Bank regulation is a form of government regulation which subjects banks to certain requirement,

restriction and guidelines designed to create market transparency between banking institutions
and the individuals and corporations with whom they conduct business. Banking regulation
originates from microeconomic concerns over the ability of bank creditors to monitor the risk
originating on the lending side. Microeconomic concerns over the stability of the banking system
in case of a bank crisis.1

The regulatory framework for banking business in Tanzania consists, in the main of the Banking
and Financial Institution Act, the Bank of Tanzania Act, the Foreign Exchange Act and the
Companies Ordinance. Several banking and finance regulations have been revoked and replaced
by the Bank of Tanzania. These new regulations do not dramatically depart from the provisions
of the old regulations but they introduce more rules for banks and financial institutions. 2 The
following are the regulations and acts which regulate commercial banks in Tanzania and other
financial institutions in order to ensure that the deposits by customers are free from risk.

The Bank of Tanzania Act, (2006).

This act establishes the Bank of Tanzania under section 4. This act provides for regulatory role
of the Bank of Tanzania in relation to the formulation and implementation of monetary policy.
For the purpose of compilation and publication of the balance payments statistics meeting
International standards the BOT gathers information from banks, where the bank fails to comply
3
with the statutory requirements the penalty is imposed. BOT requires banks and financial
institutions to maintain minimum cash balance with the Bank as reserves against the deposit and
other liabilities of the bank and may prescribe the currencies in which such balance shall be held.
It also prohibits disclosure of any information relating to the Bank or to any customer of the
Bank.4

The act provide for the authorized capital of the Bank which is one hundred billion shillings and
that the amount may increase if determined by the board and authorized by the minister, and this

1
www.Internationalcompetitionnetwork.org/uploads/library/doc378.pdf
2
www.bankm.com/centralBankGuidelines.aspx
3
Section 57 of the Bank of Tanzania Act, 2006
4
The Bank of Tanzania Act, 2006
capital shall only be subscribed by the government.5 This ensures that the Bank in order to
operate it has to be financially viable and to protect depositors in case of failure.

Banking and Financial Institution Act, 2006.

This act consolidate the law relating to business of banking and harmonize the operations of all
commercial banks and financial institution in Tanzania, to foster sound banking activities to
regulate credit activities and operations. The act provides for the Deposit Insurance Board which
protect the deposit of both Tanzania mainland and Zanzibar and it’s responsibility is to manage
and control the Deposit Insurance Fund.6 To fix the size the fund sufficient to protect the interest
of depositors and every bank which is licensed to carry banking business is a contributor to the
fund by paying annual amount as determined by the Deposit Insurance Board. 7 The Banking and
Financial Institution Act is to provide for regulations of banks to provide for regulations and
supervisions of activities of savings and credit cooperative societies and scheme with the view of
maintaining the stability, soundness and safety of the financial system aimed at reduction of risk
of loss to depositors.

It also provides that the banks must act diligently, competently and confidentially towards the
affairs of their customers, they should not disclose information of their customers and they
should perform due diligence before advising their customers.

The Banking and Financial Institution (Foreign Exchange Exposure Limits) Regulations,
20014.

This regulation applies to all commercial banks and financial institutions. They regulate the
banks to have adequate policies and procedures to identify, monitor and manage foreign
exchange risk and maintain risk management standard that conform to established international
norms.8 The Foreign Exchange Exposure Limit imposes obligations to the banks and other
financial institution that, the foreign exchange policies be submitted to the BOT for frequent
reviews and requiring that intra-day foreign exchange risk exposure limits to be set and

5
Section 17 of the Bank of Tanzania Act, 2006
6
The Banking Regulation Review 4th Edition by Jan Putnis
7
The Banking and Financial Institution Act, 2006
8
Regulation 4 of the Banking and Financial Institution (Foreign Exchange Exposure Limits) Regulations, 2014
observed.9 This foreign exchange risk limits, protect customers from financial loss by ensuring
immediate solution in case of any risk arises.

The Banking and Financial Institutions (Licensing) Regulation, 2014.

