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Anxious days and night before Chase Bank was ordered closed

COUNTIES
By Moses Michira | April 10th 2016
Chase Bank account holder attempting to withdraw money from an ATM after the bank was closed

Just before dawn on Thursday this week, a strenuous meeting at Chase Bank headquarters along Nairobi’s Riverside Drive ended with a painful resolution.

Top officials of the Central Bank of Kenya (CBK) present, ordered the bank closed.

In another hour, staff from the Kenya Deposit Insurance Corporation (KDCI) had been dispatched to Chase Bank’s 55 branches countrywide.

As the branch managers were arriving for the day, they were promptly asked to surrender the keys to KDIC officials who would then put up notices informing employees and customers that their bank had been closed. It was a difficult decision to make. In any case, the lender had won many accolades, including the best bank to work for in 2015, and top position in SME banking the year before.

CBK Governor Patrick Njoroge would later acknowledge the difficulties in a press briefing held Friday afternoon, considering two other commercial banks had been closed in less than nine months.

The time was 4am, precisely, and the only people who knew what had befallen the bank were its senior most managers, including the ex-BNP Paribas Bank strategist Paul Njaga, who had been appointed managing director just hours before.

Others were Dr Njoroge, who made the decision together with a few of his staff, the board of directors of Chase Bank, and external auditors from Deloitte & Touché, following proceeding from their office across the road from Nairobi School.

Intense bargaining

But the late-night date was only a culmination of days of intense bargaining by the bank’s directors pleading for some time to put their house in order.

In reality, though, they were praying for a miracle. None of that would happen. The directors were unable to meet the tough and elaborate demands put forward by the resolute CBK boss.

It all started on March 30, the regulatory deadline for banks to have their financial reports audited and approved by the CBK, before publication in newspapers.

On that Wednesday morning, Chase Bank directors were rushing to beat a funding deadline.

African Development Bank Regional Director Gabriel Negatu was Mr Njaga’s guest at the Villa Rosa Kempinski, the five-star hotel along Waiyaki Way.

The two were signing a Sh5 billion medium term loan that would be channeled as credit facilities to Small and Medium Enterprises (SMEs).

In any case, Chase Bank has fashioned itself as the preferred lender for SMEs while AfDB identifies that small businesses are the magic bullet that would lift the African population from poverty.

Njaga, who holds an MBA from the University of Manchester, UK, told his guest that “the partnership will support under-served clients”.

“The role of SMEs in economic growth cannot be over emphasised. SMEs provide more than 80 per cent of employment opportunities and account for about 45 per cent of GDP,” Mr Negatu said, before putting pen to paper.

But at the close of day Wednesday last week, the cash from AfDB had not hit Chase Bank’s accounts and time was fast running out. Hell broke loose. Before leaving the office for the day, the executives at Chase Bank, like all its peers, were regulatory-bound to have submitted their financial reports to media houses for publication in March 31 dailies.

It would have been easy to get away with the incomplete reports, which lacked an opinion from the auditors. March 31 is the tightest day for newspapers given that tens of companies try to beat the regulatory deadline to publish their financials.

With the benefit of hindsight, the executives were hoping that no one noticed the anomaly.

But there was more.

CBK officials were well aware of the financial crisis that 21-year old Chase Bank was struggling with, and was working with the directors behind the scenes to mend the gaping hole for days.

Capital deficiencies

Disbursement delays from AfDB sent the Chase Bank’s directors back to the drawing board, and on advice of senior managers, had to inject some cash to be in compliance.

The bank sent what would be false notifications that some new funding lines were opening up, and a significant size of cash was expected, anytime from then, self-reassuringly.

Back at CBK, the senior officials were closely following every step taken by the bank’s director to sort out the capital and liquidity deficiencies. CBK had been assured that the ‘super rich’ directors were putting together finances to salvage the situation. Fast forward to Tuesday this week. Audit firm Deloitte & Touché has pointed out serious reservations, mostly about the loan portfolio and the beneficiaries.

Chase Bank officials, emboldened by the supposed approval by the CBK of their fundraising plans, set out to publish what they believed was a closer representation of the financial report.

Auditors were, however, apprehensive of the level of disclosure by the Chase Bank managers and promptly raised their reservations in the report to be published in the Wednesday dailies. Immediately, word was out that things were not fine.

 

“...kindly ignore the statements making rounds on social media, as per CBK guidelines; your money is safe with us,” said the bank in one of the first assurances it posted on Twitter Tuesday evening.

The new results published on Wednesday bore a huge difference on the level of loans to insiders, who include directors and employees.

Compared to the results published six days earlier, the loans to insiders had swollen to more than Sh13.7 billion.

More than Sh8 billion had been understated in the previous report, but even the newer set was not accurate. The losses in the newer published results were significantly higher. As soon as the day broke and news of the restated accounts that had auditors’ disclaimer went out, anxious depositors suspended their day’s plan and rushed to withdraw their deposits held in Chase Bank.

Information that the bank was going under had gone viral, and tellers at Chase Bank were overwhelmed by panic withdrawals.

Several branches run out of cash, while efforts to fight the rumours via the bank’s social media accounts seemed to exacerbate an already fluid situation.

Customer care representatives on the other hand were literally swarmed with enquiries from anxious depositors.

“Good evening... all is well, that being the latest development, business will go on as usual,” the bank said in one post and in another, “Hello... we assure you that we are a strong, sound and transparent institution. We are here for you and we are here to stay.”

Chase Bank, the successor of United Bank which collapsed in the baking crisis of early 90s, was in a full-blown crisis. By the end of Wednesday, its vaults were literally empty.

Employees, including tellers were required to report to work at least 30 minutes earlier than usual, the following day. This would be the night a miracle was needed, really bad. While the workers had no idea of what to expect, losing their jobs was the remotest of their fears.

Pacifying depositors

Thousands of customers have withdrawn their money.

In that move, the bank had simply run out of resources to satisfy the daily cash requirements as proscribed by the CBK.

A quick intervention was required. CBK prevailed upon the chairman Zafrullah Khan and Managing Director Duncan Kubai to leave the bank, as if to pacify depositors and directors.

But then, these were also the same directors who were required to invest money. A very tough call; they were undesired but their cash was critical. The double-resignations early afternoon did little to stop the panic withdrawals.

But then, neither did the elevation of 51-year-old director Muthoni Kuria, to chairmanship, and Paul Njaga to group managing director from chief executive of the bank.

Chase Bank was betting on Ms Kuria’s experience as the managing director of Southern Credit Bank - owned by retired politician Simeon Nyachae.

At the end of Wednesday, it was clear that the bank was in a big mess and that the shareholders, including the disgraced chairman, needed to put in ‘a lot of money’, an insider told The Standard on Sunday.

Mr Khan, described as an avid golfer and Rotarian who founded the bank in 1995, could not believe he had just relinquished his hold at Chase Bank.

Insiders say it was his love, possibly after having been an employee at French-owned Bank Indosuez Group.

As Khan walked out of the bank he founded and built before destroying, according to CBK preliminary findings, a tense moment followed.

It would mark the start of the long meeting that culminated in the devastating decision to close the bank, and hand over its management to the KDIC.

On Thursday morning, after the KDIC officers had taken over control, other employees arrived to work as usual but were turned away at the door. Thousands of Chase’ customers had hoped to squeeze through the doors early Thursday and withdraw some funds. That was never to be.

Mr Khan is now a wanted man as the government, led by President Uhuru Kenyatta, stand behind Dr Njoroge to bring criminal charges against the founder and Mr Kabui – also a golfer and Formula One enthusiast.?

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