TIB DEVELOPMENT BANK LIMITED -...
Transcript of TIB DEVELOPMENT BANK LIMITED -...
TIB DEVELOPMENT BANK LIMITED
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REGULATING DEVELOPMENT FINANCE
INSTITUTIONS -
THE EXPERIENCE OF TANZANIA
SADC DFRC
June 2014
Julius Mukoji Head of Risk and Compliance – TIB Development Bank
TIB DEVELOPMENT BANK LIMITED
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Contents: A) INTRODUCTION
B) TANZANIA INVESTMENT BANK AS A NON DEPOSIT TAKING DFI
C) FINANCIAL REFORMS IN TANZANIA
D) DESIGNATION OF TANZANIA INVESTMENT BANK AS A DFI
E) RESRUCTURING OF TANZANIA INVESTMENT BANK
F) TIB DEVELOPMENT BANK LIMITED – A DFI
G) CONCLUSIONS
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A) Introduction:
From 1967 to 1988 Nationalization of all formal banking activity
Establishment of Specialized Financial Institutions:
1. Commercial Banks,
2. Development Finance Institutions:
a) Agriculture and Rural Financing bank,
b) Housing Bank
c) Tanzania Investment Bank
d) Tanzania Development Finance
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B) TANZANIA INVESTMENT BANK AS NON DEPOSIT TAKING DFI:
From 1970 to 1991 TIB operated as a specialized non deposit taking DFI from
1970 to 1991 under its own Parliamentary Act.
Due to operational issues related to the macroeconomic shocks
of the 80s, and with the new Banking Act enacted in 1991, TIB
was licensed in 1992 as a ‘Financial Institution’ regulated by
the Bank of Tanzania.
A look at the performance of TIB and the effects of the
depreciation of the TZS against major foreign currencies is
attached.
TIB Financial Performance 1970 - 2013
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TIB Shareholders Funds and Profitability 2000 - 2013
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C) Financial Reforms in Tanzania:
From 1967 to 1988
Compounded by both external events (between 1973
and 1980) and internal macroeconomic stresses, it was
found necessary to undertake a wide range of economic
and financial sector reforms from the 1980s.
Presidential Commission of Enquiry (Nyirabu
Commission) was formed in 1988 to set the milestone
for liberalization of the financial sector in Tanzania.
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C) Financial Reforms in Tanzania:
From 1988 to 1991 On the basis of the Nyirabu Commission, a series of reforms were embarked
to promote the development of a market based financial sector to turn
around the deteriorating economy, and accelerate economic growth.
• The Banking and Financial Institutions Act, enacted in 1991, liberalized
the financial sector allowing private sector and foreign banks;
• Financial markets were introduced and,
• The use of indirect instruments of monetary policy was introduced.
• Commercial banks increased from 3 in 1988 reaching to 42 in 2010 and
54 in 2014.
This was the First Generation of Financial Sector Reforms
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C: FINANCIAL SECTOR REFORMS
From 1991 to 2005 1) Financial Sector Assessment Program 2003:
Purpose:
To identify the Strength, Vulnerabilities and
Soundness of TZ Financial System.
It reported:
among others, that the Financial System played a
limited role in the economy, and that the depth and
efficiency fell short of what was needed to support
economic growth;
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C: FINANCIAL SECTOR REFORMS
From 1991 to 2005
2) Based on the FSAP, a Second Generation Financial Sector
Reform was developed and approved.
