapted to the existing situation in the banking institution.

3.0 COMPOSITION AND CONDUCT OF THE BOARD OF DIRECTORS

3.1 Number of members of the board of directors

A board of directors of a banking institution should be composed of the following:

(i) membership of not less than five, majority ofwhom must be non-executive and have banking or related experience.;

(ii) The chairperson of the board must be a non-executive director;

(iii) Each banking institution should appoint at least two Tanzanians to its board; and

(iv) A board member should not simultaneously serve as a board member or in any executive capacity in other banking institution in Tanzania;

(v) To avoid conflict of interest, no individual who is a member of National Assembly or House of Representatives or local government authority should be appointed as director of a banking institution.

3.2 Ownership and Management

(i) No individual shareholder with a five per centum or more shareholding in a banking institution should form part of management of the banking institution.

(ii) No individual shareholder who had a significant interest in a failed banking institution should acquire a significant interest in a

7

banking institution. Significant interest means a holding of five per cent or more of the voting shares of a bank or financial institution.

(iii) No individual who was involved in the management of a failed banking institution should be allowed to · hold a position of accountability in a banking institution.

3.3 Practicing Professionals

(i)

(ii)

In order to tap expertise of practicing professionals, a banking institution may appoint such professionals as board directors provided that they are not employed by or partners in a firm which is engaged to conduct audit of or consultancy work for the banking institution;

Practicing professionals who are appointed as directors of banking institutions should exercise the highest degree of integrity and professionalism. They must always avoid being involved or appearing to be involved in any self-serving practices and conflict of interest situations while serving as directors of a banking institution.

3.4 Criteria for Fit and Proper Persons

Every banking institution should ensure that only fit and proper persons are appointed to their boards. In assessing fitness and propriety of a person to be appointed to the board of directors, every banking institution must consider his honesty, integrity, diligence, fairness, cqmpetence, capability and financial soundness. The following criteria should be used to determine a fit and proper person-

(i)

(ii)

(iii)

(iv)

(v)

Possession of formal qualifications and management or business or professional experience of at least five years, preferably, possession of a proven track record in banking industry or related activities;

non- conviction in any criminal

non-involvement as a member of the management of board of directors, with a banking institution whose registration or license has been revoked or cancelled or which has gone into liquidation.

(absence of default record of any credit accommodation taken by him or his related parties from any banking institution.

Absence of banlauptcy record or suspension of payments or composition with his creditors.

3.5 Permanent Conflict oflnterests- Disqualification from Serving

(a) A person should not serve as a director if his business or permanent occupation creates a permanent conflict of interests between him and the

8

institution, or if it is reasonable to assume that such conflict may exist permanently.

(b) A person shall not be appointed a director if he was a director of another banking institution and less than a year has passed since he ceased to serve as a director of that institution unless the permission of the Bank is obtained.

3.6 Undertaking by a director

(a) After receipt of the Bank's approval on the appointment or reappointment of a director, the director concerned shall make a written undertaking, which should be submitted to the banking institution for onward transmission to the Bank undertaking:

(i) that he has read these guidelines and undertakes to act in accordance with it.

(ii) That he shall fulfill his obligations towards maintaining a safe, sound and profitable banking institution and to comply with the provisions of the Banking and Financial Institutions Act, 2006 Bank of Tanzania Ayt, 2006, Foreign Exchange Act, 1992, regulations and directives issued by the Bank from time to time.

4.0 BOARD COMMITTEES.

4.1 Types of Committees

While the final responsibility and accountability of the affairs of the banking institution rest with the board of directors it may delegate some of its responsibilities by forming committees. The board of directors should form an audit committee and such other committees, as it may be necessary for discharge of its functions.

4.2 Composition of Board committees

(a) The boar~ of directors should specify the composition and functions of every comrmttee formed and the terms and conditions upon which the committee would exercise its functions; and

(b) The board committees should consist solely of non-executive directors, and the number of committee members should not be less than three.

9

THE BANK.J;NG ANI) FINANCIAL INSTITUTIONS (LIQUIDITY MANAGEMENT) RE9UL~TIONS, 2008

Regulation Title

1. Short Title 2. Application 3. Interpretation . 4. Objectives



PART II LIQUIDITY REQUIREMENTS

5. Liquidity management policies ~::-:- .s~ 6. Contingency plans 7. Minimum Liquid Asset Ratio · 8. Loans to Deposits Ratio 9. Bahinces abroad 10. Liquidity report

.11. Maturity profile 12. Compliance on solo and consolidated basis


13. ·sanctions and Penalties 14. Revocation

I

,. ,.. .

GOVERNMENT NOTICE NO ..................•. published-on ............ .

-· THE BANKING AND FINANCIAL INSTITUTIONS ACT

(CAP. 342)

REGULATIONS

(Made under section 71)

THE BANKING AND FINANCIAL INSTITUTIONS (LIQUIDITY MANAGEMENT) REGULATIONS, 2008

Short title

Application

PART I PRELIMJNARY PROVISIONS

1. These Regulations IU.ay be cited as the Banking and Financial Institutions (Liquidity Managert:ent) Regulations, 2008 and shall come into operation on the date of publication in the Gazette.


Interpretation "3. Irt these Regulations, unless the context requires otherwise-" Act" means the Banking and Financial Institutions Act; "bank" has the meaning ascribed to it in the Act; "Bank" means the Bank ofTanzania; "demand liabilities" means current account deposits, time deposits, savings

deposits~ deposits of banks, interbank borrowings payable at call or within seven days, banker's cheques and drafts issued, payment orders and transfers payable, foreign currency deposits and ·borrowings, other · deposits, off balance sheet commitments maturing within one year and such other liabilities as the Bank may determine;

2

Objectives

Liquidity management policies

"fimincial institution" has the meaning ascribed to. it in the Act;· "liquid .assets" _means cash· on hand, current account balances and currency

deposits with the Bank as shown in the books of the Bank, balances with other banks ~th maturities of seven day~ or less or withdrawable o:p. demand, cheques and· items for clearing?· foreign currency notes and coins including gold, treasury bills and oth(!r government securities maturing within one.year and as long as they are unencumbered, commercial bills and promissory notes discounted at the Bank and such other assets as the Bank ·may determine;

"off-balance sheet exposure" has the meaning ascribed to it in the Act.

4. The objectives of these regulations are to-(a) 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 developments;

(b) ensure that banks and financial institutions implement liquidity management standards t).iat conform to established international norms; and

(c) maintain public coirlidence by ensuring that banks and financial institutions have sufficient iiquidity at all times.

PART II LIQUIDITY REQUIREMENTS

5.-(1) The board of directors of a bank or financial institution shall adopt sound and prudent liquidity management and funding policies consistent with the principles set out in the Risk Management Guidelines, 2005.

(2) The policies under sub-regulation (1) shall at least include-

( a) delegation of responsibility for management of overall liquidity of the bank or financial institution to· a specifically identifiable group, which may be known as the Asset and Liability Management Committee;

(b) establishment and implementation of effective techniques and procedures to identify, measure, monitor and manage liquidity risk both in individual currencies and overall;

(c) analysis of net funding requirements under alternative · scenarios; and

(d) contingent liquidity planning.

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Conting~ncy plans

(3) The liquidity management and funding policies under sub" regulation (1) ·shall· be reviewed, at least ·annually, or more frequently as may be .necessary· to ensure ~at it remains appropriate and prudent.

6.-(1) A barik or financial institution shall submit to the Bank a copy of the contingency plans approved by its board of directors for dealing with liquidity stress scenarios.

(2) Contingency plans under sub-regulation (1) shall, at least, . include-

(a) identification of a crisis management team and provision to notify the Bank promptly of emerging liquidity problem;

(b} procedures to ensure that all necessary information is available to· enable senior management to make quick decisions

· including mechanisms to facilitate constant monitoring and reporting of signals; ·

(c) procedures for funding cash flow shortfalls in crisis situations, including. .expected sources of funds, an assessment of the cost of alternative funding strategies. and the impact on the capital of the bank or financial institution;

(d) communications strategies to deal with staff, customers and the public, including the media.

Minimum 7. Every bank or financial institution shall maintain minim lim Liquid Asset liquid assets amounting to not less than twenty percent of its demand Ratio liabilities.

Loan Deposits Ratio

Balances abroad

to 8.-(1) Every bank or financial institution shall maintain at all times its gross loan portfolio at levels not exceeding--eighty percent of its total deposit liabilities.

