Tanzanian Loans and Advances Realization Trust (LART)

Institutions transferred nonperforming assets to LART when and as directed by LART (LART Act 1991). Following these transfers, the Tanzanian government then recapitalized the transferring institutions (ADF 2000). It does not appear that LART itself was responsible for the recapitalizations.

Parliament amended the LART Act in 1996 to include private financial institutions and extend LART’s timeframe until at least 2000 (LART Act 1996).

At the time of LART’s establishment, legal proceedings involving nonperforming assets took anywhere from one to five years (World Bank 2001). To accelerate the pace of recovery, the LART Act created a special LART Loan Recovery Tribunal with simplified procedures and exclusive jurisdiction over transferred assets (LART Act 1991). This reduced hearing times to an average of three months (World Bank 2001).

The LART Act established LART to hold the nonperforming assets of banks and to “take such action as may be necessary to recover all amounts outstanding in respect of such . . . assets, and to advise, direct or facilitate the measures that have to be taken by or in respect of the debtors so as to enhance their capacity to repay” (LART Act 1991).

The LART Act established LART as an autonomous government-owned institution (Johnson et al. 1999; LART Act 1991).

The LART Act created a board of trustees that was responsible for governing LART. The president of Tanzania appointed the chairman of this board, who was joined by four to six other members appointed by the minister of finance. An “administrator” appointed by the minister of finance had authority over the day-to-day operations of LART, subject to oversight from the board (LART Act 1991). LART maintained a professional staff of approximately 20 people (World Bank 1999).

The LART Act contained no references to a cap on the amount of nonperforming assets that could be acquired by LART (LART Act 1991).

The Tanzanian government incurred significant costs from LART’s operations and the related recapitalization of transferring financial institutions. It was anticipated that these costs would be outweighed in the long run by benefits in the form of “the savings on the subsidies that would have otherwise been provided to loss-making banks, and the incremental fiscal revenues from the earnings of profitable financial institutions and higher economic growth” (ADF 2000).

The 1996 amendment to the LART Act expanded eligibility to private financial institutions, which had been made legal again as part of the financial system reforms launched in 1991 (LART Act 1996; Nord et al. 2009). It does not appear that any private financial institutions participated.

The LART Act provided that the nonperforming assets eligible for transfer were those (a) in existence as of the commencement of the LART Act or (b) in existence as of December 30, 1990 (subject to extension to December 31, 1991), provided that they were on the books of the institution as of June 30, 1988 (LART Act 1991). The 1996 amendment to the LART Act expanded eligibility to all assets determined to be nonperforming consistent with regulatory guidance (LART Act 1996). The nonperforming assets transferred to LART consisted largely of commercial loans to state-controlled businesses.

Under the LART Act, LART provided written direction to financial institutions requiring them to transfer nonperforming assets (LART Act 1991). Financial institutions that transferred nonperforming assets at the direction of LART received government bonds as consideration. These bonds carried interest rates of 11% and had maturities of 20 years or more (ADF 2000).

The LART Act provided that LART would pay for transferred assets “such sums as may be determined by [LART] at such rate, in such form and subject to such other terms and conditions as [LART] may determine” (LART Act 1991). It is not clear from program documents exactly what price LART determined should be paid or how this price was determined.

Initially LART made most of its recoveries on nonperforming assets via seizure and sale of assets (Johnson et al. 1999). Ultimately, LART employed a broader array of approaches including “direct recovery of outstanding liabilities, rescheduling of assets, negotiated settlement, packaging of assets to facilitate disposition, and auctions” (World Bank 2001).

The LART Act provided for a five-year timeframe for the program, with the option for a one-year extension (LART Act 1991). The 1996 amendment to the LART Act extended this timeframe until June 30, 2000, with the option for two one-year extensions (LART Act 1996). The program ultimately concluded in January 2001 (World Bank 2001).