In our previous brief on the subject, we discussed the rationale for the BoT’s takeover of banks
and financial institutions. We highlighted that the primary objective of supervision and regulation of financial institutions is, as provided by Section 5 of the Banking and Financial Institution Act, to “maintain the stability, safety and soundness of the financial system and to reduce the risk of loss to depositors.” We also pointed out that one of the tools that the BoT uses in its regulatory activities is to require banks and financial institutions maintain the minimum prescribed capital and liquidity ratios. If a bank fails to meet these ratios, and if it “operates in violation of any law or regulation or is engages in any unsafe or unsound practice that is likely to cause insolvency or substantial dissipation of assets or serious prejudice to the interests of depositors or the Deposit Insurance Fund”, the BoT may put it under statutory administration.
The BoT took these measures against Yetu Microfinance Bank in December 2022. We had suggested that one of the steps the BoT might take in the case of Yetu Microfinace Bank would be having its assets and liabilities acquired by another bank. Specifically, we noted,

Thus, the final resolution of administration procedures will depend on the BoT’s analysis. We have seen in practice some administration procedures leading to liquidation under the Depositor’s Insurance Board while others lead to mergers with other financial institutions. As for Yetu, we can only wait to see what the BoT decides. Our guess is that its assets might be acquired by existing commercial banks. Time will
On the 23rd of May 2023, the BoT announced the transfer of Yetu’s assets and liabilities to NMB. This is a compulsory acquisition by operation of law as provided for under Section 58(2)(h) of the Banking and Financial Institutions Act of 2006. This acquisition does not require any approval or consent from anyone, including the shareholders of the bank to be acquired.

Following this acquisition, we answer three important questions.

1. Why did the Bank decide to transfer the assets of Yetu Microfinance Bank?

Section 59(4) of the Banking and Financial Institutions Act directs the BoT to decide on the appropriate steps to be taken upon taking over a bank or financial institution. The Section requires the Bank, within ninety days after taking possession, to (a) determine whether to restructure, reorganize or liquidate the bank or financial institution; and (b) establish a plan of resolution based upon any combination of restructuring, reorganization or liquidation of the bank or financial institution that provides for expeditious resolution. It follows that the BoT analysis concluded that the transfer of assets and liabilities was the most feasible and expeditious resolution.

2. What happens to the Yetu Microfinance Bank?

The transfer of the then-existing assets and liabilities means that Yetu will no longer exist from the effective date of acquisition. Instead, all its assets, liabilities, and customers will now move to NMB and will be served as NMB customers and access banking services through NMB.

3. Why is this decision important?

The importance of this decision comes down to the need to protect depositors. Without the BoT intervention, Yetu depositors could lose all their deposits. This would have caused a significant loss and pain to those customers, the majority of whom are people of low income. Importantly, this decision has boosted confidence in the banking sector. Depositors of all other banks and financial institutions will remain confident that the BoT will always intervene to ensure their safety. And this gives them comfort to continue to trust banks and financial institutions.

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