At the moment no bank has a capacity to pay more than 20 percent of deposits in a day or at once/CFM
NAIROBI, Kenya, Apr 7 – Central Bank of Kenya (CBK) Governor Patrick Njoroge now says mass withdrawals on Wednesday at Chase Bank following messages spread on social media, is what forced the regulator to place the institution under receivership
He says despite having billions in unpaid loans, the bank would still be operating, but could not sustain the business due to the panic withdrawals.
“Yesterday (Wednesday) I made a point that no one has a right to shout fire in a crowded theatre. But frankly this is what happened. You did have some individuals who actually shouted fire in a crowded theatre and to me, there is nothing that can be more reckless than that,” Njoroge said at a media briefing on Thursday.
He says no bank in the world can sustain operations with the kind of pressure Chase Bank faced “where everybody went to get their money at once.”
At the moment no bank has a capacity to pay more than 20 percent of deposits in a day or at once.
“No bank has the deposits ready 100 percent. So it is clear that if one of us made a horrendous statement, you can cause a run or a crisis; and that is what actually happened. The bank could not sustain the loss for a period of time,” the governor explained.
The regulator plans to pursue individuals who sent a WhatsApp message that indicated that Chase Bank was on its knees and ‘could close down any time soon due to huge loans.”
But going forward, CBK says it cannot predict on how social media will affect the financial sector to prevent such happenings adding it is a new phenomenon in the society that if not quickly managed maybe harmful to businesses.
“How would I have dealt with that issue differently? Frankly, that is a big one. I have no clue and if you have any, please let me know,” Njoroge says without saying exactly how much money was withdrawn.
But as the blame falls on social media, the CBK Governor was quick to note that social media was no being used as a scapegoat as poor credit mismanagement was the root cause of Chase Bank’s woes. The bank’s leadership could not explain the recovery of at least Sh16.6 billion in loans.
The bank invested Sh8.7 billion in real estate which after analysis, did not show any sign of bringing returns. Directors on the other hand, took another Sh1billion as insider unsecured loans while Sh6.9billion was invested in some of their personal entities.
After audit, Deloitte expressed gave what is termed as ‘qualified opinion’, raising concerns that the bank’s balance sheet was not clean.
Njoroge says they since then, CBK has been in close negotiations with the shareholders since March 23 on how to deal with the issue. However even as depositors took their money, the shareholders who left Central Bank of Kenya offices at 4am on Thursday, could not get a quick solution.
“The shareholders had room for manoeuvre and we had very high expectations on them to actually exploit that room. But in the end it did not work and I think that is the disappointment on their side.”
The bank is under 12 months statutory management and customers are unable to access their accounts henceforth, decision the CBK says, is meant to protect depositors, creditors and the general public.
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