In October 2023, the Bank of Tanzania issued Banking and Financial Institutions (Liquidity Management) Regulations, GN No 724 of 2023. These Regulations revoked the Banking and Financial Institutions (Liquidity Management) Regulations 2014.

The new Regulations have two objectives;

  1. To ensure that banks and financial institutions implement liquidity management standards that conform to established international norms; and
  2. To maintain public confidence by ensuring that banks and financial institutions have sufficient liquidity at all times.

Liquidity Requirements

  1. The law requires the board of directors of a bank or financial institution to adopt sound and prudent liquidity management and funding policies which are consistent with the principles set out in the Risk Management Guidelines for Banks and Financial Institutions issued by the Bank.
  2. The law requires banks and financial institutions to submit to the Bank, a copy of the contingency plan for dealing with liquidity stress scenarios approved by its board of directors.
  3. On the minimum liquid assets ratio, the law requires each bank or financial institution to maintain minimum liquid assets amounting to not less than twenty percent of its demand liabilities.
  4. Regarding theliquidity coverage ratio, the law requires each bank or financial institution to maintain a stock of unencumbered high-quality liquid assets amounting to not less than a hundred percent of total net cash outflows at all times. There is a moratorium of 54 months from the date of publication of the Regulations in which the banks and financial institutions must comply with this requirement.
  5. On Net and higher stable funding ratio, the Regulations require every bank or financial institution, at all times, to maintain its available stable funding at levels not less than a hundred percentage of its required stable funding. A similar moratorium of 54 months is also provided for compliance.

Penalties

The Bank of Tanzania is empowered to impose various penalties on any bank or financial institution in contravention of these Regulations. Such penalties may include;

  1. a penalty of the amount to be determined by the Bank,
  2. prohibition from declaring or paying dividends,
  3. suspension of the privilege to issue letters of credit or guarantee,
  4.  suspension of access to the credit facilities of the Bank,
  5. suspension of lending and investment operations,
  6. suspension of capital expenditure,
  7. suspension of the privilege to accept new deposits,
  8. revocation of banking licence,
  9. suspension from office of the defaulting director, officer or employee; and
  10. disqualification from holding any position or office in any bank or financial institution under the supervision of the Bank.

For more information about the issued Regulations, please visit www.africorp.co.tz

By Dr Goodluck Temu

AfriCorp Attorneys