(2) Total deposits under sub-regulation (1) shall include local and foreign currency deposits of customers, banks financial institutions arid special deposit.

9. Balances with banks abroad may be included in liquid assets only after netting any amounts owed to that bank provided that they are-

( a) withdrawable on demand or mature within seven days; and (b) denominated in a currency which is freely convertible and

transferable in international exchange markets.

4

Liquidity report

Maturity profile

Compliat1c:e ou solo and consolidated basis

10. A bank or financial institution shall submit to the Bank liquidity report, "in a prescribed form not .later than the second Monday . following the reference week stated in the report.

11. A bank or financial institution shall prepare a maturity profile of its assets and liabilities in. the format and frequency prescribed by the J?ank.

12. Where. a bank or financial. institution directly or indirectly controls another bank ur financial institution, the requirements of these regulations shall be met hy each bank or financial institution on a solo basi:::, and the parent company shall also comply on a solo and consolidated basis.


Sanctions penalties

and 13. Without prejudice to the other penalties and actions

Revocation GN. No. 104 of2001

prescribed by the Act, the Bank may impose one or more of the following . sanctions where any of the provisions of these Regulations are contravened-

(a) imposition of penalties on the bank or fmancial institution or directors, officers or employees responsible for the violation in such amounts as may be determined by the Bank;

(b) prohibition from declaring or paying dividends; (c) suspension of the privilege to issue letters of credit or

guarantee; (d) suspension of access to the credit facilities of the Bank; (e) suspension of lending and investment operations; (f) suspension of capital expenditure; (g) suspension of the privilege to accept new deposits; (h) revocation of banking licence; (i) suspension from office of the defaulting director, officer or

employee;_ and . G) disqualification from holding any position or office in any

bank or financial institution.

