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BANK OF TANZANIA
BANK OF TANZANIA
BANK OF TANZANIA
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Financial Stability
Introduction and Overview

Financial stability is a condition in which the financial system comprising financial institutions, financial markets and financial market infrastructures can withstand shocks and the build-up of financial imbalances, while continuing to provide essential financial services to households, businesses and the wider economy.

A stable and well-functioning financial system supports sustainable economic growth by ensuring that financial intermediation takes place efficiently and without significant disruptions. It enables households and businesses to save, borrow, invest, insure, make payments, manage risks and plan with confidence.

Financial stability is not merely the absence of instability. It requires a financial system that is sound, resilient and capable of absorbing adverse shocks while continuing to perform its core functions, even during periods of stress.

Financial systems are highly interconnected, and the failure or distress of a financial institution, market or payment system can spread quickly to other parts of the financial system. Maintaining financial stability is a key responsibility of central banks and financial sector regulatory authorities. This involves the continuous identification, assessment and monitoring of vulnerabilities and systemic risks within the financial system, as well as the implementation of appropriate policy measures to mitigate such risks and strengthen the resilience of the financial sector.


Financial Stability Mandate

The primary objective of the Bank of Tanzania, as provided under the Bank of Tanzania Act, 2006, is to formulate, define and implement monetary policy aimed at maintaining domestic price stability conducive to balanced and sustainable growth of the national economy.

In pursuing this objective, the Bank also plays a central role in maintaining and promoting financial stability by safeguarding the soundness and resilience of the country's financial system. To support this role, the Bank continuously monitors macroeconomic developments and macroprudential conditions across the financial sector.

Through proactive surveillance and analysis, the Bank identifies, assesses and mitigates systemic risks, thereby preventing the build-up of vulnerabilities that could disrupt the functioning of the financial system and adversely affect the broader economy.


Objective and Functions

The Bank of Tanzania plays a pivotal role in maintaining the stability and resilience of the financial system. To achieve this objective, the central Bank—through the Financial Stability Department, conducts both microprudential and macroprudential surveillance and performs the following functions:

  • Conducts macro-prudential surveillance of the financial system to identify threats to the stability of the financial sector from the global, regional and domestic macro-financial environment.
  • Monitor and assess the performance and vulnerabilities of key sectors including non-financial corporates, households, real estate, banking, insurance, capital markets, social security, microfinance institutions sub-sectors, SACCOS and financial system infrastructure.
  • Undertake financial crisis preparedness and management activities to enhance the resilience of the financial system.
  • Assess the resilience of the financial system to plausible shocks emanating from internal and external environments.
  • Develop preventive measures to mitigate potential systemic risks that adversely affect the financial system.
  • Assess the financial system stability and prepare periodic Financial Stability Reports and other publications to stakeholders and the public.
  • Coordinate harmonisation of financial stability arrangements with other domestic financial sector regulators through the Tanzania Financial Stability Forum and participates in regional and international initiatives aimed at promoting and harmonising financial stability frameworks and practices.

Macro-prudential Surveillance

The Bank of Tanzania monitors and assesses the performance, resilience and vulnerabilities of the country’s financial sector with a view to promote financial stability. In undertaking this role, the Bank plays a critical role in evaluating developments and identifying potential risks that could threaten the stability of the financial system.

As part of its macroprudential monitoring framework, the Bank regularly assesses key areas such as credit market conditions, financial and non-financial corporations, household sector dynamics, and developments in the financial system infrastructure and trends in the real estate market. Also, the Bank conducts stress tests on the banking sector by simulating a significant and plausible economic downturn designed to stress any underlying vulnerabilities to evaluate its resilience to plausible shocks, examines the level of interconnectedness within the financial system to identify potential channels of risk transmission and contagion, and develops financial soundness indicators to monitor the overall health and stability of the sector.


Systemic Risks Monitoring and Mitigation

The Bank of Tanzania plays a crucial role in safeguarding the country’s financial system from disruptions that could have widespread economic consequences. A key aspect of this role is the identification, assessment, monitoring, management and mitigation of potential systemic risks that may threaten to impair the stability of the entire financial sector.

The Bank continuously monitors emerging vulnerabilities and assesses potential sources of systemic risk arising from domestic, regional and global developments. Based on these assessments, the Bank develops appropriate policy measures and other mitigating actions to contain and reduce risks to the financial system. Also, the Bank conducts crisis simulation exercises to test the effectiveness of crisis preparedness and response arrangements, identify potential gaps, and strengthen coordination among relevant stakeholders in managing financial crises.

The Bank assesses compliance with guidelines and frameworks related to financial stability and crisis management to ensure that financial institutions and relevant stakeholders are adequately prepared to respond to periods of financial stress.


Financial Crisis Preparedness and Management

The Bank of Tanzania plays a central role in ensuring the country’s financial system remains stable and resilient even during times of financial stress. As part of its financial stability mandate, the Bank is entrusted with the critical responsibility of financial crisis management and resolution which is aimed at minimizing the impact of financial distress on the broader economy and preserving public confidence in the financial system.

Effective crisis management involves a combination of early detection, coordinated response mechanisms, and clear resolution frameworks that allow the Bank to act swiftly and decisively in the event of financial sector instability.

Further, the Bank conducts resolvability assessment for banks and financial institutions, and as part of its financial crisis management toolkit, the Bank of Tanzania provides and closely monitors the Emergency Liquidity Assistance (ELA) Facility. This facility is designed to offer temporary liquidity support to solvent financial institutions that are facing short-term liquidity pressures but are otherwise fundamentally sound, this helps in reinforcing confidence in the banking system and supports orderly functioning of financial markets during periods of stress.


Tanzania Financial Stability Forum

To enhance financial stability and the resilience of country’s financial system, Bank of Tanzania facilitates coordination among financial regulators and other key safety net players. This coordination aims to ensure prompt and effective identification of, response to, and developments that pose a threat to the stability of the financial system.

To facilitate coordination efforts, the BOT established and chairs the Tanzania Financial Stability Forum which serves as a formal mechanism for dialogue, information-sharing, and joint decision-making among key stakeholders involved in safeguarding the financial system.

Members of the Tanzania financial stability forum are:

  • Bank of Tanzania – BOT
  • Ministry of Finance – MOF URT
  • President’s office Finance and Planning of the Revolutionary Government of Zanzibar - PO FP RGoZ
  • President’s office Regional Administration and Local Government - PO – RALG
  • Prime Minister’s Office – Labour, Employment and Relations – PMO-LER
  • Vice President’s Office United Republic of Tanzania - VPO-URT
  • Tanzania Insurance Regulatory Authority - TIRA
  • Capital Market and Securities Authority - CMSA
  • Fair Competition Commission - FCC
  • Tanzania Communication Regulatory Authority- TCRA
  • Deposit Insurance Board - DIB
  • Tanzania Cooperative Development Commission – TCDC
  • Gaming Board of Tanzania – GBT
  • Financial Intelligence Unit – FIU
  • National Planning Commission - NPC

Reports and Publications

The Bank of Tanzania publishes various reports and publications to provide information on developments within the country’s financial system. Through the Financial Stability Department, the Bank prepares and publishes the Tanzania Financial Stability Report providing updates on the stability and resilience of the country’s financial system to stakeholders, including policymakers, financial sector regulators, financial institutions, researchers, investors, and the public.


Frameworks, Regulations and Guidelines

The Bank of Tanzania is committed to fostering a resilient and inclusive financial system. The Bank through its Financial Stability Department routinely develops, reviews, and disseminates strategic frameworks, regulations, and guidelines that underpin the soundness and stability of financial system.