BoT suspension denies Yetu Microfinance 4bn/- deal

YETU Microfinance Bank’s suspension by the central bank has denied the pro-poor lender a chance to raise 4.0bn/- through a corporate bond on Mauritius’ Afrinex Exchange.

Thus, Afrinex Exchange which was supposed to start trading this week put the deal on hold until the pro-poor bank settle the matter with the Bank of Tanzania (BoT). Yetu Microfinance, Managing Director, Altemius Millinga said the money was meant to beef up the bank’s cash flow but was put on hold by Afrinex.

“Everything was read plus the prospectus and trading were supposed to be on, but BoT order halted the shilling bond issuance,” Mr Millinga told Daily News on Wednesday.

Yetu Microfinance Chief, who was suspended by BoT on Monday plus his board, said Afrinex has issued circular ‘suo moto’ based on information made public by the BoT. Though BoT put the bank under statutory administration due to capital inadequacy, their financials for quarter two showed the lender had a capital above the central bank requirement.

The bank’s capital slightly dropped from 6.89bn/- at the end of Q1 to 6.83bn/- in Q2. The central bank capital requirement is 5.0bn/-. Three years ago, Yetu got approval to raise 2.0bn/- through an initial public offer (IPO) to expand its footprint but failed to be executed due to the outbreak of Covid-19 pandemic.

“The quarter two financial was approved by the central bank…plus the provision of fund for bad debts…which reduced our capital,” Mr Millinga said.

On top of that the central bank between 2020 and this year made four examinations, including the latest in September neither holding exit meetings nor sending a single report to the board. “Key shareholders will hold a meeting to deliberate the next move…,” Mr Millinga said.

The Q2 financial results showed the balance with BoT declined from 70.5m/- to only 6.4m/- and balances with banks went from 136.8m/- to only 17.5m/-. “Unlike commercial banks microfinance banks are not obliged to provide a statutory minimum reserve against deposits,” he said: “Our customers are using NMB services for deposits. That does translate that we are an illiquid bank.” Alpha Capital Head of Research And Financials Analytics Imani Muhingo said “so the red flags are still NPLs and the cost-to-income ratio” but they have capital from the books.

“But we also have to consider the risk weight of their portfolio, with a third of the portfolio being sterile, the weighted risk assets may be much higher than the value we see on the balance sheet, which complicates the capital adequacy ratios.” Yetu Microfinance NPLs grew to 31 per cent at end of June, which is almost equivalent to the total deposits at the time considering a loan to deposits ratio of 343per cent. He also said NPLs led to a decline of interest income leading to the drastic rise of the cost-toincome ratio from 36 per cent to 87 per cent within a year.

BoT placed Yetu Microfinance Bank Plc under statutory administration on Monday after the bank failed to meet regulatory requirements regarding liquidity and capital adequacy.

“To permit Yetu Microfinance Bank to continue with banking operations while under the state of shortage of liquidity and under capitalisation is detrimental to the interest of depositors and poses a systemic risk to the stability of the financial system,” the central bank said in a statement.

However, Dar es Salaam Stock Exchange (DSE) issued a public notice saying: “Investors are advised to take note of [BoT] information when dealing with the securities of Yetu Microfinance Bank”. Yetu Microfinance shares closed the market at 510/- similar level since the beginning of the week. The lender has been issuing dividend since started operating five years ago.

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