Roadmap and Action plan, included:
Establishing a Policy Framework and Legal
Infrastructure for Provision of Long Term
Financing facilities, with a view to
addressing the existing gaps in the provision of
long Term Credit to productive Sectors
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D) DESIGNATION OF TANZANIA INVESTMENT BANK AS A DFI
From 2005 to 2010
1) 2005
TIB Designated as DFI
2006
GoT approved a 5-year strategic plan for the
transformation of TIB
2008
Bank of Tanzania commissioned an international
consulting company to develop recommendations for
the transformation of TIB into an Effective and
Sustainable DFI
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E) RESTRUCTURING OF TANZANIA INVESTNENT BANK
From 2008 to 2012
1) 2008 Recommendations: - A Two Tier Structure for the DFI
The Parent company would be constituted as a DFI, offering development
finance in the form of term loans, project finance, equity finance and asset
finance;
A commercial bank subsidiary would be established, offering banking facilities,
short term and working capital loans, and trade finance;
The existing subsidiary would be transformed into a viable capital market
player to offer advisory and secondary options for equity products.
2010
The Transformation Plan approved by the Cabinet in June 2010
TIB formally inaugurated as a DFI in November 2010
Capitalization plan approved by Parliament as part of 5 Year Development Plan
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E) RESTRUCTURING OF TANZANIA INVESTMENT BANK
From 2008 to 2012
2) ) 2011
Bank of Tanzania commissions a comprehensive Long Term
Development Finance study, (LTDF) and final report issued in
September 2011
TIB is incorporated as a KEY stakeholder in the LTDF Study. Our
recommendations to the consultant were based on the AADFI
PSGRS
2012
Based on LTDF study, Bank of Tanzania issues Development
Finance Regulations, 2012, which separates commercial banking
activities from Development Financing activities.
In March 2012, the DFI Regulations are gazetted.
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E) RESTRUCTURING OF TANZANIA INVESTMENT BANK
From 2008 to 2012 3) ) 2012
Bank of Tanzania commissions an international consulting company
to provide technical guidance to TIB to ensure:
1. A successful restructuring of TIB based on the cabinet-approved two-
tier group structure;
2. Fulfilment of statutory and regulatory requirements for the
establishment of TIB Corporate Bank and licensing of TIB DFI;
3. Alignment of the TIB business strategy with the anticipated regulatory
framework for Development Finance Institutions;
4. Development of an appropriate organizational structure, Board
Committee Charters and job descriptions for the senior management of
the TIB Group;
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E) RESTRUCTURING OF TANZANIA INVESTMENT BANK
From 2008 to 2012
4) 2012
The scope of work of the Restructuring Consultancy:
a) The development of organizational structures (including
recommended manning levels) for the Group that will
facilitate effective operations by the parent and subsidiary
companies;
b) The preparation of a draft corporate governance framework,
including a Corporate Governance Charter and a draft
Shareholders’ Compact for the Group;
c) Advice on an appropriate ICT infrastructure and resource
allocation for the independent corporate entities working
within a Group structure.
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E) RESTRUCTURING OF TANZANIA INVESTMENT BANK
From 2008 to 2012
5) 2012
The scope of work of the Restructuring Consultancy:
e) Advice on an appropriate structure for the Finance Division at Group, parent
and subsidiary company levels, that will ensure specifically the separation of
books of account at entity level and the provision of consolidated reporting at
Group level.
f) Advice on appropriate structures and operational modalities for Risk
Management and Compliance; HR and Administration; Legal and Secretariat;
Treasury; Marketing and Corporate Affairs; and Internal Audit – to ensure
effective control and governance structures.
g) Recommendations for an effective working and accounting framework for
customers with shared facilities between the parent and subsidiary companies.
h) Assessment of the gaps in the required staff skills and aptitudes within the
Group
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E) RESTRUCTURING OF TANZANIA INVESTMENT BANK
From 2008 to 2012
6) 2012
Draft Restructuring Final report discussed by stakeholders on July
27, 2012 meeting organized by Bank of Tanzania
• Final Report issued in September 2012;
• Management forms a Restructuring Committee to work out the
implementation of the Restructuring report and subsequent
Board and Shareholders directives.
• Final Report and Restructuring options approved by TIB Board of
Directors on September 28, 2012
• Final Report and Restructuring options approved by TIB
Shareholders on October 11, 2012
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E) RESTRUCTURING OF TANZANIA INVESTMENT BANK
From 2008 to 2012 7) 2012
• Registration of Change of Name of Tanzania Investment Bank Limited to
TIB Development Bank Limited (November 2012)
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• TIB obtains BoT approval for the MEMARTS of the TIB Corporate Bank.
