How social media chased a bank into receivership

April 7, 2016
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A number of banks have faced closer scrutiny from the regulator
A number of banks have faced closer scrutiny from the regulator

, NAIROBI, Kenya, Apr 7 – By the time Central Bank Governor Dr. Patrick Njoroge was addressing the media on Wednesday, 6th April, he had already received the widely circulated WhatsApp messages saying Chase Bank was in trouble.

Although he declined to directly comment on the financial state of Chase Bank, he moved to calm the public by stating social media messages should be treated as rumours.

“You wouldn’t shout bomb in an airplane, would you?” he posed.

But it was too late. The plane was going down. Fast. Chase Bank customers were queuing in their numbers to withdraw money from different branches. The ‘rumours’ gained more traction as some customers claimed they were unable to access their money while others said the bank capped the amount to be withdrawn.

At Rafiki Microfinance Bank, a subsidiary of Chase Bank, a law firm holding Sh450M of clients’ money was told they could only withdraw Sh200,000. Sources claim nearly Sh6 billion had been withdrawn by the end of Wednesday.

Read: Why did it get to this? Chase Bank customers ask

To limit the damage, CBK appointed the Kenya Deposit Insurance Corporation (KDIC) as a receiver for Chase Bank Thursday morning. Affected staff say CBK officers were at the Chase Headquarters as early as 6am where they found the receivership notice pinned at the main entrance.

“Section 43 (2) of the Kenya Deposit Insurance Act, 2012 requires CBK to appoint KDIC as a receiver of a bank, if among others, an unsafe or unsound condition to transact exists; a bank is likely to fail to meet its financial obligations; a bank has substantially insufficient capital or if there is a violation of any law or regulation,”

It was clear Chase Bank would not meet its financial obligations if the massive withdrawals continued, and there were already red flags in the public domain that indicated Chase Bank might have violated regulations.

Read: 7 banks hold 80 percent of Kenya’s population cash

For instance, the bank issued two different 2015 financial results within a week. This usually happens when the first statement has glaring inaccuracies.

One of the major differences is how Chase Bank understated insider loans and advances by Sh8 billion. The first financial statement, which Deloitte indicated as qualified opinion (basically audited accounts that do not meet financial reporting standards), showed money advanced to directors, associates and staff stood at Sh5.72 billion.

However, the restated financial statement, published on 6th April, showed insider loans stood at Sh13 billion.

In a statement, CBK placed partial blame on social media which fuelled the massive withdrawals.

“Chase Bank Limited experienced liquidity difficulties, following inaccurate social media reports and the stepping down two of its directors. Consequently, it was not able to meet its financial obligations on April 6, 2016.”

The decision to place the bank under receivership comes a day after the appointment of Muthoni Kuria as the new board chairperson following resignations of long-serving Chairman Zafrullah Khan and Group Managing Director Duncan Kabui.

Chase Bank stated that Khan and Kabui stepped aside following the publication of the 2015 financial statements which reveal a significant jump of its non-performing loans from Sh3 billion to Sh11 billion.

A number of banks have faced closer scrutiny from the regulator resulting to the closure of Imperial Bank and the exit of the NBK Chief Executive Officer along with five senior managers.

More: Chase Bank now under receivership

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