14. The Liquid Assets Ratio Regulations, 2000 are hereby revoked.

~~~ ~ -,(

BE'MW-.J.NDULU; Governor

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THE BANKING AND FINANCIAL Il'-.'ST!TUTIONS (MANAGEMENT OF RISK . ASSETS) REGULATIONS, 2008

ARRANGEMENT OF REGULATIONS ;_,

Regulation Title PART I



PART II MANAGEMENT OF RISK ASSETS

5. Risk Management policies k Extensions or roll-overs 7. Charge-off of credit accommodation 8. Review of credit policy 6~ 9. Quarterly review arid classification I 0. Past due loans .. and overdrafts.

PART III CLASSIFICATION OF LOANS AND OTHER RISK ASSETS

11. Classification criteria 12. Credit accommodations fully secured by cash or near cash it-ems 13. Classification by quantitative criteria . 14. Classification by qualitative criteria 15. Current classification 16. Especially mentioned cla-ssification 17. Substandard classification 18. Doubtful classification 19. Loss classification 20. Multiple credit accommodations 21. Security consideration 22. Classifi-cation of other property and assets 23. Classification of receivables 24. Inter-office or inter-branch items 25. Classification of off balance sheet commitments

PART IV PROVISIONING FOR LOSSES

26. Special non-distributable reserve 27. Minimum provisions 28. Valuation of other assets 29. Review by Bank

PARTV MISCELLANEOUS PROVISIONS

30. Placing on non-accrual basis

31. Quarterly reports 32. Approval for annual provisions. 33. Sanctions and penalties 34. Revocation

2

GOVERN!vffiNT NO~ICE NO ......................... published on ............... .

. .:..,

THE BANKING AND FINANCIAL INSTITUTIONS ACT (CAP. 342)

REGULATIONS


THE BAKING FINANCIAL INSTITUTIONS (MANAGEMENT OF RISK ASSETS) REGULATIONS, 2008

Short title

Application


1. These Regulation~may be cited as the Banking Financial Institutions (Management of Risk Assets) Regulations, 2008 and shall come into operation on the date of publication in the Gazette.


Interpretation 3. In these Regulations unless the context otherwise requires-

"Act" means the Banking and Financial Institutions Act; "Bank" means the Bank of Tanzania; "bank" and "banking business" have the meaning ascribed to them in the Act; "credit accommodation" means loans, overdrafts and advances, leasing,

acceptances, performance and bid bonds, letters of credit, guarantees, foreign excharige contracts or any other form of a direct or indirect financial obligation including interest due and unpaid to a bank or financial institution;

"director" has the meaning ascribed to it in the Act; "financial institution" has the meaning ascribed ·to it in the Act; "loro account" means a foreign currency account maintained in. a local bank or

financial institUtion by a bank in a foreign country and is used primarily to facilitate foreign exchange transactions between the

3

. ! !

Objectives

Risk management policies

respective banks; "non performing loan" means any credit accoinmodation for which contractual

repayment is ninety days or more past due or is classified as substandard, doubtful or loss under the criteria prescribed in Regulation 11, and is placed on a non accrual basis;

"nostro·account" means a foreign currency account kept by a domestic bank or financial institution in a foreign bank abroad;

"off balance sheet items" hasthe meaning ascribed to it in the Act; "other risk assets" means the total assets of a bank or financial institution minus

its loans, cash, gold, amounts due from the . Bank, Government securities, securities issued by the Bank, Government securities issued by other Government institutions which are unconditionally guaranteed by the Government as to repayment of principal and interest at maturity date, bank premises, furniture and equipment, and such o~her assets as may be declared by the Bank as non-risk;

"past due loans" has the meaning ascribed to it in R-egulation 1 0; "related parties" may be used interchangeably with "connected party" and has

the meaning ascribed to it in the Act; "unsecured loans" means credit accommodations granted without security or

when granted against security, any part of such credit accommodation which at any given time exceeds the market value of assets comprising the security given or which exceeds the value determined by independent professional valuer and approved by the bank or financial institution whenever it deems that no ascertainable market value exists for the said assets ..

4. The objectives of these Regulations are to ensure that banks and financial institutions have-

( a) adequate credit and investment policies to identify, measure, monitor and manage the risk arising from their businesses, in particular to ensure timely and adequate actions are taken on problem assets;

(b) maintain risk management standards that conform to established international norms; and

(c) promote and maintain public confidence in the banking sector.

PART IT MANAGEMENT OF RISK ASSET'S

s.-(1) the board of directors of every bank br fi~ancial institution shall ensure that appropriate policies on risk management are in place and shall be fully responsible and acco1:1ntable for the execution of su~h policies.

· · (2) The minimum contents of the policies .under sub-regulation (I)

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Extensions or . roll-overs

Charge off of credit accommodatio n

Review of credit policy

Quarterly review and classification

Past due loans and over drafts

shall include. (a) a credit policy establishing a framework for making credit and

investment decisions consistent with principles set forth in the Risk Management Guidelines, 2005.

(b) a system for measuring, monitoring, internal risk rating and provisioning consistent with principles -set forth in the Risk Management Guidelines, 2005.

6. The credit policy referred to in regulation 5 shall ensure that any matured or expired outstanding ·loan is not extended, renewed or rolled over, until all interest and charges due plus at least ten percent of the principal are paid. .

7. At every quarterly review, every bank or financial institution shall charge off aU. credit accommodations and other risk assets that have remained in the loss category for four consecutive quarters.

8. The board of directors of a bank or financial institution shall review at least annually, the credit policy and submit it to the Bank, not later than thirty days after its approval by the board.

-9.-(1) Every bank or financial institution shall review ~d classify its outstanding loans and other risk assets including contingent accounts or off balance sheet items at least once every quarter.

(2) A bank or financial institution shall not upgrade a classified credit accommodation into a better category without prior approval of the Bank.

(3) Notwithstanding sub-regulation (2) a bank or financial institution shall downgrade credit accommodations which have demonstrated weaknesses that warra.11t downgrading according to criteria specified in these Regulations.

10.-(1) A credit accommodation with a specific repayment date shall be considered past due when any contractual payme~t due has not been made.

(2) An overdraft or any other credit accommodation without the specific payment due date shall be considered past due if-

( a) the credit accommodation exceeds-customer's borrowing limit; (b) the customer's borrowing tenure has expired; {c) deposits are insufficient to -cover interest calculated and due for

the period; (d) a bill has been dishonoured; or (e) a bill or account is not paid on due date. (3) Loans which are payable in installments are considered past due

in their entirety if any of the installments have become due and unpaid for

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Classification criteria

Credit accommodatio ns fully secured by cash or near cash items

Classification by quantitative criteria

.Classification by qualitative criteria

Current classification

thirty days or more.

PART III CLASSIFICATION OF LOANS AND OTHER RISK ASSETS

11.-(1) Credit accommodations shall be classified into the following five categories-

( a) current; (b) especially Mentioned; (c) substandard; (d) doubtful; and (e) loss.

(2) Non-performing credit accommodation shall include substandard, doubtful, loss categories and shall be classified by bank and financial institution according to the criteria prescribed in these Regulations.

(3) A bank or financial institution shall apply both qualitative· and quantitative criteria to all credit accommodations.

12. Credit accommodations which are fully secured, both as to principal and interest, by cash or near cash such as treasury bills and notes and bonds or certificates of indebtedness issued by the. Bank, shall be classified on the same basis as other credit accommodation save that provision against such accommodations would be required only where the security itself is the object of an adverse claim.

13. Outstanding credit accommodations reviewed by quantitative approach shall be -classified as follows:

Number of Days Past Classification Due 91-180 181-270

· 271 and more

Substandard Doubtful Loss

14. In addition to classifying credit accommodation as either current or past due, every bank and financial institution shall review qualitatively and classify such credit accommodations into current, especially mentioned, substandard, doubtful or loss.

15. Current credit accommodations are those which do not have a greater than normal risk and do not possess the characteristics and weaknesses of classified credit accommodations as described in these

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Especially mentioned classification

weaknesses of classified credit accommodations. as described in these regulations.

16. Especially mentioned credit accommodations are those that are superior in quality to those classified as substandard, but which are potentially weak and thus require closer management supervision and inclu,des-

( a) credit acc()mmodations with technical defects and collateral exceptions such as-

(i)

(ii)

(iii) . (iv)

(v)

(vi)

(vii)

(viii)

(ix)

of

.un-located collateral file and documents including but not limited to title papers and deeds, mortgage instruments and promissory notes; improper execution of supporting deed of assignment, pledge agreement or real mortgage;

. unregistered mortgage instruments; collateral not covered by appraisal reports or appraisal whose reports are unallocated; credit accommodations where cmiesponding promissory notes or credit agreements were signed by a person other that the authorised officer of the borrowing firm; credit accommodations secured by property the title to which bears an un cancelled lien or encumbrance; collateral not insured or with inadequate or expired insurance coverage; credit accommodations to companies not covered by authenticated board resolutions authorizing the borrowings; and unsecured credit accommodations granted to Directors and officers contrary to the provisions of subsection (2) section 26 of the Act.

(b) credit accommodations not supported by up-to-date and adequate financial statements or credit information and they include:

(i) credit accommodations renewed, renegotiated or restructured without updated financial statements or income tax returns; and

(ii) credit accommodations without credit investigation. or analysis reports or updated credit information independently verified by the lender.

(c) credit ·accommodations that need the attention of management for special or corrective action or both, and they include:

