TIB DEVELOPMENT BANK LIMITED

Transcription

1 TIB DEVELOPMENT BANK LIMITED REGULATING DEVELOPMENT FINANCE INSTITUTIONS - THE EXPERIENCE OF TANZANIA SADC DFRC June 2014 Julius Mukoji Head of Risk and Compliance TIB Development Bank 1

2 TIB DEVELOPMENT BANK LIMITED 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 2

3 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 3

4 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. 4

5 USD '000' USD/TZS TIB Financial Performance (3 000) (6 000) (9 000) (12 000) (15 000) - Profit before tax USD/TZS rate 5

6 Shareholders Fund "Mill TZS" Proffit Before Tax "Mill TZS" TIB Shareholders Funds and Profitability SHAREHOLDERS FUND PROFFIT BEFORE TAX

7 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. 7

8 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 This was the First Generation of Financial Sector Reforms 8

9 C: FINANCIAL SECTOR REFORMS From 1991 to ) 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; 9

10 C: FINANCIAL SECTOR REFORMS From 1991 to ) 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 10

11 D) DESIGNATION OF TANZANIA INVESTMENT BANK AS A DFI From 2005 to ) 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 11

12 E) RESTRUCTURING OF TANZANIA INVESTNENT BANK From 2008 to ) 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 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 12

13 E) RESTRUCTURING OF TANZANIA INVESTMENT BANK From 2008 to ) 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. 13

14 E) RESTRUCTURING OF TANZANIA INVESTMENT BANK From 2008 to ) ) 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 twotier 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; 14

15 E) RESTRUCTURING OF TANZANIA INVESTMENT BANK From 2008 to ) 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. 15

16 E) RESTRUCTURING OF TANZANIA INVESTMENT BANK From 2008 to ) 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 16

17 E) RESTRUCTURING OF TANZANIA INVESTMENT BANK From 2008 to ) 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,

18 E) RESTRUCTURING OF TANZANIA INVESTMENT BANK From 2008 to ) 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) 18

19 F) TIB DEVELOPMENT BANK LIMITED A DFI From 2012 to 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; 19

20 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 months of operating under the new regulations 20

21 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) 21

22 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) 22

23 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; 23

24 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 24

25 THANK YOU 25