Banking system healthy but still exposed to several risks

By The guardian reporter

Prof Benno Ndulu

 Banking Supervision Annual Report is one of the Bank of Tanzania’s (BoT) annual publications. The (new) report reviews performance of the banking sector and other supervised institutions for the year ended December 31, 2014.

 

The main objective of the report is to disseminate information on current issues and developments within the banking sector thereby enhancing 

 

transparency and accountability of the Bank of Tanzania to the public. 

The report provides a brief account of the performance of the banking sector and other supervised institutions, the reforms to the regulatory framework and the key supervisory activities undertaken by the Directorate of Banking Supervision and the Bank of Tanzania at large. 

 

During 2014, the banking sector remained profitable, adequately capitalized and resilient to internal and external shocks.  The sector recorded an average return on assets of 2.51 per cent against 2.55 per cent in 2013 and average total capital ratio of 17.41 per cent as compared to the minimum regulatory benchmark of 12 per cent.  This performance was mainly influenced by the favourable and relatively stable macroeconomic and monetary policy environment. 

 

Average annual headline inflation declined to 6.1 per cent in December 2014 compared to 7.9 per cent recorded in December 2013. The shilling depreciated by 6.05 per cent from an average of 1,609.04/- per US dollar recorded in the year ending December 2013 to an average of 1,706.32/- per US dollar in December 2014.

 

The overall treasury bills rate averaged 14.20 per cent compared to an average of 14.22 per cent during 2013. 

 

Gross Domestic Product (GDP) grew by 7.0 per cent during the year ending 2014, which was slightly below the growth rate of 7.3 per cent recorded in the previous year.  

 

Despite the notable performance of the banking sector, it is worth noting that the sector continued to be vulnerable to impaired capital levels and liquidity problems for most community banks. The Bank has taken various measures to assist community banks improve their performance.

 

Access to financial services by most bankable population was still on the lower side. 

 

BoT, in collaboration with other stakeholders, continued to spearhead initiatives towards an inclusive financial system. The Bank started implementation of a number of actions in line with the National Financial Inclusion Framework including initiation of the process of developing a national financial inclusion database to track progress and achievements; finalization of the National Payments Act; drafting of mobile financial services regulations; putting in place a financial education strategy as well as development of the legal, regulatory and supervisory framework to enhance financial consumer protection.  

 

Furthermore, mobile financial services operated by banking institutions and mobile network operators continued to expand thereby enhancing financial inclusion. As at the end of 2014, seven modes of electronic payment services were in place comprising of Mobile Payment Services, Automatic Teller Machines (ATMs), Mobile Banking Services, Point of Sale (POS) devices, Electronic Cards, Internet banking and Money Transfers Services (Remittances). 

 

In order to accommodate new developments and challenges emerging within the banking sector both at local and international level, the Bank completed review of the core set of prudential regulations. The revised prudential regulations were published in August 2014 and became effective since then.

 

   Among the key changes to the regulatory framework include raising minimum capital adequacy requirements to 12.5 per cent and 14.5 per cent for core capital and total capital, respectively. Also, the revised disclosure regulations now require disclosure of more information both in English and Kiswahili. This is aimed at enhancing transparency. 

 

During the year, Bank of Tanzania collaborated with other financial sector regulators in the implementation of various initiatives agreed under the Tanzania Financial Stability Forum (TFSF) aimed at ensuring stability of the entire financial system. 

 

Some of the initiatives implemented during 2014 under the forum included establishment of bilateral collaboration among key financial sector regulators where financial products overlap across sectors; putting in place crisis management frameworks by individual regulators; and adoption of a macro approach to sector level analysis aiming at identifying and mitigating risks that arise from global and domestic macroeconomic and financial developments.  

 

At regional and international level, the Bank of Tanzania collaborated with IMF East AFRITAC and central banks within the EAC and SADC regions to implement harmonized regulatory and supervisory standards. 

 

Prof Benno Ndulu is Governor, Bank of Tanzania. He expressed this outlook in the Governor’s message for the Directorate of Banking Supervision Annual Report 2014.

 

SOURCE: THE GUARDIAN