This regulation establishes licensing criteria and conditions to ensure only sound and prudently
managed banks or financial institutions are licensed to operate in Tanzania and specify
procedures that the bank shall use to evaluate banking business license applications. 10 This
regulation provides for minimum conditions for entry or exit in to banking industry in Tanzania.
It prescribe financial requirements, minimum capital requirement and disclosure of source of
capital, change in share holding contribution to the country’s economy, banking application
process and conditions to be fulfilled after grant of the banking license. This protects customers
and depositors from engaging themselves in the financial business with banks or financial
institutions which are not qualified to conduct financial business. 11

The Banking and Financial Institution (Management of Risk Assets) Regulations,2014.

This provide guidance on management of risk assets and bases for providing for losses on loans
and other risk assets. The regulation ensures that banks and financial institutions have adequate
credit and investment policies to identify and manage business risks. That the banks must
identify, measure, monitor and manage the risk arising from their business and ensure timely and
adequate actions are taken on problem asset, maintain risk management standards that conform
to internal norms and promote and maintain public confidence in the banking sector.12

The Banking and Financial Institutions (Capital Adequacy) Regulations, 2014.

This regulation ensures banks and financial institutions maintain a level of capital which can
protect them and their customers from the loss that arise out of their business activities.
Commercial banks in Tanzania must have the minimum capital of Tsh 15 billions. 13 The
regulation prohibits banks from operating demand deposit account, by providing that a bank shall
not accept money on current account subject to withdrawal by cheque unless it has minimum

9
www.mondaq.com/x/410692/financial+service/New+Banking+And+Finance+Regulations
10
The Banking and Financial Institutions (Licensing) Regulations,2014
11
www.bot.go.tz/BankingSupervision/SupervisoryMethodololgies.asp
12
www.mondaq.com/x/410692/financial+services/New+Banking+And+Finance+Regulations
13
www.mondaq.com/x/410692/financial+services/New+Banking+And+Finance+Regulations
core capital have obtained prior approval of the Bank. 14 This protect customers from engaging
themselves in banking business with banks with no enough capital which are not financially
viable which can cause loss in case of failure and instead it promotes and maintain public
confidence in the banking sector.

The Banking and Financial Institution (Disclosures) Regulations, 2014.

This regulation focus on keep the general public informed on the condition and performance of
banks. Publication will be on quarterly for un-audited balance sheet, income statement and cash
flow statement while audited financial statements are to be published once annually. The
publication should be on the paper of general circulation in Tanzania. The regulation also
provides for the language to be use in disclosing of some bank information which are Kiswahili
and English.15 This is to ensure that banks and financial institution maintain a level of
transparency which will enable depositors, creditors and the public to make informed decisions.

All in all it is clear that the Tanzania’s system of banking regulation aims at, allowing only those
institutions that are financially viable to operates in the market, to control excessive risk taking
by management of banks, giving the BOT interventionist and enforcement power over troubled
banks, allowing the BOT to establish appropriate controls and monitoring mechanisms over
bank’s affairs, to establish appropriate rescue and exit means under the mandate of the BOT and
protecting small depositors in case of bank failures.

BIBLIOGRAPHY.
14
Regulation 6 of the Banking and Financial Institution(Capital Adequacy) Regulation, 2014
15
Regulation 7, 8 & 13 of the Banking and Financial Institution (Disclosures) Regulation 2014.
STATUTES.

1. The Bank of Tanzania Act, 2006

2. The Banking and Financial Institution Act, 2006

REGULATIONS.

1. The Banking and Financial Institution (Capital Adequacy) Regulations, 2014

2. The Banking and Financial Institution (Disclosures) Regulations, 2014
3. The Banking and Financial Institution (Foreign Exchange Exposure Limit) Regulations,
2014
4. The Banking and Financial Institution (Licensing) Regulations, 2014
5. The Banking and Financial Institution (Management of Risk Assets) Regulations, 2014
6. Banking Regulation Review 4th Edition (2013) edited by Jan Putnis

WEBSITES

1. www.bankm.com/centralBankGuidelines.aspx
2. www.mandaq.com/x/410692/financial+services/
New+Banking+And+Finance+Regulations
3. www.bot.go.tz/Bankingsupervision/supervisorymethodololgies.asp
4. www.internationalcompetitionnetwork.org/uploads/lobrary/doc378.pdf