The closure of Chase Bank on April 7, 2016 caught thousands by surprise and shook an already reeling banking sector.
Rumours of financial trouble hit a crescendo on social media after the bank restated its results, showing it had under-reported loans to directors and employees.
A bank run was triggered that soon meant the lender did not have enough cash to meet the demand for withdrawals. The Central Bank stepped in and shut the lender’s doors, hitting more than 50,000 depositors who had nearly Sh100 billion at the bank.
A year earlier, Chase Bank was a glittering organisation, with innovations that successfully targeted the youth and SMEs. Consultancy firm Deloitte had even named it the best company to work for in Kenya.
To help the bank reclaim this former glory, then-Kenya Commercial Bank Human Resource Director Paul Russo was appointed receiver manager on April 22, 2016, with the bank re-opening five days later.
Mr Russo had no idea what the journey to redeeming Chase Bank’s image would be like, but in a short four months, the lender has made plenty of positive progress, reporting transactions of Sh16 billion to date.
And as KCB handed over the bank to the Kenya Deposit Insurance Corporation (KDIC), Russo told Business Beat what it took to get Chase Bank to this point.
Below is an interview done five years ago with Mr Russo:
No bank has managed to come out of receivership in Kenya, yet Chase Bank seems to be on the road to making history. What has it been like getting here?
When Chase Bank went into receivership, Central Bank of Kenya (CBK) Governor Patrick Njoroge made a decision that the bank should be opened within five days.
So when we in KCB were made receiver managers on April 22, the first phase was to open the doors and allow depositors to withdraw up to Sh1 million. This happened on the morning of April 27. If your account had less than one million, you could access everything.
You know, when KDIC got in, they shut everything down. So we had to get in and reconfigure the system, and lock all other instruments of trade – no credit cards, no overdrafts, and so on. We also didn’t want people to withdraw foreign currency. The only thing the bank could transact was paying depositors the Sh1 million. And that’s what we did.
All branches were opened on day one and people were allowed to use ATMs. We planned for the worst-case scenario – that people would withdraw all their money.
If customers had withdrawn all the money up to Sh1 million, then Chase Bank would be dead now.
Luckily, customers did not do that. They only came and tested if indeed the bank was transacting by withdrawing a little money, especially through our Pesa Mfukoni outlets. When they didn’t withdraw, we knew we had a bank.
The second phase was to operationalise the bank, which meant boosting customer confidence and staff morale – making sure customers transact and staff are sure of their jobs. We were able to operationalise, and as a measure of success, three weeks ago, CBK gave us approval to take deposits and lend. We have also activated credit cards. As of now, we have seen about 5,000 accounts opened and Sh16 billion transacted.
The third phase was to invite an independent auditor to carry out a forensic investigation. The report of the investigation was to be presented to CBK and KDIC. This is what we call due diligence.
This is necessary because many stakeholders are interested in knowing if Chase Bank is still a viable brand, especially shareholders.
The due diligence was done by KPMG South Africa – KCB as receiver managers had nothing to do with it. The report was handed over to CBK last week, and the banking regulator will within the next 30 days determine who will own Chase Bank.
For us as KCB, our job of getting CBK out of receivership is done.
Is KCB still interested in making a bid for Chase Bank?
KCB will make a bid for Chase Bank. But like our CEO Joshua Oigara said, the process must be free and transparent. We shouldn’t be seen as having a conflict of interest.
People today say KCB has a conflict of interest, but no one said that when we were getting in to help the lender when it was placed under receivership.
If KCB moves out and Chase Bank is not ran correctly, then it means all the work that was done in reviving it will have gone to waste. Chase is a good business model, and anybody would be interested in it.
What does KDIC think about your role in the whole process?
I think KCB as receiver managers exceeded expectations, and KDIC is happy with that.
Normally, receiver managers last for 12 months. We as KCB have done what we set out to do within four months.
The acquisition part is different. Our management contract was clear: open the bank, transact, operationalise, facilitate due diligence, and hand over.
You came from being an HR director at KCB to receiver manager at Chase Bank. What was the transition like?
Personally, I believe the next cadre of CEOs will be HR directors. The future of leadership is about people. When you think of Chase’s reopening, it was mainly a behavioural science thing. It’s about customers and staff; it’s about leading in turbulent times.
I had to decode the behaviour of people and lead staff during tough times. I asked myself, what would a typical Kenyan want to see on April 27? They wanted to see their balances and how much they could withdraw.
Also, in my other career life, I led major transformational projects in KCB backrooms, working on assignments in different countries. I also have an MBA from Strathmore University, so I am an all-round competent manager.
How did Chase Bank employees receive KCB’s entry?
I think we should start by the way the announcement was received on social media. People used a word that has a negative connotation nowadays, saying KCB is Chase Bank’s ‘sponsor’.
We expected some resistance, but to our surprise, that did not happen. Maybe it is because of the way we approached them. But I think it was because Chasers [Chase Bank employees] wanted Chase Bank back. So there was no focus on KCB coming in; the focus was getting Chase Bank back on its feet.
Some international investors, among them DEG from Germany, Amethis from France and Swiss investment group responsAbility, threatened to go to court, claiming KCB was ignoring them in the day-to-day running of Chase Bank. These investors cumulatively own 20 per cent of the bank. How did you deal with them?
I have met these investors many times since I went to Chase Bank. The same investors have met Dr Njoroge almost on a monthly basis. As a matter of fact, he is meeting them during the hand-over of the forensic audit report. Due diligence was the right time to engage them, not during operationalisation.
Actually, in our contract, we shouldn’t engage with them. We should engage with KDIC and CBK only. We were doing the work for them since they were the owners of the bank, but they perceived that we were taking over. I don’t think they understood what we were doing. But when they meet the governor during due diligence, they will understand.
If KDIC had decided to shut down the bank, these investors would have really suffered.
The law capping interest rates has come into force just when CBK has given Chase Bank the approval to lend and take deposits. What do you think of this?
We think the law is very timely. The Chase brand is completely future-oriented. No other bank has smelt death and tasted it the way Chase Bank has done. This law comes when we already have shock absorbers. If Chase Bank can manage to come out of receivership, then it will definitely survive this law.
If you look at the interest rate Chase Bank offered before receivership, it was like 2 per cent above the current 14.5 per cent. So adjusting will be very easy, compared to other mid-tier banks that lend at 25 per cent to 30 per cent. We started capping our rates on September 1, 2016.