In a recent Country Report, the International Monetary Fund (IMF) emphasized the pivotal role of enhanced financial supervision and regulatory frameworks in bolstering stability and growth within the financial sector.
The IMF stressed the necessity of advancing financial sector deepening while simultaneously fortifying stability through the modernization of supervisory frameworks and the reinforcement of prudent policy tools. This comprehensive approach encompasses crisis resolution protocols, emergency liquidity assistance frameworks, guidelines for large exposures, and statutory minimum reserve ratio requirements.
Efforts to augment capabilities for monitoring and enforcing prudential guidelines, risk-based supervision, solvency stress testing, and macro-financial analysis are underway, as highlighted by the IMF.
For instance, in its 2022 Tanzania Financial Stability Report, the Bank of Tanzania (BoT) acknowledged the global economic and financial landscape's challenges and intensified oversight of domestic financial institutions. It implemented accommodative monetary policies in response to the adverse effects of the Covid-19 pandemic in the first half of 2022. However, it shifted to a less accommodative stance during the latter half of the year due to the global economic shocks arising from the conflict in Ukraine.
Working closely with other members of the Tanzania Financial Stability Forum, the BoT remains vigilant, monitoring potential adverse effects on the broader financial system.
The IMF commended key steps taken by the BoT, such as the amendment of the Banking and Financial Institutions Act and the issuance of regulations aligned with Basel II/III standards. The commitment to enhancing risk-based supervision by instituting a single rating system by year-end reflects a concerted effort towards higher supervisory standards.
Continued implementation of recommendations from the Financial Sector Assessment Programme (FSAP) and vigilant monitoring of financial sector developments were highlighted as crucial measures to mitigate emerging risks and vulnerabilities, according to the IMF report.
The BoT’s role in enforcing regulatory actions and supervision to ensure compliance with solvency and liquidity requirements was underscored as essential. Continuous monitoring of credit and operational risks, particularly concerning rapid credit growth and restructured loans, remains pivotal. Implementing FSAP recommendations and strengthening risk-based supervision and stress-test capabilities are among the key priorities outlined by the IMF.
The focus on reducing non-performing loans (NPLs), increasing provisioning, and enhancing buffers to manage liquidity, credit, and concentration risks represents critical steps in fortifying the resilience of financial institutions.
As financial landscapes evolve, the IMF underscores the necessity for robust regulatory frameworks and proactive supervision to ensure the stability and growth of the financial sector.