State moves to prevent run on banks

An arrest order was issued on Friday for eight top managers of two banks that risked depositors’ money.

The government also sought to assure depositors that their money was safe to avoid a massive run on banks.

Police Inspector-General Joseph Boinnet ordered the arrest of National Bank of Kenya directors. Those to be arrested included suspended managing director Boniface Biko, Mr George Jaba (chief credit officer), Mr Mohammed Abdalla (ICT director), and Mr Wycliffe Kivunira (acting chief finance officer).

He also ordered former Chase Bank chairman Zuffrullah Khan and managing director Duncan Kabui to be taken into custody.

“Following the announcement by the Governor of the Central Bank regarding unethical conduct by certain bank directors and managers, I have ordered the immediate arrest of the following persons or they must present themselves to the Directorate of Criminal Investigations before 3.30 pm today,” he said in a statement.

Mr Boinnet said police had also arrested a Mr David Mukunzi Zawadi for spreading false information on social media.

As the bankers were being locked up, National Treasury Cabinet Secretary Henry Rotich and Central Bank of Kenya Governor Patrick Njoroge yesterday assured depositors that the financial system was “fully sound and stable” and urged them not to panic.

Speaking after a crisis meeting with bank bosses, they said events that led to the failure of three banks, including Imperial and Dubai, were isolated and not contagious.

“The rest of the banks are sound. We will work closely with Central Bank to deal with any emerging challenges,” said Mr Rotich. He promised a quick resolution to the Chase Bank woes to allow customers access their money.

On Thursday Central Bank placed Chase Bank under receivership after it failed to honour its obligations due to liquidity problems. The bank irregularly lent Sh16.6 billion to individuals and firms, mostly insiders, putting billions of shillings of depositors’ money at risk.

The Kenya Deposit Insurance Corporation was named the receiver manager for 12 months.

The Central Bank governor said an assessment of banking shows it is stable and sound.

He blamed “malicious and inaccurate” information on social media for the run on bank that compelled him to place Chase Bank into receivership.

“If we didn’t have that push by social media, this would not have happened,” said Dr Njoroge.

“No bank in the world can survive a run on its deposits,” he said.

In Berlin, Germany, President Uhuru Kenyatta has supported the crackdown. He said the financial sector was not in crisis but needed cleaning up to rid it of non-complaint ones.

The President said Dr Njoroge was right to place struggling banks under receivership.

“I support the governor on this. He is saying we must strengthen and remove the weaknesses in the financial sector,” he said.