Enforce tighter banking rules to restore faith in financial sector

The State Bank of Mauritius has finally signed off on the deal announced last October to acquire the good customers of the collapsed Chase Bank.

That will leave the Central Bank of Kenya (CBK) and the Kenya Deposit Insurance Corporation (KDIC) to deal with the directors and shareholders who precipitated the crisis of confidence that forced the bank into receivership in April 2016.

The 3,100 depositors whose Sh76 billion were locked in when Chase went under can breathe a sigh of relief after two years of a painful wait.

They will have sequenced access to 75 per cent of their money.

Access to the remainder will depend on how soon the CBK and KDIC can recover the funds tied to deposits and directors’ and shareholders’ assets.

ACQUISITION
All parties should by now have learnt hard lessons with the CBK and KDIC much wiser on how to deal with troubled banks.

In the yesteryears, the prescription was to shutdown and strip them of their assets to pay off liabilities. The latter-day cure is to inject life into them.

Dr Patrick Njoroge, the CBK governor, managed the difficult process that culminated in the acquisition of Chase by SBM — which entered Kenya’s commercial banking market by acquiring Fidelity Bank in May.

With combined deposits of over Sh62 billion from Chase and Fidelity, SBM now has $5.8 billion assets and a 20 per cent market share of advances and deposits in Mauritius, according to its website.

Its foreign footprint includes Kenya, Madagascar and India.

CUSTOMERS
Since the revival of the bank took longer than anticipated, the depositors lost more than Sh10 billion in interest income during the two-year moratorium.

Loss of access and use of the locked-up funds turned budding entrepreneurs into paupers, hounded out of business by debt and bounty hunters.

But as the depositors had remained helpless, trusting the CBK and KDIC to protect their rights by resolving the crisis, wheeler-dealers were busy trying to scuttle the deal, driven by greed and selfish interests.

Banking is under tight regulation but this needs to be tightened further, and stringently enforced, to prevent bank failures and restore public confidence in the sector.

Following the run on Chase, which came hot on the heels of Imperial and Dubai banks, depositors abandoned the small banks and trooped to the larger ones to hedge their risks.

The contagion of this shift in market power was deeply felt by small and medium enterprises that relied on the smaller banks.

CRIME
The sector suffered the worst turbulence since the late 1980s, when the government shutdown and merged nine financial institutions into the State outfit Consolidated Bank of Kenya.

Banks are important catalysts for deepening financial inclusion and underwrite economic opportunities.

But the sector is also a playground for crooks and pirates, who exploit lapses and weaknesses in regulation and supervision to strike.

The CBK is constantly fighting money laundering and suspicious transactions.

Such criminal activities put Kenya’s financial system at risk.

The challenge for CBK and KDIC is to be more hawk-eyed, to expel such predators from the market by enforcing the rules recommended by the Financial Action Task Force.

PARTNERSHIPS
Depositors should be protected with a realistic safety net scheme.

The deposit protection ceiling of Sh100,000 per customer, set when a deposit protection fund was established under the CBK in 1985, is no longer sufficient or relevant.

The KIDC, launched in May 2012, has a wider autonomous mandate to manage the insurance fund and rescue troubled banks.

The CBK also needs to encourage smaller banks to merge or seek partnerships to improve their position in the market.

Securing the banking sector is essential for a sound financial system that supports economic growth with equity.

Mr Warutere is a director of Mashariki Communications Ltd. [email protected]