The Central Bank of Tanzania has issued a new circular that mandates all financial institutions in the country to establish local data centres within three months.

The decision comes just a month after it fined local lender Diamond Trust Bank for violating regulatory rules on data and service availability.

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In the new circular, the central bank directed the banks to set up local data centres instead of using foreign servers.

Additionally, it will impose hefty fines on the lenders which fail to set up local data centres by the stipulated time.

According to the circular, a fine of TZS500m ($0.22m) per month will be imposed on the lenders till they comply with the requirement.

Since 2014, the authority has issued three such circulars; however, several lenders are yet to comply, reported Reuters.

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Central Bank of Tanzania deputy governor Bernard Kibesse was quoted by the news agency as saying: “The bank of Tanzania has noted with serious concern that most of the banks and financial institutions have not provided a true position on compliance with the requirements to put in place a primary or secondary data centre in Tanzania.”

In the recent years, Tanzania has strengthened regulatory oversight over banks following misconducts and increase in bad loans.

In December last year, the International Monetary Fund (IMF) said that around half of the local banks in Tanzania face the risk of insolvency.

Following solvency stress tests, IMF found that 22 out of Tanzania’s 45 banks will become undercapitalised in a tail risk scenario.

Additionally, the Central Bank of Tanzania has cancelled nine bank licences since 2017 to ensure stability.