TANZANIA: THE BANKING AND FINANCIAL INSTITUTIONS (FINANCIAL LEASING) REGULATIONS 2022
On 23 September 2022, the Governor of the Bank of Tanzania (Governor) published the Banking and Financial Institutions (Financial Leasing) Regulations via Government Notice 575 of 2022 (2022 Regulations) revoking the Banking and Financial Institutions (Financial Leasing) Regulations, 2011 (2011 Regulations).
The 2022 Regulations apply to all financial leasing operations operated by banks and financial institutions including their subsidiaries and financial leasing companies. The 2022 Regulations do not apply to micro leasing operations (i.e., where the average value of the asset in the portfolio is up to TZS 10 million and leasing term is short – not exceeding 24 months).
Key changes introduced by the 2022 Regulations
- Senior management and board members of financial leasing companies no longer require vetting by the Bank of Tanzania (BOT). It remains unclear however, whether the BOT will conduct its own internal due diligence to satisfy itself of the character, conduct and capabilities of the senior management and board members of a financial leasing company.
- Regulation 44 of the 2022 Regulations allows banks, financial institutions and financial leasing companies to use International Financial Reporting Standards (IFRS) for the provisioning of non-performing assets, subject to the requirements of Regulation 40 of the 2022 Regulations. The 2011 Regulations had prescribed for the use of accounting standards prescribed by the National Board of Accountants and Auditors in Tanzania.
- Regulation 45 of the 2022 Regulations now requires banks, financial institutions and financial leasing companies to submit to the BOT, a copy of their annual audited financial statements together with a copy of any report made by the auditor, including any letter to the management or other communication prepared in accordance with internationally accepted accounting standards, no later than three months after the close of a financial year.
- The 2022 Regulations remove the requirement for banks, financial institutions and financial leasing companies to provide a list of defaulters to the BOT on a quarterly basis. Instead banks, financial institutions and financial leasing companies are now required to set quarterly recovery targets as a percentage of non-performing lease assets and communicate this to the BOT on a quarterly basis. Additionally, a progress report on the recovery targets and a list of court cases emanating from financial leasing transactions and the progress on their recovery are to be submitted to the BOT on a semi-annual basis.
- The 2022 Regulations give the BOT power to revoke a financial leasing licence for either of the following reasons:
- the BOT has approved a plan for the financial leasing company to terminate its operations in Tanzania, and the financial leasing company has complied with such plan;
- the financial leasing company has repeatedly been violating any provision of the Banking and Financial Institutions Act 5 of 2006, regulations, circulars, directives or any condition or restriction attached to licence issued by the BOT;
- the financial leasing company has engaged in unsafe or unsound practices in the judgment of the BOT;
- the licence has been obtained on the basis of false information submitted by or concerning the applicant;
- the financial leasing company has not commenced operations within 12 months after receiving of the licence, or such further period as may be determined by the BOT;
- another financial leasing company that holds a significant interest in the financial leasing company has had its licence revoked;
- a merger, amalgamation or sale of substantially all of the assets of the financial leasing company has occurred;
- the activities of the financial leasing company differ substantially from those presented in the application for a licence and, in the opinion of the BOT, such difference is not justified nor approval for such changes has been granted by the BOT; and
- if the BOT determines that the financial leasing company is insolvent, or it is reasonably expected to become insolvent.
A decision to revoke a licence is made by the BOT in writing and will include the ground(s) for the decision.
The 2022 Regulations contain less arduous requirements compared to the 2011 Regulations and introduce safeguards for better enforcement and policing of the financial leasing sector as noted above. The 2022 Regulations also include provisions that ensure that the financial leasing sector in Tanzania operates according to international standards. Nonetheless, most of the provisions of the 2011 Regulations remain the same in the 2022 Regulations.