(i) credit accommodations wherein efforts to collect are not evident or are deemed inadequate;

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Substandard classification

(ii) credit accommodations granted beyond the discretionary limit of the approving authority;

(iii) drawings or availments against an expired credit line or drawings or availmcnts without prior approval of the appropriate executive Officers; ·

(iv) credit accommodations to borrowers who failed to comply with conditionalities of the credit accommodations such as failure to operate the account satisfactorily.

(v) credit accommodations to firms with profitable operations but belonging to a distressed industry;

(vi) combined indebtedness to the bank of a group of persons, firms or companies that are related, linked or conneCted to each other through common ownership, management or control or through common family or business interest where twenty-five per cent or more of such combined indebtedness is past due;

(vii) credit accommodations to borrower who frequently fails to respond to bank calls, visits or demand notices to pay;

(viii) credit accommodatioiis the repayment of which may be endangered by economic or market conditions or other .factors which in the future may adversely affect the borrowers' ability to meet scheduled repayments such as declining or fluctuating operation, illiquidity, increasing leverage trend or declining market prices over a given period.

17.-(1) Credit accommodations classified as substandard are those with weaknesses that jeopardise their liquidation such as weakness inherent in loans especially mentioned which are more severe or which have remained uncorrected over a period of ninety days or more.

(2) The weaknesses under sub-regulation (1) may include adverse trend or developments of financial, managerial, economic or political nature or a significant weakness in collateral. ·

(3) The basic characteristics of credit accommodations under substandard classification are as follows-

( a) credit accommodations which are non-performing; (b) credit accommodations which possess the technical defects and

weakness of loans especially mentioned and which have remained uncorrected for ninety days or more since the occurrence of deficiency;

(c) credit accommodations, whether current or past due, which have

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Doubtful classification

Loss classification

become unsound due to unfavourable results of operations of the borrower, significant under-capitalisation of the borrower, or absence of favourable track record showing borrower's financial responsibility;

(d) term loans to borrowers whose cash flows are not sufficient to meet. currently maturing debts and or overdrafts whose funds had been diverted or proceeds of the financed projects are not used to repay the amount outstanding.

(e) credit accommodations to distressed industries repayments of which are imperiled.

18. Credit accommodations having the following basic characteristics shall be classified as doubtful.

(a) credit accommodations classified as substandard in the last quarterly review without any significant improvement since then in terms of full payment of interest due among other things, except where such loans are well-secured by legally enforceable collaterals, standby letters of credit and irrevocable guarantees of top rated international banks, or the government and that legal action has commenced and realization of collateral within one year or enforcement of the gi.mrantees within thirty days from demand can be expected;

(b) unsecured credit accommodations classified as substandard in the last quarterly review which have been extended, renewed or rolled over without repayment. of all interest and charges due and at least ten per cent of the principal;

(c) past due loans secured by collaterals such as inventories, receivables, equipment, and other chattels which have declined in value materially, without the borrower offering additional collateral and the borrower's financial condition does not justify unsecured lending;

(d) past due loans secured by real mortgage title to which property is subject to an adverse claim rendering settlement of the loan through foreclosure doubtful or unviable;

(e) credit accommodations· whose possibility of loss is extremely high but for certain important and reasonably specific pending factors that may work to the advantage and strengthening of the asset, its classification as an estimated loss is deferred until a more exact status is determined.

19. Credit accommodation having the following basic characteristics shall be classified as loss-

( a) credit accommodations classified as doubtful in the last

9

Multiple credit accommodatio ns

Security consideration

Classification of other property and assets

Classification of receivabl.es

quarterly review without any significant improvement since then;

(b) credit accommodations to borrowers whose whereabouts are unknown, or who are insolvent, whose earning power is permanently impaired and the guarantors or co-obligors are insolvent, or that their guarantees are not financially supported; and

(c) credit accommodations considered as absolutely uncollectible.

20. Where a bank or financial institution has granted more than one credit accommodation to a borrower or group of related parties, all such credit accommodations shall be assigned the least favourable classification given to any one of those credit accommodations.

21. The criteria for classifying credit accommodations shall apply regardless of the type of security held.

22. Other property and assets owned or acquired in settlement of loans previously contracted shall ·be classified as substandard except the following which shall be classified as loss-

( a) the excess of the book value of the asset over the fair market value determined by independent professional valuation;

(b) the entire book value of an asset or property whose title is being contested in court or is definitely lost to another party;

(c) the entire book value of an asset or property which is not saleable;

(d) the· entire book value of an asset or property which remains unsold for one year or more in the case of personal or movable property three years or more, in the case of real property;

(e) the entire book value of an asset or property which a bank or financial institution is deprived of actual possession or beneficial ownership or over which the bank or financial institution is unable to exercise the usufructuary right; and

(f) the amount of accrued interest and collection expenses which were capitalized to form part of the value of the asset.

23.-(1) All receivables, except accrued interest receivable shall be classified as follows-

Number of days past due 31-60 61-90 91-180 181 or more

10

Classification Especially mentioned Substandard Doubtful Loss

Inter-office or inter-branch items

Classification of off balance sheet commitments

Special nondistributable reserve

Minimum provisions

(2) Sundry debts and other accounts receivable arising from loans shall have the same classification as their respective loan accounts.

24. Inter-office or inter-branch items, suspense accounts, frauds, shortages, uncleared effects, miscellaneous intangible assets including unlocated differences in nostro and loro accounts, and other assets not specially treated in these Regulations, shall be classified as follows:

Number of days past due Classification

31-60 61-90 91-180 181 or more

Especially mentioned Substandard Doubtful Loss

25.-(1) In undertaking review and appraisal of its off balance sheet commitments such as guarantees, indemnities, performance bonds, commercial letters of credit, differed letters of credit, and other contingent items, every bank and financial institution shall, whenever practicable, observe the same procedure and regulations prescribed for loans.

(2) The off balance sheet items under sub-regulation (1) shall be grouped into unclassified and classified items.

(3) For the purposes of these Regulations classified items are those which possess well-defined weaknesses and are subdivided into items especially mentioned, substandard, doubtful and loss.

PART IV PROVISIONING FOR LOSSES

26.-(1) Notwithstanding International Financial Reporting Standards, every bank or financial institution shall classify credit accommodations and other assets and establish specific provisions not less than those specified in these Regulations.

(2) Where the provisions computed in accordance with International Financial . Reporting Standards are less than those required by these Regulations, a special non-distributable reserve shall be created through an appropriation of distributable reserves to eliminate the shortfall.

27.-(1) Every bank or financial institution shall maintain specific provisions for all credit accommodations and other risk assets which shall not be less than the following percentages of the outstanding balance consisting of principal, interest and all other charges and fees which have

11

Valuation of other assets

Review by Bank

Placing on non-accrual basis

Quarterly reports

Approval for annual provisions

been capitalized-( a) especially Mentioned (b) substandard (c) doubtful (d) loss

five percent ten percent fifty percent one hundred percent

(2) Every bank or financial institution shall establish adequate provisions to cover expected losses where they exceed the provisions established by the minimum percentages in sub-regulation (1).

28. Banks and financial institutions shall value all types of assets not specifically mentioned in these Regulations in accordance with International Financial Reporting Standards and establish the necessary impairment in value.

29.-(1) The Bank shall periodically review the amount of allowance for probable losses.

(2) Where the amount of the allowance for probable losses established by a bank or financial institution is found to be inadequate, the bank or financial institution shall increase that amount as directed by the Bank and furnish evidence thereto.

PARTY MISCELLANEOUS PROVISIONS

30.-(1) Every bank or financial institution shall place on a non-accrual basis aU credit accommodations which are classified as substandard, doubtful or loss.

(2) Any accrued but uncollected interest on credit accommodations placed on non-accrual basis shall be reversed and placed in suspense.

(3) Any credit accommodation placed on a non-accrual basis may be restored to an accrual basis upon full settlement of all delinquent principal and interest out of funds drawn from a credit accommodation granted by another institution.

31. Every bank or financial institution shall submit to the Bank quarterly report on classification and provisioning of credit accommodations and other risk assets including contingent accounts not later than the I 5th day following the end of the reporting quarter.

32.-(1) Every bank or financial institution shall seek prior approval of the Bank of its proposed annual provisions for probable losses before

12

Sanctions and penalties

Revocation G.N.38 of 2001

finalization of the annual accounts. : (2) A bank or financial institution shall submit to the Bank its draft

balance sheet, profit and loss account, including a detailed account of the provisions made when seeking approval under sub-regulation (1 ).

