Relief for depositors as KCB offers lifeline to troubled Chase Bank

Kenya Commercial Bank (KCB) will reopen Chase Bank by next Wednesday and grant full access to nearly 168,000 accounts.
Kenya’s largest bank beat eight other suitors in the bailout plans for Chase Bank that was presented to the Central Bank of Kenya. KCB plans to acquire a majority stake in the troubled lender.

It could turn out to be a major test for KCB, considering the anxiety among the depositors, who have been unable to access their cash since Chase Bank went under two weeks ago.

Central Bank Governor Patrick Njoroge (right) and Kenya Commercial Bank (KCB) boss Joshua Oigara shortly after addressing a press conference. KCB beat eight other suitors in the bailout plans for Chase Bank that was presented to the Central Bank of Kenya. (PHOTO:DAVID NJAAGA/ STANDARD)

“KCB offered us the best way of moving forward that would ensure Chase(Bank) is reopened in the shortest time possible,” Governor Patrick Njoroge said in a mid-morning press briefing yesterday.

Customers will be allowed withdrawals of up to Sh1 million, while the rest would be paid out in a structured manner when the bank reopens, on Wednesday or even before.

Major depositors including the 147 Savings and Credits Co-operatives, commonly known as Saccos, and 431 Non-Governmental Organanisations (NGOs) are believed to hold the bulk of the big deposits.

Kenya Railways and the UN Sacco, for instance, jointly have Sh1.6 billion in fixed-term deposits, and could be forced to wait much longer to access the bulk of their cash.

Institutional investors with huge cash reserves, who controlled more than 94 per cent of the total deposits, had opted for Chase Bank because it offered super returns, over 10 per cent per year, against the industry average of 8.02 per cent.

The decision to reopen Chase Bank will offer a major reprieve to its nearly 1,400 workers, most of who hold bank accounts with the employer, and like all other customers, had not accessed their funds since the bank closed its doors.

Lack of communication from the bank since the abrupt closure has devastated the workers, who could as well have been rendered jobless when the Kenya Deposit Insurance Corporation (KDIC), the receiver manager, moved in.

Only a skeleton staff including a handful of tellers had been recalled to work at the head office along Nairobi’s Riverside Drive by Monday this week, to receive loan repayments from walk-in customers. Those recalled have been working on alternate days.

Chase Bank employees we spoke to yesterday said they were elated by the decision to reopen their bank, which was last year voted the best company to work for.

Some were however apprehensive about a directive to reapply for their jobs once KCB moves in.
“I am delighted that the bank will reopen, but we are aware of some major redeployment,” an employee who requested anonymity told The Standard.

The temporary closure has also distressed thousands of individuals, businesses and institutions whose collective deposits worth Sh97 billion was inaccessible, with the precedent of collapsed banks never returning from the death bed compounding their apprehension.

Dr Njoroge was confident there will be no run on the bank once the institution reopens, citing that the choice of KCB as the buyer should eliminate any fears on the strength of its balance sheet and given its strong management.
“This is a very strong partner, and its entry should show that we can sort ourselves out when we have problems,” added the CBK Governor, hinting that the need to protect national pride could have been among the selection criterion.

Seven of the suitors were Kenyan institutions that included four commercial banks.
CBK refused to share the list of bidders citing confidentiality, even though a list of five suspected suitors is readily available.

Only KCB and mortgage provider Housing Finance have confirmed to The Standard that they had indeed expressed interest in taking over Chase Bank.

A leading commercial bank in Qatar, and a French multinational lender, many times bigger than KCB, are also said to be the other unsuccessful suitors.

KCB Group chief executive Joshua Oigara, who was present at Njoroge’s briefing, did not take any questions regarding the impending takeover and whether the company he leads was already making fundraising plans to pay for the stake.

Among the options available for KCB is to buy out the existing shareholders or inject fresh capital to dilute the existing shareholders.

Mr Oigara, according to the CBK, had committed to buy Chase Bank after carrying out full due diligence to determine the accuracy of the financial position- following the publication of two very different sets of financial results earlier this month. In one of the results, the loans given to two directors had been under-reported by Sh8 billion to raise questions about their legality and the accuracy of the other numbers.

Apart from the due diligence, Oigara would be taking the path that Zafrullah Khan – the founder and disgraced chairman of Chase Bank - embarked on 20 years ago after buying out another bank in receivership. Mr Khan, accused of destroying a bank he pulled from insolvency, paid Sh95 million to acquire United Bank, to become the only real success story in Kenya’s banking history.