BoT, Dutch firm sign agreement to boost small banks’ liquidity
Dar es Salaam. The Bank of Tanzania (BoT) has signed a Memorandum of Understanding (MoU) with a Dutch company in efforts to boost the participation of small and medium banks in the money markets.
Through the MoU signed with financial company dubbed Frontclear, the latter will provide credit guarantees to small and medium banks to enable these lenders to have enough liquidity to more effectively participate in interbank transactions.
The guarantees will also make it easy for the banks to effectively take part in the secondary market of bonds, both treasury and corporate ones.
Frontclear works in partnership with the United Nations Economic Commission for Africa (Uneca).
Frontclear is an Amsterdam-based financial markets development company that facilitates financial institutions in developing countries to access local and global interbank markets through the provision of credit guarantees to cover the counterparty credit risk.
According to Frontclear’s chief executive officer Philip Buyskes, his firm will support Tanzania through offering technical assistance and provision of in-depth analysis of the current state of the market.
In collaboration with the central bank, the company will also deploy resources to build the required skills, regulatory frameworks and market infrastructure.
“We are also going to issue a guarantee that covers the counterparty credit risk of banks participating in the straight, clear environment with the goal of making sure that the midsize and smaller banks can have meaningful or access to a money market and to make sure that they can face all of the other banks,” said Mr Buyskes.
Through the signed MoU, the parties will also focus on the legal and regulatory environment.
“This is so because only if we create that conducive legal environment, will we be able to create a liquid money market and another will be a broader assessment of the relevance of our trade clear solutions,” the CEO said.
Central bank’s deputy Governor (Economic and Financial Policies) Yamungu Kayandabila said the regulator was confident that the agreement would further develop Tanzania’s money market by deepening and ensuring the effective participation of key players in the country’s interbank market.
“Money market is a starting block of a well-functioning financial markets. It’s effective in allocating liquidity to the financial systems,” Dr Kayandabila noted.
Through the initiative, he said, they will also be able to support the balance sheets of banks and improve the ability of the financial sector to issue long-term loans.
Speaking on behalf of Tanzania Bankers Association (TBA), Absa Bank Tanzania’s managing director Abdi Mohammed said Tanzania had so far achieved a fair share of macro stability in areas of money and currency markets.
He, however, noted that the new arrangement would also a new impetus into the existing status.
“It will result in further deepening of the market and it is a part of maturing and progression of the market,” he said.
This initiation, according to the acting chief executive of the Dar es Salaam Stock Exchange (DSE), Ms Mary Mniwasa, would also boost the participation of small and medium commercial banks in the bonds markets at the bourse where the fixed income are sold as a secondary market.
“Commercial banks have been major liquidity providers in the bonds market but it’s mainly the first-tier banks that actively take part in the trading. There is very little participation of smaller banks in the market because of their balance sheet problems,” she observed.
However, Ms Mniwasa said, through the credit guarantee platform, the small banks would be able to acquire the liquidity and became active participants in the market.
