TIB DEVELOPMENT BANK LIMITED - SADC-DFRCsadc-dfrc.org/sites/default/files/documents/forum/tib_ceoforum...tib development bank limited 2 contents: a) introduction b) tanzania investment

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

TIB Development Bank Limited

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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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Profit before tax USD/TZS rate

TIB Shareholders Funds and Profitability 2000 - 2013

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Pro

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SHAREHOLDERS FUND PROFFIT BEFORE TAX


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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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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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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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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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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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From 2008 to 2012 7) 2012

• Registration of Change of Name of Tanzania Investment Bank Limited to

TIB Development Bank Limited (November 2012)

•

• 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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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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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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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


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THANK YOU

Documents

TIB DEVELOPMENT BANK LIMITED - SADC-DFRCsadc-dfrc.org/sites/default/files/documents/forum/tib_ceoforum...tib development bank limited 2 contents: a) introduction b) tanzania investment