Tanzania: Commercial banks comply with new capital requirement

Bank of Tanzania (BoT)

Almost two-third of commercial banks have complied with the new minimum capital requirement imposed by the Bank of Tanzania to safeguard depositors.

Last year, BoT issued a three-year directive to commercial and community banks to buffer their capitals to withstand possible financial crises. According to the country’s letter of intent to the International Monetary Fund (IMF), 22 out of the 33 commercial banks had complied with the directive, raising their core capitals to 15bn/- from 5bn/-.

“The Bank of Tanzania recognizes the importance of strengthening banks’ buffer capitals to enable them withstand financial crises,” said part of the letter, signed by Finance Minister and BoT governor.

However, with less than two years to go, no community bank has managed to raise the required capital, termed Capital Enhancement Order, from 250m/- to 2bn/-. “As at August 31, 2012, 22 out of 33 commercial banks had complied, while community banks are yet to comply,” the letter, sent yesterday to IMF Managing Director Christine Lagarde, said.

The Capital Enhancement Orders for fully fledged commercial and community banks were published in the Government Gazette on February 23, 2012 and June 22, 2012 respectively.

The requirement came following the aftermath of global financial crisis that rocked the global economy between 2008 and 2010 and is still looming large in the Euro zone. At the end of June 2012, the ratios of core capital and total capital to risk weighted assets were 17.5 per cent and 18.1 per cent compared with the legal minimum requirements of 10 per cent and 12 per cent, respectively.

In the same period, the ratio of nonperforming loans to total loans was 8.0 per cent compared to 9.0 per cent at the end of June 2011. “The ratio of liquid assets to demand liabilities was 39.4 per cent, against the statutory requirement of 20 per cent,” the IMF chief was told through the letter.