33. Without prejudice to the other penalties and actions prescribed by the Act, the Bank may impose on any bank or financial institution any of the following sanctions for non-compliance-

( a) imposition of penalty on the bank or financial institution or directors, officers and employees responsible for the violation, in such amounts as may be determined by the Bank to be appropriate and reasonable;

(b) prohibition from declaring or paying dividends; (c) suspension of the privilege to issue letters of credit or guarantee; (d) suspension of access to credit facilities of the Bank; (e) suspension of lending and investment operations; (f) suspension of capital expenditure; (g) suspension of the privilege to accept new deposits; (h) revocation of banking licence; (i) suspension from office of the defaulting director, officer or

employee; and U) disqualificatiore:from holding any position or office in any bank or

financial institution under the supervision of the Bank.

34. The Management of Risk Assets Regulations, 2001 are hereby revoked.

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~~.X BENNO J. NDULU

Governor

THE BAN}(]J>lG AND· FINANCIAL INSTITUTIONS (CREDIT CONCENTRATION AND OTHER EXPOSURE LIMITS) REGULA TI0NS,2008


Regulation Title

1. Short title 2. Application 3. Interpr-etation 4. Objectives

5. Board responsibility


PART II CONCENTRATION RISK

6. Single borrower's limit 7. Exceptions to single b~rrower' s lim~t 8. Funding from parent bank 9. · Credit accommodation to "1. banking group 1 0. Treatment of related _parties · 11. Lar,g~ ·exposures 12. Placements with banks in Tanzania 13. Placements abroad

PART III INSIDER TRANSACTIONS

14. Monitoring of credit accommodation 15. Transactions ·with insiders 16. Conditions for credit accommodation to insiders 17. Cre<;lit limit to single insider .18. Aggregate credit limit to insiders 19. Restriction on unsecured credit accommodation 20. Loans to employees

1

PART IV ·.LIMITATION ON ,EQUITY INVESTMENTS AND UNDERWRITING

COMMITMENTS.

21. Prior approval for equity investments · ·22. Total-·equity investment and credit accommodations 23~ Aggregate equity investments in all companies 24. Equity investment in allied undertaking 25. Equity investment in other companies 26. Capital requirements 27. Underwriting on bwh account

PARTV LIMITATION AND REPORTING ON INVESTMENTS IN FIXED ASSETS

28. Restrictions on investments in fixed assets 29. Reporting requirements

PART VI MISCELLANEOUS PROVISIONS

· 30. Sanctions and penalties 31. Revocation

2

GOVERNMENT NOTICE NO .................................... published on ............ .

THE BANI~ING AND fiNANCIAL INSTITUTIONS ACT (CAP. 342)

REGULATIONS


THE BANKING AND FINANCIAL INSTITUTIONS (CREDIT CONCENTRATION AND OTHER EXPOSURE LIMITS) REGULATIONS, 2008

PART I PRELIMINARY PROVISIONS ·

Short title 1. These Regulatiorrs may be cited as the Banking and Financial

Application

Interpretation

Institutions (Credit Concentration and Other Exposure Limits) Regulations, 2008 and shall come into operation on the date of publication in the Gazette.

2. institutions.

These Regulations shall apply to all banks and financial

3. In.these·Regulations, unless the context requires otherwise:

"Act" means the Banking and Financial Institutions Act; ,.adjusted net asset value" means the value of a business as determined by

deducting its liabilities from the current market or useful value of its tangible and intangible assets disclosed in its books plus or minus any adjustment arising from the calculation of present value of expected earnings of the existing net assets of the enterprises;

"allied undertakings" include such activities as inay be specified by the Bank :from time to time, to be allied or related to the business of banking;

"associate companies,. means two or more companies linked directly or indirectly to each other through any of the following means:

3

(a) ownership, control or power to vote, often percent or more of the issued and outstanding voting shares of any of the companies;

(b) interlocking directorship or officer-ship; . (c). common sh~eholders owning ten per cent or more of the

issued and ~utstanding voting shares o.fthe companies; (d) management contract or any arrangement granting. power to a

company to direct. or cause the . direction of the management and policies of.another company; .and

(e) permanent proxy or voting trust in favour of a company involving ten per ,cent or more of the issued and outstanding voting shares ofanother :company;

(f) companies with cross-guarantee and; (g) direct commercial interdependency, which cannot be

substituted in the short-"t~Im- . "Bank" means the Bank of Tanzania; ''bank" has the meaning ascribed to it in the Act;

. ''banking business" has the meaning ascribed to it in the Act; "conflict of interest" has . the meaning ascribed to it in the Banking and

Financial Institutions {Licensing) Regulations, 2008; "core capital" has the meaning ascribed to it in the Act; "credit accommodation" means loans, overdrafts and advances~ leases,

acceptances, performance and bid bonds, letters of credit, _guarantees, foreign exchange contracts, and any other form of a direct or indirect financial obligation including interest due and unpaid to a bank or financial institution;

"credit risk" means the risk arising from the non payment of either principal or interest of credit accommodation on a timely basis, or failure by the customer or a person to honour his commitment under a credit, guarantee or surety-ship agreement or the risk of default by a party to a foreign exchange contract;

"direct credit accommodation" means credit facility in which the borrower or obligor is a party on his own behalf, or as the-representative or agent of others, ot as· a co-signer~ mortgagor, guarantor, endorser or surety; "disclosed reserves" has, the meaning ascribed to it in the Act; "fmancial institUtion" has the meaning ascribed to it in the Act; "financial intermediation" has the meaning ascribed to" it in the Act; "fit and proper person, has the meaning ascribed to it in the Banking and

Financial Institutions (Licensing) Regulations, 2008;

4

I

"firm underwriting commitment" in respect to underwriting of securities, means a finn guarantee or commitment made by a person or entity to an issuer or holder of securities to .raise funds for the issuer or holder by the distribution of. such securities for sal~, resale, or subscription, either thfough an outright purchase ot a comniitment to purchase the balance not subscribed or sold;

"first class international bank" has the meaning asc.ribed to it in the Act; "foreign exchange plaQeril.ent" means foreign exchange: held or placed with

other banks or fmancial institutions outside Tanz;arua; ·'~gener~l provisions11 in .relation to supplementary capital or provisioning for

loan losses, means the amount that is taken up a:s a char..ge against revenues or income without going through the process of reviewing the weaknesses of individual loan accounts;

",general reserves" or ''retained earnings" means the accumulated and undistributed profits which are free and not specifically eannark-ed or appropriated for any purposes;

"indirect ~redit accommodation" means a credit facility given by a bank or financial institution to a person's related interest;

~<individual" means a natural person;

"intangible assets" means capitalized organization costs or pre-operating · expenses, prepaid exper~s and deferred char-ges, leasehold rights

and such other assets as may be specified by the Bank; "investment bank" means a ·financia,l institution acting as underwriter Dr

agent that serves as an intermediary between an issuer of securities and the public;

'<insider" means directors, officers or significant shareholders of a bank or finan:cial institution and their related intere-sts;

"large exposure" means a credit faciiity to a single borrower which represents ten per cent or more of the core capital of a bank or finan_cial institution concerned;

"loan" or "advanceu includes any loan, discount, overdraft, lease financing, export bills purchased, other bills received ot purchased, import bill:;;, customer's liability on acceptances, drawings against uncleared effects, encashment of cheques drawn a-gainst other bran-ches or offices where the drawer's current account has insufficient cleared and withdrawable balance or against other banks, or any other credit extended to a person by a bank or financial institution, excluding th~ undrawn or unavailed balance of any line of credit;

"near cash" includes fixed deposits receipts or certificate, savings passbook and any other deposit blocked in an account with a bank or financial institution or bank or financial institution other than the lending bank or financial institution;

5

"non-accruing loan" means a,ny loan where recognition of interest income ·has been plac~d on a cash basis for financial reporting purposes;

"non-:performing loan" has the meaning ascribed to. it in the Banking and Financial Institutions (Management of Risk Assets) Regulations, 2008;

·"off balance sheet exposure" has the meaning ascribed to it in the Act; ·"officer" has the meaning ascribed to it in the Act; "other risk assets" b.as the meaning ascribed to it in the Banking and

Financial Institutions (Management of Risk Assets) Regulations, 2008';

"parent company" means a company which directly or indirectly owns, controls, or holds with power to vote, more than fifty percent (50~) of the issued and outstanding voting shares of another company;

"person" has the meaning ascribed t() it in th~ Act; · "related parti'

(a) in relation to or other body corporate means-(i) its holding company or its associates;

(ii) a subsidiary of its holding company; (iii) a holding company of its a.ssociater; (iv) any person who controls the company or body

corporate whether alone or with his related party· or with other related parties of it.

(b) in relation to an individual means-(i) any member of his famiiy;

(ii) any company or other body corporate controlled directly or indirectly by him whether alone or with his related parties; and

(iii) any related party of his related parties, "member of a ~amily" means parent, spouse, brother, sister, child, uncle,

aunt, nephew, niece, stepfather, stepmother, stepchild, and adopted child of the person concerned, and in case of an adopted child his adopt~r or adopters.

!'related individual" has the meaning ascribed to it in the Banking and Financial Institutions (Licensing) Regulations, 2008;

"revaluation reserves" means the increment in the recorded or book value of an institution's own premises, fixed assets, or long-term equity investments arising .from formal revaluation of such assets to reflect their current value, or an amount closer to their current value than historical cost;

6

Objectives

Bpard responsebility

Single borrower'·s limit

"specific provisions" .in relation to provisioning for losses on loans or other assel.s, means the amount taken up as a charge against revenues or income after reviewing the weaknesses of specific ·loans or assets followi:ng the cdt~ria. prescribed · in the Banking and Financial Institutions (Management of Risk Assets) Regulations, 2008;

"subsidiary" has the meaning ascribed it in the Act; "unsecured" bas the meaning ascribed to it hi the Act.

4. The objectives of these Regulations are to-( a) encourage· risk. diversification and limit excessive

concentration of risk by any bank or financial institution; (b) promote. ann;s length relationship in dealings between a bank

