22 January 2013

Tanzania: Banks Meet Central Bank Needs

Dar es Salaam — Most commercial banks here have met the terms for new minimum capital requirement imposed by the Bank of Tanzania (BoT) to safeguard depositors over two years before the deadline.

According to the country's letter of intent to International Monetary Fund (IMF) 22 out of 33 commercial banks had complied with the directive where they are supposed to raise core capital to Tsh15bn (about$9.37m) from Tsh5bn (about$3.12m).

"The central bank recognizes the importance of strengthening banks' buffer capital in order to enable banks to withstand financial crisis," part of the letter, signed by finance minister and BoT governor reads.

Last year, BoT issued a three-year directive, where commercial and community banks are supposed to buffer their capitals in a bid to withstand financial crises.

However, with less than two years to go, community banks managed to raise the required capital, termed Capital Enhancement Order, from Tsh250m (about$156,250) to Tsh2bn (about$1.25m).

"As at 31st August 2012, 22 out of 33 commercial banks had complied, while community banks are yet to comply," the letter said sent last week, the IMF Managing Director, Ms Christine Lagarde, said.

Capital Enhancement Orders for fully fledged commercial and community banks were published in the government Gazette on 23rd February 2012 and 22nd June 2012 respectively.

".... with a moratorium of three years provided for existing banks to fully comply with the minimum capital requirements," according to the document to IMF.

The requirement came following the aftermath of global financial crisis that rock the world between 2008 and 2010 and is still looming large in Euro zone. Thus the measures aimed at enhancing the stability and efficiency in the financial sector. The banking sector, however, remained sound, profitable and liquid.

At the end of June 2012, the ratios of core capital and total capital to risk weighted assets were 17.5% and 18.1% compared with the legal minimum requirements of 10% and 12%, respectively.

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