(November 2012)
• TIB files for Registration of TIB Corporate Bank Limited (December 2012)
• Split of Core Banking System to accommodate a multi-company
structure underway. (Ongoing since October 2012)
• TIB finalizes job descriptions and advertisements for Board and Senior
Management for TIB Corporate Bank Limited. (November 2012)
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F) TIB DEVELOPMENT BANK LIMITED – A DFI
From 2012 to 2014 2013
Tanzania Investment Bank (TIB) changed its name to: TIB Development
Bank Ltd, and has incorporated a commercial bank subsidiary, TIB
Corporate Finance Limited;
Application for operating licenses of the two Financial Institutions from the
Bank of Tanzania lodged in November 2013 for the DFI and the Corporate
bank;
Legal and regulatory processes of the split were to be completed by March
2014, following the close of 2013 Financial Year External Audit;
Recruitment of the Board, CEO and top management of the Corporate Bank
is at any advanced stage, and those selected after the interviews will soon
be announced;
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F) TIB DEVELOPMENT BANK LIMITED – A DFI
DFI Regulations
• DFI Regulations stipulate Licensing Guidelines, Quality and
independence of Directors and Senior Management, who are all
vetted by Bank of Tanzania;
• Include Incorporation, Organization, Ownership and Minimum
Capital; Credit Concentration and Exposure limits, Asset
Classification and Liquidity
• They also Cover Prohibited Activities and treatment
commercially unviable programs or products
• Heavily borrowed from the PSGRS
• To hold another round of discussions with the regulators after 12 - 24
months of operating under the new regulations
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F) TIB DEVELOPMENT BANK LIMITED – A DFI
Challenges in Managing Transformation Challenges:
• Acceptance and adoption by Governments and regulators;
- Managing the Transition Period with Regulatory staff steeped into
commercial banking risk management practices;
• Resources for capacity building plans for the weak DFIs;
- Shortage of Skills to meet the demands of the Restructuring
Process and a transformed DFI
• Adequate capitalization as per mandate and business plans;
- Long gestation period integrating DFI strategic plans to
Government Development activities and funding options;
• Maintaining governance and financial discipline to attract business
opportunities from local and multinational players necessary to increase
diversity of income and funding synergy to core DFI long term activities.
(Managed Funds, and Advisory)
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G) CONCLUSIONS
TIB has been relatively successful in its restructuring partly due to the
following factors:
• The reemergence of the DFI concept was an evolving process
stemming from a government and regulatory supported national
economic reform process;
• Good Governance and Transparency in both the restructuring
process and management of the DFI operations are key in achieving
the objectives of restructuring - (many stakeholders need to have
confidence in the process)
• For the DFI to thrive, it requires a lot of proactivity from its Board
and Management; (reactions from key stakeholders not automatic)
• Regulatory oversight by a credible entity helps build market
confidence (DFIs should also be market players)
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G) CONCLUSIONS
• Shareholders have a lot of competing interests.
DFIs need to take a longer term view in partnering
the governments by innovatively intervening in
funding the development budget.
• It is necessary for DFIs to understand the country
macroeconomic dynamics, and position
themselves strategically. In this case, knowledge
and institutional alliances are important in
leveraging the financial muscle and knowledge,
thereby increasing their capability to offer
innovative solutions to development financing;
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G) CONCLUSIONS
• Governments have a huge appetite for innovative ideas,
particularly project funding ideas, but the adoption process
is a tedious and long one.
• Emerging DFIs need to be very strategic in dealing with both
the Government and regulators to find the appropriate space
to operate effectively, and with independence;
• DFIs need to keep diversifying sources of revenue to be able
to maintain the ever rising administrative costs and
investment in technology.
• Sustainability is key: this includes financial, operational,
governance and reputation