FINANCIAL STABILITY- NEW CHALLENGES FOR CENTRAL BANKS BANK OF TANZANIA EXPERIENCE Presented at the AACB 2016 Continental Seminar Cairo-Egypt, May 9, 2016 Bank of Tanzania

Scope Introduction; Challenges of Financial System Stability oversight and policy at: Central Bank Level National level Regional level The Way Forward. Tanzanian set-up of financial stability oversight and policy 3 levels, challenges facing the Bank, at country and regional levels Growing importance of financial markets, real estate activities and the instruments available to BOT to deal with the financial instability.

Introduction Increasing inter-linkages between financial institutions, markets and markets infrastructure at national, regional and global levels has heightened risks transmission channels. This was reflected in 2007/08 Global Financial Crisis. The Crisis highlighted the need for coordination of Financial Stability oversight and policy at national and regional levels. Increasing connectivity among financial institutions, mkts and mkts infast (NBFI hold sizable deposits with banks, the usage of mobile platform) and Tighter financial and trade linkages btn countries allow Financial shocks in one country to spill-over across financial sectors & national borders. Crises provided a wake-up call to institutions dealing with financial stability: to re-assess the adequacy of their existing policy frameworks in safeguarding the stability and resilience of the financial system.

Bank of Tanzania Bank of Tanzania takes the lead in promoting financial stability. A dedicated Financial Stability Directorate to undertake macro- prudential analysis, recommend macro-prudential policy actions in order to mitigate potential threats in the financial system and coordinate financial crisis preparedness, management and resolution. Financial Stability Reports are produced twice a year to inform stakeholders of the financial system, on the potential vulnerabilities and mitigation policy measures. The dept was established in 2009; directorate in 2013..3 depts…. the Bank carries out on daily basis the surveillance of banking sector, f/markets & f/markets infrastructure….. Their inter-linkages and exposures to real economy However, the Bank lacks explicit mandate to fully carry out its mandate …BOT Act focuses on maintaining the stability, safety and soundness of the financial system…those licensed by the Bank. BOT Mission….twin objectives: To maintain price stability, and to promote integrity and stability of the financial system consistent with sustained growth of the national economy. TFSF formed thru an MOU, signed in 2013 provides a framework for coordinating macro-prudential oversight, crisis management and resolution.

Challenges Limited data: to monitor vulnerabilities that exist on household balance sheet and real estate sector. Limited capabilities in monitoring systemic risks arising from: Usage of mobile platforms (banking sector and markets), Liberalization of capital account. Incomplete banking crisis management framework: Lack of ELA arrangements; Lack of resolution funding framework; Communication strategy. Household financial condition..secon data Household debt to disposable income, hh debt servicing costs…meaningful estimates of hh debt is problematic given that hhs in TZ rely heavily on informal sources of credit. Household Budget surveys are conducted every 5 yrs.

National Level The role of coordinating financial stability oversight, crisis management & resolution at national level is conducted through Tanzania Financial Stability Forum, chaired by the Governor - Bank of Tanzania. The Forum mandate is derived from an MOU. Members of the Forum: BoT, Ministries of Finance, Deposit Insurance Board & regulators for Insurance, Social Security & Capital Markets. Challenges: Whether to replace the MOU with legislation in order to enhance enforcement of the Forum decisions. Lack of national crisis management framework. MOU, 2013--signed by regulatory authorities to form TFSF Support meetings of policymakers twice a year and technical meeting on quarterly basis. Existence of the Forum allows the central bank to be at the center of macro-prudential policy and the MoF to play a strong role during the crisis A need for creating and formalize institutional set-up for macro-prudential oversight.

Regional Level Expansion of Pan-African Banking Groups raises new regulatory challenges: Cross-border Prudential Banking Supervision; Macro-prudential Oversight; Cross-border Financial Crisis Management & Resolution. Cross-border Prudential Banking Supervision Lack of regulatory oversight of bank holding companies in some jurisdictions; Limited cooperation in cross-border supervision. Macro-prudential Oversight Lack of Regional cooperation on macro-prudential oversight. Lack of regional arrangements for cooperation in cross-border crisis management & resolution.

The Way Forward Continue to develop and improve existing early warning systems: Conduct min HBS annually in collaboration with NBS; Develop surveillance tools for real estate sector; Strengthening institutional capacity for development and implementation of macro-prudential policy: Whether to replace the MOU with legislation in order to enhance enforcement of the Forum decisions--Review BOT ACT; Enhance coordination of risk management and crisis resolution at national and regional arrangements.

Thank You!