ABSTRACT
Insolvency in the East African Community (EAC) is a common occurrence in the region. Since the last global financial crisis of 2007–2008, over 25 banks have been liquidated by Central Banks in Uganda, Kenya and Tanzania. In the last five years, over ten banks have been liquidated, including the recent high profile liquidations of Dubai Bank, Imperial Bank and Chase Bank in Kenya, Crane Bank in Uganda and a total of seven banks were liquidated by the Central Bank in Tanzania in 2018. These included the high-profile liquidations of Azannia Bank and Bank M, coupled with Covenant Bank, Kagera Farmers’ Co-operative Bank, Njombe Community Bank Ltd, Efatha Bank Ltd and Meru Community Bank Ltd. Regulation and supervision of commercial banks in these States is directed by the Central Banks. Corrective measures prescribed by banking laws and regulations in these Member States encompass optional and flexible remedial measures to be taken by Central Banks while dealing with financially struggling banks. However, these remedial measures are discretionary which risks permissiveness and laxity in supervisory and regulatory proficiency by the Central Banks. Very often, the preferred remedial measures taken by central banks do not consider the rescue of financially distressed banks with viable businesses, as the main priority. This chapter analyses the collapse of banks and financial institutions in Uganda, Kenya and Tanzania, three key Member States of the EAC. The causes and impact of bank insolvencies in these Member States’ upstream financial and banking sectors and the socio-economic underpinnings on consumer protection policies are analysed. The chapter begins with an historical overview of the banking revolution in these Member States following the 2007–2008 global financial crisis safeguards that were implemented by these countries to combat subsequent financial crises. This will be followed by an analysis of the factors that have inhibited the functionality of these safeguards, leading to a high number of bank insolvencies in these States. The chapter examines the role of the Central Banks in these Member States in regulating and supervising formal banking sectors, the remedial approaches taken while dealing with distressed banks, and whether such remedial approaches are attuned to bank rescue. The chapter concludes by suggesting a viable insolvency model that would combat bank insolvencies in these Member States.