or finaneial institution and its insiders; and (c) prescribe limits for investments in equity and fixed assets.

PARTll CONCENTRATION OF RJSK

5:-(1) The Board of Directors of every bank and financial ·institution shall ensure that its risk management policies address the identification, mea.Surernent, monitoring and management of its risk concentration consistent with the principles set out in the Risk Management Guidelines, 2005.

(2) Without ·prejudice to the generality of sub-regulation (1), the policies shall include-

(a) procedures for identifying risk concentration; (b) internal limits on risk concentration including corresponding

controls and ~pproval procedures in confonnity with legal and supervisory limits, and

(c) periodic reyiew of the effectiveness of monitoring and reporting systerp.s for risk concentration.

6. The total amount of credit acconunodation, which any bank or finandal institution other than a microfin~ce company and financial cooperative may grant, directly or indirectly, to any P-erson and his related parties shall not exceed the following limits-

7

Exceptions to single borrower.' s limit

Funding from ·parent company

Collateral Positio~ iXmit (as n percentage of core c.@_itat_l

·secured by collateral the- value of which 25% is at least 12:5% of the -credit

.. accommodation deemed by it (Fully secured)

· Secured by collateral the value of which is less. than 125% of the credit 10% accommodation secur~d by it (Partly secured)

Unsecured 5%

7.-(1) A bank or financial institution may exceed a limit prescribed under r~lation 6 provided that the amount in excess of single borrower3 s limit is granted ·to, or guaranteed by the Government of the United Republic· of Tanzania or is secured against cas~ near cas~ or is g-Uaranteed unc<?nditionally and irrevocably by a first class international bank or against securities issued by the Goverrunent of the United Republic of Tanzania or the Ban1c

(2) Where a bank or financial institution grants a credit accommodation in accordance with sub-regulation (1 ), it shall, within seven days from the date it approves the credit accommodation, notify the Banlc

8.-(1.) A bank or financial in~titution which is a subsidiary of a f<;>reign bank or financial institution may exclude from the aggregate and single borrower's credit limits prescribed in these Regulations any credit accommodation for which the parent company has provided funds and has assumed both the credit and foreign exchange risks without recourse to the subsidiary.

(2) Where a subsidiary of a foreign bank or financial institution approves exclusion of any credit accommodation in accordance with sub

. regulation (1 ), it shall, within seven d<1ys from the date of such approval, notify the Bank. ·

Credit accommodati on to banking group

9. The aggregate of all credit accommodations extended by a bank or financial institution to its parent coinpany, subsidiaries and associate companies, partners and partnerships shall not exceed the credit concentration limit prescribed in regulation 6.

8

Treatment <>f related

10. Where the Bank determines that the interests of two or more pei'spns are interrelated for the· purposes of Regulation 6, the total credit accommodations to such persons shall 'be combined and deemed to be extended to a single person.

parties

Large exposures

Placements with banks in Tan.zania

Placements abroad

Monitoring of credit accomrriodati on

Transactions with insiders

Conditions for credit accommodati on to insiders

Credit limit to single insider

11~ /illY aggregate large exposures shall not exceed eight hundred percent of core capital of the lending bank or financial institution.

12. Any placement between ·affiliated banks or financial institutions in Tanzania shall be considered as insider transactions artd be subject to Regulation 15.

13. Any foreign exchange placement abroad shall not be subject to these Regulations.

PART III INSIDER TRANSACTIONS

14. Every bank or financialinstitution shall put in place systems to identify and monitor credit accommodation to its insiders.

15. All transactions of a bank or financial institution with any of its insiders shall be on the terms not more favourable than would be available to others.

16.-(1) A bank or financial institution shall not grant, directly or indirectly, any credit accommodation to any of its insiders unless the credit accommodation has been unanimously approved by all members of the board of directors in a meeting where the director or alternate director who stands to benefit from the credit has inhibited himself from attending. . (2) Where a bank or financial institution grants a credit

accommodation to an insider in accordance with sub-regulation (1), it shall, within seven days from the date it grants the accommodation, notify the Bank.

17. The total amount of credit accommodations which any bank or financial institution may grant, directly or indirectly, to any insider shall not exceed ten percent of the core capital of the bank or financial institution.

9

...

Aggregate cn:dit l.imit to insiders

Restriction on unsecured credit accoinmodati on Loans to employees

, 18. The aggregate amourit of credit. a:Gcommodritions which a11y

hank or fmancial institution may grant, directly qr indirectly, to its insiders o~ an in5ider who has ceased to be as such shall not exceed twenty five . percent of-its core capitaL

19. A bank or financial institution shall not grant any unsecured credit accommodation to insiders except as set out under regulation 20(1).

20.-(1) A bankor financial institution shall not grant salary advances to any of its officers and employees, which exceed the annual remuneration of the. borrowing officer, or employee. .

(2) For purposes of sub· regulation (1),--the a.rinual remuneration of an officer . .or employee shall refer to the· basic salary plus cost of living allowances which are fixed and paid in cash to the officer or employee on. a regular and periodic basis as part of his compensation for services rendered to the bank or financial institution.

(3) The pr<;>visions of sub-regulation (2) shall not apply to benefits ~ntitlement of which depends on a contingency such as medical and hospitalization benefits or allowances for attending seminars, meetings or other non cash benefits.

(4) Loans and advances to officers and employees of bank or financial institution intended as incentives shall be managed in accordance with a well-documented policy regarding administration of-such facilities.

(5) Commercial_ loans and advances to officers and employees of bank or financial institution shall be in the regular· course of business and on the te!ffis not more favourable than would be available to other borrowers .

PART IV LIMITATIONS ON EQUITY INVESTMENTS AND UNDERWRITJ1,{G

Prior approval for equity investments

Total crquity investment and credit accommodation s

COMMITMENTS .

21. A bank or financial institution shall not engage in equity inv:estment without obtaining prior approval of the Banlc. ·

. 22. The total equity investments and credit accommodations to any single company shall not e~ceed twenty five per cerit of the core capital of the investing bank or financial institution.

10

Aggregate equity investments in all companies

23. The aggregate equity investments in all companies shall not exceed twenty five per cent of the core capital of the bank ot financial institution.

Equity . 24. Subject to regulation 25, the equity investment in any single investment · .. in. · allied ~ompany shall not exceed ten percent of the core capital of the bank or undertaking financial mstitution.

Equity investment in other · companies .

Capital requirements

Underwriting on own account

25~ The equity investmenl in any single company either than an allied undertaking shall not exceed five per cent of the total subscribed share capital of the investee company.

26. A bank or financial institution which has a core capital of less than five billion shillings shall not invest in the equity of other companies.

27. A financial institution which is licensed by the Bank to engage primarily in the business of investment banking or underwriting debt or equity securities s}lall not undertake underwriting commitments for its own account in an aggregate amount exceeding eight hundred percent of its core capital.

PARTV !.IMITATION AND REPORTING ON INVESTMENTS IN FIXED ASSETS

Restrictions on investments in fixed assets

28. A bank or fmancial institution may purchase, acquire or lease fixed assets where it is necessary for its business including reasonable provision for anticipated future expansion and housing of its officers or employees provided that-

( a) the totai investment of the bank or financial institution in such fixed assets at depreciated net book value, shall not exceed seventy percent of its core capital;

(b) the limitations under this reguiation shall not apply to-(i) the acquisition of any asset in settlement of a debt

to the bank or financial institution provided that the asset is sold within three years of its acquisition date or within a period approved by the Bank; and

(ii) institutions carrying on the business of mortgage financing and property . acquired for leasing activities.

11

Rep~rting r-equire~nts

Sanctions and penalties

Revocation GN.No.36 of200"1

. 2~. Evyry· bank or financial.institution shall report its investment in fixed a3sets ·to the Bank in the fonn and frequency prescribed by the Bank.

PART VII MISCELLANEOUS PROVISIONS

30. . Without prejudice to the other penalties and actions prescribed by the Act, the Bank may imp.ose on any bank or financial inst~tution any of the following sanctions for non-compliance:-

(a) imposition of penalty on the bank or financial institution or directors, officers and employees responsible for fu~e--violation, in such amounts as may be determined by the Ba.n:k. to be appropriate and reasonable;

(b) prohibition from declaring or paying dividends; (c) suspension of the priviiege to issue letters of credit or

guarantee; (d) suspension of access to credit facilities of the Bank; (e) suspension of lending and investment operations; (f) suspension of capital expenditure; (g) suspension of the privilege to accept new deposits; (h) revocation of banking licence; (i) suspension from office of the defaulting director, offl-cer or

employee; and 0) disqualification from hoiding any position or office in any

bank or financial institution under the supervision of the Bank.

31. The Credit Concentration and Other Exposure Limits Regl!-lations, 2001 are hereby revoked.

Daz:~s Salaam, .• 2l• .... • Dec~mne:r ;.2000

JM~: X

BENNO N. NDULU Governor

12

THE BANKING AND FINANCIAL INSTITUTIONS (FOREIGN EXCHANGE EXPOSURE LIMITS) REGULATIONS-, 2008


Regulation Title



PART II ELIGIBILITY FOR FOREIGN .EXCHANGE OPERATIONS

5. Board responsibility 6. Foreign currency lending 7. Foreign exchange risk limit 8. Solo and consolidated application 9. Limits on placements 10. Penalty charge 11. Approval of correspondents


12. Reporting requirements 13. Failure to report 14. Misrepresentation of information 15. Sanctions and penalties

1

GOVERNMENT NOTICE NO ........... ; ..... published on ......... .

THE BANKING AND FINANCIAL INSTITUTIONS ACT, (CAP. 342)

REGULATIONS


THE BANKING AND FINANCIAL INSTITUTIONS (FOREIGN EXCHANGE . EXPOSURE LIMITS) REGULATIONS, 2008

Short title

Application


