The effectiveness of risk-based supervision of commercial banks in Tanzania

This research examined the effectiveness of Risk-Based Supervision of Commercial Banks in Tanzania, as a way forward towards improving stability of the financial system. Both primary and secondary data from Commercial Banks were used. Secondary data were collected through documentary sources, whilst primary data were gathered through face-to-face interview, questionnaires and researcher’s own observation. Scientific Package for Social Science (SPSS) was applied to analyse qualitative data. A total sample for this study was 72 respondents composed of 60 respondents being staff working with risk management department and 12 respondents as banks’ examiners. The sampled commercial banks were; Access Bank, Dar es Salaam Community Bank, Barclays Bank, National Microfinance Bank (NMB), National Bank of Commerce (NBC), Standard Charterd Bank, Stanbic Bank and Kenya Commercial Bank. The findings reveal that; despite of being at the infant stage, Risk-Based Supervision (RBS) seems to be effective on the large commercial banks due its readiness and ability to fund the compliance cost arising, whilst posed challenges to problematic banks due to limited capital, lack of technical expertise and the level of preparation. Results highlight competent personnel, Management Information System (MIS), Minimal Capital Requirements, Data Security and RBS awareness as issues of critical importance. The results help one to understand the current practices of Risk-Based Supervision (RBS). As such, they enable us to make inferences about the perceived importance of the risk management. The study is of particular value to the supervisory authority and commercial banks for better understanding of the current trends in risk management, and to academics intending to carry out research in the field.