Central Bank of Kenya has allowed Chase Bank to start extending loans, signalling a return to full recovery of the troubled bank. The loaning service is one of the critical business lines in banking business.
The bank has also started receiving fixed-term deposits, on the approval of the sector regulator.
The consent is a major endorsement to the recovery of the medium-sized lender, which was placed in receivership in April before KCB Bank was called in as an interim manager.
Receiver Manager Paul Russo said he had completed the stabilisation of the banking operations, paving the way for recapitalisation of the distressed lender, which could be entry of a strategic investor.
“We are in the final phase before successfully handing over,” he said, citing that confidence in the bank had been fully restored.
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Chase Bank has announced that more than Sh10 billion worth of inflows have been received since its re-opening, including new deposits from over 3,200 new customer accounts opened.
“I believe the reopening of Chase Bank is a case study for the banking sector not only in Africa but across the globe; not too many banks have survived a receivership and I am extremely happy that we have managed to achieve what many thought an impossible task,” reckoned Russo.
The lender has not extended any new loans, the main business in banking, since its management was taken over by the Kenya Deposit Insurance Corporation.
After the reopening at the end of April, it has only been open to cash withdrawals, accepting repayments on outstanding loans and receiving regular customer deposits.
Upon the reopening, customers were allowed cash withdrawals that was capped at Sh1 million, before the ceiling was gradually revised.
Anxious customers withdrew Sh1.6 billion in the first three days before the panic died down as a sense of normalcy prevailed.
But the resumption of the term deposits is the single largest step towards returning to normal operations as it is a source of predictable cash for onward lending. Ordinary deposits can be accessed by customers at any time, meaning banks cannot fully rely on them for loaning to borrowers.
Term deposits are also among the most lucrative investments for individual and corporate clients, often earning over 10 per cent on interest per year.
“By taking in new deposits at market rates, customers will have more lending opportunities while the generation of much-needed income to support the full recovery of Chase Bank will gain momentum;” said the receiver manager.
KDIC terms the resumption of the two business lines as a “major milestone” in the turnaround efforts of the bank after the resolution of the major issues, including irresponsible lending by the past management.
Mohamud Ahmed, the acting Chief Executive Officer of KDIC says the eminent revival of Chase Bank is “a landmark” case study for Kenya’s financial services.
He adds that there were critical lessons learnt from Chase Bank in mitigating possible failures and dealing with any future bank collapses.
“In the unlikely event of another failure, KDIC will resolve it promptly for the benefit of depositors, creditors and the general public. We are closely monitoring Chase Bank with a view to resuming full services,” said Ahmed.
The bank was placed under receivership by KDIC in April, with KCB Bank Kenya Ltd appointed as the Receiver Manager.
KCB recently announced it would soon finish its assignment, allowing the receivership process to move to the next phase of recapitalizing the bank and finding a strategic partner to acquire a majority stake.