We picked painful lessons from NYS scam, admits Family Bank

Mid-tier lender Family Bank has admitted that the National Youth Service (NYS) scam almost scuttled its 33-year journey in the financial space.

The bank, which was among 28 lenders believed to have handled NYS money from suspicious transactions, added that negative social media sentiments in addition to eroded confidence in Tier II and III banks caused a run on its deposits.

“There was a malicious attack. We would be lying if we told you that as a bank we slept that week... We had deposits flying out, especially people who were holding money on behalf of others,” said CEO David Thuku in response to a question on the rumours last year that the bank was shutting down.

He added that social media, the increasingly ‘expert opinion’ in Kenya, only served to worsen a situation that had already been made difficult by three banks being placed under receivership.

Between March and September 2016, customer deposits shrank by Sh12.4 billion, or 18.8 per cent, the bank’s financial statements show.

Speaking at a breakfast meeting with institutional clients, the CEO said SME customers helped stem the deposit run and restore confidence in the lender by talking to depositors in banking halls.

The bank now says the “painful” NYS scam that saw the Government lose at least Sh791 million has made it strengthen its systems, as well as audit the clients its serves.

“Quite significant amounts of money were deposited and withdrawn, and the bank should have picked up on this and reported it to the authorities. We have picked our lessons... painful lessons as an institution,” said Mr Thuku.

The bank was fined Sh1 million by the Central Bank of Kenya (CBK) and parted ways with nine of its employees following the scam.

According to Wilfred Kiboro, the bank’s chairman, the saga caught them flat-footed, but they now have proper mechanisms in place to seal any loopholes.

To prevent such occurrences in future, the management said it has invested in a transaction monitoring system that ensures swift identification and reporting of suspicious transactions, and sends real-time alerts to the head office for intervention.

“The bank has tightened policies and procedures around inward and outward transfers and withdrawals. We also reviewed authority levels in branches so that we have exceptions going to the right level,” said Thuku.

The bank is also doing a data clean up on its 1.5 million customers to understand depositors better, in addition to retraining its staff on money laundering laws.