L These Regulations may be cited as the Banking and Financial Institutions (Foreign Exchange Exposure Limits) Regulations 2008 and shall come into operation on the date of pubiication in the Gazette.

-2. These Regulations shall apply to all banks and financial institutions.

Interpretation· 3. In these Regulations, unless the context requires otherwise-"Act" means the Banking and Financial Institutions Act; "authorised for-eign exchange dealer" means a bank or financial institution

authorised to operate in the Inter-bank Foreign Exchange Market; "bank" has the meaning ascribed to it in the Act; "Bank" means the Bank of Tanzania; "core capital" or "tier I capital" and has the meaning ascribed to it in the

Act; "correspondent bank" means a foreign bank which has correspondent

relationship with a bank or financial institution in Tanzania; "first class international. bank" has the meaning ascribed to it in the Act;

·"foreign currency" has the meaning ascribed to it in the Foreign Exchange Cap. 271 Act;

"foreign currency assets" means all assets denominated in foreign currency;

"foreign currency liabilities" means all liabilities denominated in foreign currency;

2

"foreign exchange placement" means foreign exchange held or placed with other banks or financial institutions outside Tanzania;

"interbank foreign exchange market (IFEM)" means foreign exchange spot, forward or such other foreign exchange trading mechanism as authorised to be undertaken in the United Republic of Taniania in accordance with rules, guidelines, regulations and directives issued by the Bank;

"long position" means the hoiding by a bank or financial institution of a currency, security or other asset for its· own account in excess of all its contractual spot and forward transaction commitments in that currency, security or other asset;

"net open position" means the net sum of all foreign currecy assets and liabilities of a bank or financial institution inclusive of all of its spot and forward transactions and off balance sheet items in that

- ~---·-·--- --- -----------fareign-eurrency;

Objectives

Board responsibility

Foreign ci.mency lending

"off-balance sheet exposure" has the meaning ascribed to it in the Act; "short position" means the holding by the bank or financial institution of a

currency, security or other asset for its own account less than all its contractual- sp·ot and forward transaction commitments in that currency, security or other asset;

"shorthand method" means the calculation of overall foreign exchange risk exposure by determining the greater of the sum of all net long positions or the sum of all net short positions in each currency, converted to Tanzania Shilling at the prevailing spot mid rate.

4. The objectives of these Regulations are to ensure that banks and financial institutions-

(a) have in place adequate policies and procedures to identify, monitor and manage foreign exchangerisk; and

{b) maintain risk management standards that conform to established international norms.

PART II ELIGIBILITY FOR FOREIGN EXCHANGE OPERATIONS

5. The board of directors of every bank or financial institution shall ensure that policies consistent with ·principles set out in the Risk Management Guidelines, 2005 are put in place and shall be fully responsible and accountable for the execution of such policies.

6. A bank or financia.l institution lending in foreign currency shall ensure that-

( a) borrowers have foreign currency income or have taken other measures to mitigate foreigri exchange risk.

(b) foreign exchange credit facilities are granted to borrowers op·erating and investing in Tanzania.

3

Foreign exchange risk limit

Solo and consolidated

·application

Limits on placements

Penalty charge

Approval of correspondents

7.-(1) The overall foreign exchange risk exposure of any bank or financial institution calculated using the shorthand method shall not exceed twenty percent of its core capital.

(2) The foreign exchange risk exposure in any single currency, irrespective of short or long position, shall be determined by the individual institution provided that the institution remains within the overall exposure limit of twenty percent of its core capital.

8. Where a bank directly or indirectly controls another bank or financial institution, the foreign exchange risk exposure limits shall be met by each bank or financial institution on a solo basis, and the parent bank shall comply with the foreign exchange requirement on a solo and consolidated basis.

9.-(1} A bank or financial institution shall be authorised at any time to place or deposit a maximum of sixty percent of its total foreign -exchange placements with a foreign related or any other correspondent organisation which has minimum long term international rating of A or above.

(2) A bank or financial institution shall place or deposit a maximum of forty percent of its total foreign exchange placements with a foreign related or correspondent organisation that has minimum long term international rating of B or above.

(3) A bank or financial institution shall be allowed to place or deposit a maximum of twenty percent of its total foreign exchange placements in a non-rated foreign related or correspondent organisation.

(4) The aggregate foreign exchange placement in a country other than a member. of Organization for Economic Co-operation and Development shall be restricted to a maximum of twenty per cent of the bank's or financial institution's. total foreign exchange placements.

(5) International rating agencies recognised by the Bank include Fitch Ratings, Standard and Poors and Moody's.

10. Where a bank or financial institution fails to observe the limits prescribed under regulations 7 or 9, it shall be liable to a penalty equivalent to one tenth of one percent per day of the amount in excess.

11.-{1) In establishing correspondent relationships with any bank abroad, a bank or financial institution shall comply with limits prescribed under regulation 9.

· (2) Notwithstanding provision, of sub-regulation (1) the bank or financial institution shall notify the Bank not later than seven days after establishment of such relationship and submit terms and conditions upon which such correspondent relationship has been established.

4

Reporting requirements

Failure to report

Misrepresent ation of information

Sanctionl? and Penalties


12. Every bank or financial institution shall report to the Bank in the form and frequency prescribed by the Bank.

13. Where a bank or financial institution fails to submit any return as requ~red under these Regulations, it shall be liable to a penalty of one million shillings for every day in which the failure continues.

14. Where a bank or financial institution makes a misrepresentation of information on any of the returns, it shall be liable to a penalty imposed under regulation 13 or other sanctions as prescribed under these Regulations.

15. Without prejudice to the other penalties and actions prescribed by the Act, the Bank may impose on any bank or financial institution any of the following sanctions for non-complianc-e-

( a) imposition of penalty on the bank or financial institution or directors, officers or employees responsible for the violation in such amounts as may be determined by the Bank;

(b) prohibition from participating in the IFEM; (c) prohibition from declaring or paying dividends; (d) suspension of the privilege to issue letters of credit or guarantee; (e) suspension ofaccess to the credit facilities ofthe Bank; (f) suspension of lending and investment operations; (g) suspension of capital expenditure; (h) suspension of the privilege to accept new deposits; (i) revocation of banking licence; G) suspension from office of the defaulting director, officer or

employee; and (k) disqualification from holding any position or office in any bank

or financial-institution under the supervision of the BaiLie.

~~: ?(

Dar Es .Salaam, . f) "(I\ ~-- . .. ··-· .. .... : .-,_· ... -'~".

BENNO J. NDULU Governor ~. ,,,~: .. ;;., • Decemhe'f"',.:;moo-

5

THE BANKING AND FINANCIAL INSTITUTIONS (CAPITAL ADEQUACY) REGULATIONS, 2008


Regulation Title



PART II CAPITAL ADEQUACY REQUIREMENTS

5. Minimum capital for banks 6. Minimum capital fcir other financial institutions 7. Minimum capital for conununity banks 8, Minimum capital for MFCs and FICOs 9. Additional period for increase of capital 10. Capital adequacy ratios 11. Risk weighted assets and off-balance sheet items 12. Available capital 13. Subordinated debt 14. Hybrid instruments or preferred stock 15. Additional capital requirements 16. Application .on solo and consolidated basis 17~ Remedied measures 18. Capitai for market risks 19. Exemption from market risk requirements 20. Trading book 21. Computati9n of capital· adequacy ratio


22. Reporting on capital adequacy 23. Market risk exposirre report 24. Independent Auditor's stat~ment

GN. No.8 of2005

Objecti-ves

"financial cooperatives" has the meaning ascribed to it in the Banking and Financial Institutions (Financial Cooperative Societies) Regulations, 2005;

"financial institution" has the meaning ascribed to it in the Act; "long position" means the holding by a bank or financial institution of

a currency, ~ecurity or other asset for its own account in excess of all its contractual spot and forward transaction commitments in that currency, security or other asset;

"off-balance sheet exposure" has the meaning ascribed to it in the Act; "market risk" means a current or prospective exposure to earnings or

capital arising from adverse movements in market prices of foreign exchange, equity and commodity prices and interest rates;

"micro finance company" has the meaning ascribed to it in the Act; "net open position" means the net sum of all foreign exchange assets

and liabilities of a bank or financial institution inclusive of all of its spot and forward transactions and off balance sheet items in that foreign currency;

"short position" means the holding by the bank or financial institution of a currency, security or other asset for its own account less than all its contractual . spot and forward transaction commitments in that currency, security or other asset;

«significant interest" has the meaning ascribed to it in the Act; "subordinated debt" means a debt with original fixed term maturity of

·not less than 5 years and satisfying the Bank's conditions for tier 2 capital as stipulated in regulation 14 ofthese regulations;

·~subsidiary" has the meaning a-scribed to it in the Act; "supplementary capital" or "tier 2 capital" has the meaning ascribed

to it in the Act; "total capital" has .the meaning ascribed to it in the Act; "officer" has the meaning ascribed to it in the Act; ''undercapitalized" means core capital of less than the minimum

capital required under these Regulations.

4. The objectives of these Regulations are to-

(a) ensure that ba.Il.h.."'S and financial institutions maintain a level of capital which is adequate to protect them against the risk of loss that may arise out of their business activities;

(b) et1Sure that banks and financial institutions maintain capital adequacy standards in line with internationally accepted best practices; and .

(c) help promote and maintain public confidence in the Tanzanian banking sector.

4

Minimum capital for banks

Minimum capital for other financial institutions

Minimum capital for community banks

Minimum capital for MFCand FICO

GN. No. 80 and 81 of2005

Additional period for increaSe of capital

