CBK’s in-tray full as analysis of Chase Bank data kicks off

The Central Bank of Kenya (CBK) will be an institution swamped with lots of data and analyses as circumstances in the banking sector slide from the frying pan to the real fire.

CBK’s work is cut out this week as a third lender slid into receivership with over 350,000 depositors in limbo and a Sh96 billion puzzle that the lender in partnership with the Kenya Deposit Insurance Corporation (KDIC) has to unravel.

The Chase Bank statistics, piled above the 5,700 depositors from the Imperial Bank whose deposits were more than a billion shillings before the bank went under, puts huge pressure on the regulator whose capacity seems to be already overstretched.

The depositors who were meant to have been paid by March have had a painful wait with more intrigues emerging from the forensic audit regarding the actual deposits.

MOVED TO COURT

CBK’s move to task the Kenya Commercial Bank and Diamond Trust Bank to pay all depositors with Sh1 million and below was met with litigation as shareholders moved to court for having been “left out”.

The case was recently ruled in favour of CBK allowing the forensic audit to continue.

In the Imperial Bank case alone, more than 700 accounts-of-interest have been isolated for scrutiny, with some of them connected to a few dozen related accounts.

While the initial expectation of the regulator was that there would be a few dozen accounts-of-interest to be scrutinised, CBK is gearing up to investigate some 22,520 high-priority transactions as well as about 1.2 Terabytes (TB) of electronic data.

The voluminous work is unprecedented in the banking industry scrutiny as the regulator said in a previous press release that the data would make a stack of 7,200 kilometres pile of papers if printed.

It is expected that the current team will make significant progress in the next three months.

SHARP SPOTLIGHT

Chase Bank’s sinking, which was rumoured largely in social media before it happened, now casts a spotlight on the over 40 lenders whose stability has not been put to question in the past.

With 43 banks as at August 2015, Kenya’s banking sector was praised for rapid growth and deepening financial inclusion with positive economic outlook also attributed to the robust banking environment. The big question remains whether the industry is still robust.

Three banks falling in nine months generates sufficient shockwaves in the industry dominated by a few banks but crowded by a dozen small lenders prone to liquidity freeze.

CBK revealed on Wednesday that the seven largest banks control some 80 per cent of the financial system’s cash.

That means the 36 banks in Kenya have been surviving on the remaining 20 per cent of deposits.

Chase Bank’s lack of sufficient deposits was the last straw that broke the lender’s back as customers, worried about the bank’s health, went on a withdrawal spree pulling out Sh8 billion in one day.

There is bound to be more panic in the market with all the collapsed lenders having hard audit reports that never pointed out any numbers that clearly turned out to be false save for the red flag by Deloitte over the Sh16.6 billion questionable lending captured on the audit report.

Chase Bank which was the latest to collapse had been honoured as the Best Company To Work For in Kenya by Deloitte in 2014 and 2015.

Less than a year before going under, Chase Bank launched the first tranche of its Sh10 billion seven-year multi-currency bond at the Nairobi Securities Exchange (NSE) after a successful listing in June.

The first tranche was expected to raise Sh3 billion but was oversubscribed by 61 per cent, netting Sh4.8 billion.

INVESTMENT AVENUE

Former Chase Bank chairman Zafrullah Khan said the listing would enhance the bond’s liquidity, while providing a good quality investment avenue for investors.

“The performance and listing not only highlights the confidence in the Chase brand, but also investor confidence in corporate bonds.

This is in line with the growth of alternative investment opportunities within the capital markets as outlined under the Vision 2030,” he said.

African Development Bank, which last week agreed to lend Chase $50 million for onward lending, was yet to disburse the funds by the time the bank fell under receivership.

Chase Bank was a favourite of investment groups and start-ups drawn by the promise of attractive interest returns on fixed deposits.

The lender had subsidiaries including the Islamic arm, Chaseimam, Rafiki Microfinance, Chase Assurance and its non-profit arm, the Chase Group Foundation.

With banking being among the favoured investment options in the stock market, it will be interesting to watch the bourse as deeper intrigues follow the new diagnosis of a healthy looking sector on the surface but a developed cancer from inside.

The scenario may also offer Kenya an opportunity to rein in the corporate impunity in the private sector, which has seen several listed firms sink with stakeholders’ investments.