Questions in SBM’s buyout of Chase Bank that need answers

When SBM Bank opened its doors on Monday this week with Sh57 billion deposits hived off from Chase Bank, the depositors of the troubled Chase Bank could only afford a passive smile. Finally, there was a ray of hope that the tribulations they went through for 28 months since Central Bank of Kenya placed Chase in receivership in April 2016 would come to an end.

But there was suspicion and bitterness in equal measure, about how protracted the process of SBM taking over the viable business of Chase was, even when it appeared like the crisis was being resolved quickly. It had its twists and turns, starting with the controversy over justification in placing Chase in receivership to stem a run on deposits.

CORRECTIVE ACTION

But even after justifying its action, CBK remains culpable for contributory negligence: It should have nipped the crisis before the bank hit a cliff. Crises don’t just happen. Signs of distress appear long before the fall, giving ample time for corrective action.

The banking sector is heavily regulated. The CBK’s bank supervision arm should have assessed the root cause of the problem and resolved non-performing loans, insider lending and boardroom battles by Chase directors. It really shouldn’t have been caught napping when the directors staged an internal coup that broke the proverbial camel’s back, forcing one of the fastest-growing banks into the protective arms of the Kenya Deposit Insurance Corporation.

SMALL DEPOSITORS

What followed was even more intriguing. With good intentions, presumably, CBK and KDIC brokered a deal with Kenya Commercial Bank that rescued Chase from plunging into the abyss. Chase resumed business within two weeks of its receivership and a depositor could access up to Sh1 million. Small depositors benefited from the deal but the large, mainly institutional, investors remained exposed and desperate.

CBK’s timeline was to have Chase out of receivership by March last year but goalposts shifted several times. Instead, CBK invited bids from investors to buy the bank and extended the receivership by six months. This was the beginning of another long process as depositors, unable to survive, fought to ward off creditors.

CHANGE TACK

CBK and KDIC were, in the meantime, engaged in court battles with Chase shareholders and directors whose assets were frozen over allegations of insider dealing and fraud.

What prompted the change of tack, very late in the day, was not convincingly explained. Depositors often claim that they were denied crucial information to which they were entitled.

A dozen investors expressed their interest but, when the bids were evaluated, only a few offers were considered viable.

The best bid was from SBM Holdings of Mauritius, through its subsidiary SBM Bank Kenya, while KCB dropped its interest on grounds of conflict of interest. As statutory manager, KCB had access to a lot of insider information that would have given it an undue advantage over its competitors.

INNOVATIVE APPROACH

When CBK and KDIC accepted SBM’s non-binding offer, the expectation was that all the pending processes would be expedited to have the suitor on board without further delay. That, again, didn’t happen and the six-month extension turned into another year of pain and sorrow for the depositors.

A firm offer was finally placed on the table in January this year but pending processes, including approvals from National Treasury Cabinet Secretary Henry Rotich and Competition Authority of Kenya derailed the takeover for another eight months. The rational expectation was that the authorities should have been ready to speed up the process.

Lessons from the Chase rescue plan will, no doubt, define how the authorities deal with banks in distress in future. The most important lesson is how CBK devised a proactive, innovative approach to resolve a major banking crisis.

UGLY ROADBLOCKS

However, depositors are more likely to remember the ugly roadblocks in their bid to recover their savings than the transformative process that turned SBM Kenya from a small outfit to one of the leading Kenyan banks overnight.

In the event of another crisis (hopefully there will be none), the public officials entrusted with resolving the problem should act in the public good. They should be conscious of the damage they cause — to depositors, the banking sector and the economy — by delaying critical decisions that can make or break the lives of innocent people.

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