PART II CAPITAL ADEQUACY REQUIREMENTS

5. Every bank shall commence operations with and maintain at all times a minimum core capital of not less than five billion shillings or such higher amount as the Bank may determine.

6.-(1) A financial institution other than a community bank, microfinance company and financial cooperative shall coriunence operations with a core capital not less than two billion five hundred million shillings or such higher amount as the Bank may determine.

(2) A financial institution shall not accept deposits payable upon demand or subject to withdrawal by cheque unless it has minimum core capital of five billion shillings and has received the prior approval of the Bank.

7.-(1) A community bank shall commence operations with a core capital not less than two hundred and fifty million shillings or such higher amount as the Bank may determine.

(2) A community bank shall not establish a branch, agency or other office unless it has minimum core capital of five hundred million shillings and has obtained prior approval of the Bank.

(3) Shareholders of the community bank shall increase the core capital to not less than twice the minimum am:ount specified under sub-regulation (1) within a period of five years from the date of approval of its license, in accordance with a capital build-up programme approved by the Bank at the time of licensing.

( 4) Every holder of a significant interest in a community bank shall execute an undertaking to fulfill, inter alia, his obligations under the capital build-up programme approved by the Bank, and to abide by any order, instruction or directive which the Ba_nk may issue.

8. Every microfinance company or financial cooperative shall commence operations with a minimum core capital as pr~scribed in the Banking and Financial Institutions (Microfinance Companies and Microcredit Activities) Regulations, 2005 and the Banking and Financial Institutions (Financial Cooperative Societies) Regulations, 2005, r~speCtively.

9. Where a financial institution fails to comply with provisions of Regulations 6 or 7 at the date on which Regulations come into operation, the Bank may prescribe an additional period within which the financial ~nstitution shall increase its capital to the amount required.

5

Capital adequacy ratios

Risk weigp.ted assets and offbalance sheet items

Available capital

Subordinated debt

Hybrid instruments or preferred stock

10. Every bank or financial institution shall maintain at all times a minimurri core capital and total capital equivalent to ten percent and twelve percent respectively of its total risk-weighted assets and off balance sheet exposures.

11. The total risk-weighted assets and total risk-weighted off balance sheet exposure shall be determined in accordance with procedures as defined by the Bank.

12. In determining the amount of available capital for the purposes of computing the minimum capital required under regulations 5, 6, 7, 10 and 11, the bank or financial institution shall consider the following-

( a) fifty percent of year profits where accounts are un audited;

(b) one hundred percent of the year to date profits where accounts have been audited subject to submission of the signed accounts to the Bank;

(c) amount of investment of the bank or financial institution in the capital of another company, firm, entity or subsidiary to the extent of the reciprocal investment of such company, firm, entity or subsidiary in the capital of the bank or financial institution shall be deducted frorri the capital ofthat bank or financial institution.

13. The aggregate amount of subordinated debt that may be eligible and recognized by the Bank as supplementary capital is limited to fifty percent of core capital, provided that such subordinated debtshall-

(a) be discounted by a cumulative factor of twenty percent per year dil.rin.g the last five years to maturity;

(b) be unsecured, uninsured and are not a deposit; (c) have an original maturity of not less than five years; (d) be subordinated to claims of all depositors and general

creditors of the bank or financial institution; (e) not qe redeemable at the option of the holder. prior to

maturity, except with the prior approval of the Bank; and (f) have no requirement for payments of principal or interest

except to the extent that the bank or financial institution is solvent and shall remain ·solvent immediately thereafter

14.-(1) A bank or financial institution intending to include hyb:rid instruments or preferred stocks not qualifying as tier 1 capital in supplementary capital for the purposes of satisfying the requirements of regulations 5, 6, 7, 10 and 11 shall apply to the Bank

6

Additional capital requirements

Application on solo and consolidated basis

Remedial measures

Capital for Market risks

Exefi!ption

for approval.

(2) In considering an application under sub-regulation (1), the Bank shall take into account whether the instruments satisfy the requirements for eligible subordinated debt specified in regulati.on 13.

15.-( 1) The Bank may prescribe additional capital requirements based on the risk profile of a bank or financial institution.

(2) A bank or financial institution authorized to carry out the function of a trustee, to establish a branch or subsidiary abroad, or to perform additional activities specified in the Banking and Financial Institutions (Licensing) Regulations, 2008 shall be required to satisfy additiomi.J. capital requirements prescribed by the Bank.

16.-(1) Where a bank or financial institution owns or controls another bank or financial institution, directly or indirectly, the capital adequacy requirements shall be -satisfied by each bank or financial institution on a solo basis, and the parent company shall comply with the capital adequacy requirements on a solo and consolidated basis.

(2) For the purpose of computing the capital position, the principal office ofeach bank and financial institution in Tanzania and all its branches and agencies, regardless of country of domicile, shall be considered as a single unit. ·

(3) For the purpose of this regulation parent company means the bank or financial institution that controls another bank or financial institution directly or indirectly.

17. · Where, in the opinion of the Bank, a bank or financial institution is undercapitalized, the Bank shall take measures prescribed in the Banking and Financial Institutions (Prompt Corrective Action) Regulations, 2008 to address the undercapitalization and nothing . in such Regulations or these R-egulations shall preclude the Bank from taking other remedial. measures provided by the Act.

18. (1) Every bank or financial institution shall measure and apply capital charges in respect of market risk

(2) Tl\e minimum capital requirements for foreign exchange risk, interest rate and equity position risk shall be determined by applying the Standardized Measurement Method specified by the Basel Committee an· Banking Supervision or such other methods as the Bank may approve.

19. A bank or financial institution may apply to the Bank to be

7

from market risk requirements

Trading book

Computation of capital adequacy ratio ·

Reporting on capital adequacy

Market risk exposure

exempted from the capital adequacy requirements for market risk or any part thereof, provided it can demonstrate that on a continuing basis-

(a) its foreign currency business, defined as the greater of the sum of its gross long positions and gross short positions in all foreign currencies, does not exceed one hundred percent of core capital, and the overall net open position does not exceed two percent of core capital; and

(b) its total trading· book assets do not exceed five percent of total assets.

20. Financial instruments~ including derivative products such .as. for.Wards,-op.ti.o.ns~or~swaps,-s-haH-he·-aHocated-to the··trm:itngooo:K if- ---they are-

( a) held for short-term resale; (b) purchased with the intention of benefiting in the short

term . from actual or expected differences between their buying andselling prices or from other prices or interest rate variations; ·

(c) arising from broking or market-making; (d) held in order to hedge other elements of the tradin-g book.

21.-(.1) The individual market risk capital charges calculated under regulation 18 shall be multiplied by the reciprocal of the minimum capital adequacy ratio of twelve percent and added to the sum of risk-weighted assets.

(2) The capital adequacy ratios for a bank or financial institution shall be calculated in relation to the sum mentioned in subregulation (1) by using core capital and total capital to determine whether the · bank or financial institution satisfies the minimum requirements.


22. Every bank or financial institution shall-

(a) compute in the prescribed riranner its capital position by comparing its required capital with its available capital as at the close of busines-s for the day;

(b) inClude in the computation of the required minimum capital ?RY directive to increase its capital~ and

(c). maintain suitable and adequate records to facilitate verification of its capital position.

23. A bank or financial institution shall, unless exempted

8

report

Independent Auditor's statement

Submission of report to the Bank

Sanctions and Penalties

Revocation GNNo. 37 of2001

under regulation 19, submit to the Bank a monthly report on its market risk exposure within fifteen days following the end of the reference

month in accordance with the format prescribed by the Bank

24. Every bank or financial institution shall require its independent auditor to compute its capital position as at the end of each financial year, taking into account the requirements of the Act and all Regulations issued thereunder and draw a note on the adequacy of its capital in the Audited Financial Statement.

25. Every bank or financial institution shall submit to the Bank information provided under regulation 24 not later than three months after the close of the financial year.

26.-(1) Without prejudice to other penalties and actions prescribed by the Act, failure to comply with any provision of these Regulations shall attract one or more of the following sanctions-

( a) prohibition from declaring or paying dividends; (b) suspension from opening new branches; (c) suspension of access to the credit facilities of the Bank; (d) suspension from lending and investment operations; (e) suspension of the activity to issue letter of credit or

guarantee; (f) suspension of capital expenditure; (g) revocation of banking license; (h) suspension from office of the defaulting director, officer

or employee; and (i) disqualification from holding any position or office in

any bank or financial institutions in Tanzania. (2) Any director, officer or employee of a bank or financial

institution who intentionally sanctions or votes for the approval of any credit accommodation, branch expansion or capital expenditure while the bank or financial institution remains under suspension as provided under paragraphs (b) to (f) of sub-regulation (1) shall be suspended from office.

(3) The suspension from office prescribed under paragraph (h) of sub-regulation (i) shall be without prejudice to any other punitive measures the Bank may take against the defaulting director, officer or employee.

27. The Capital Adequacy Regulations, 2001 are hereby revoked.

~-. BENNO J. NDULU

Governor

9

Bot Regulations 2008

Documents

Transcript of Bot Regulations 2008