I am an account holder with Family Bank and have been for some years. At the time of joining the bank, I considered several favourable factors.
Proximity of the bank’s Kikuyu branch and the open door policy of its branch managers as well as its mobile banking platform dubbed Pesa Pap which also made it easier to transact remotely.
So much so that I also convinced my investment group to also open its account there.
It was therefore with a sense of fear that I read the message doing the rounds on social media that the bank was facing imminent action from the Central Bank of Kenya.
Much in the same way such messages preceded the takeover of Chase Bank by the regulator, the implication here was that similar fate awaited the middle tier bank.
Indeed, the message urged account holders to withdraw their money from Family Bank before ‘disaster’ struck.
Clearly, the author of the message wanted to trigger what is called a bank run.
A run on the bank occurs when a large number of depositors with a bank rush to withdraw their money in the belief that it is not safe there and they might not be able to access it at a later date.
This happens when a bank is in financial trouble or is facing imminent takeover by the regulator.
However, no bank keeps all its money in cash.
While some of it is kept in cash to service daily operations, a good amount is invested elsewhere either in government securities or other assets.
Therefore as people rush to withdraw their deposits, the bank has to liquidate some of its assets to meet these obligations.
This could force the bank to sell assets at a loss, a situation that could see it face insolvency.
Even healthy banks can collapse when faced with such a run which is why it is very risky to rattle depositors with false news of a bank’s pending takeover.
In June 2014, criminals triggered a run on two of Bulgaria’s largest banks. Bulgaria is known to have well capitalised banks with plenty of liquidity and low risk.
Yet, owing to malicious rumours one bank had to be taken over by the regulator after depositors rushed to withdraw their money while the other had to be injected with liquidity.
In the end, the criminals who had spread the rumours on email and social media were arrested and prosecuted.
Family Bank’s numbers indicate a healthy, growing bank.
It has close to two million customers, is profitable and its liquidity ratios are even better now than they were last year.
Customer deposits are over Sh53billion, the loan book is at Sh58bn and its asset base is at Sh78bn.
And although profitability went down to Sh1.4bn in the nine months to 30 September 2016, this is well explained by a similar rise in expenses on interest at a time when interest rates skyrocketed and depositors demanded more returns on their cash.
The bank which also happens to the fourth largest in the country by branch network, last week reported even more impressive gains beyond brick and mortar banking.
Agency banking which pulled in Sh300million in deposits last year, saw this figure jump to over Sh1bn this year.
Deposits through its Pesa Pap mobile banking platform, tripled from Sh700m to over Sh3bn in just 8 months.
This contrasts sharply with the warnings on social media and perhaps indicates attempted subterfuge.
With the changing landscape, more banks coming under liquidity pressures due to new Banking laws, the recent push for consolidation in the sector, and the abolition of the requirements for local partnership for foreign investors seeking to own companies here, there is no shortage of entities who would be interested in getting a solid bank for less than market value.
While investigators said they arrested one lady in connection with the messages maligning Family Bank, there needs to be further probe to unearth the true culprits behind the attempted sabotage.
And once caught, they must be punished to the full extent of the law to prevent future attempts at wrecking businesses for whom public trust is key.