Relief as Chase Bank depositors allowed to check balances

Relief as Chase Bank depositors allowed to check balances

After successful deliberations among technocrats in Central Bank and KCB, the customers of Chase Bank will heave a sigh of relief by being allowed to check their balances and receive an update on services that will be offered once it reopens.

The Sunday Nation has learnt that KCB formally took total control of the lender on Friday and has been testing branch systems in preparation for the reopening.

“CBK met with shareholders and the management of Chase on Thursday and Friday where agreements were signed to give us total control. The staff has also been recalled but the only changes expected are at top level management,” said a source at KCB.

Also being worked out is the complicated matter of how to pay bond holders who are owed Sh4.8 billion raised by the bank last year through the Nairobi Securities Exchange (NSE), which sources say contributed to the prevention of the outright acquisition of the mid-tier lender by KCB.

CBK has also been trying to recover Sh13.62 billion from Chase Bank shareholders that was lost through insider lending before the institution collapsed in order to give it adequate liquidity before Wednesday.

A rush by customers to withdraw their deposits was the reason why CBK placed the bank under receivership on April 6 as it could not sustain the liquidity pressure.

In the arrangement announced by CBK on Wednesday last week, the Kenya Deposit Insurance Corporation - which was the receiver manager - placed KCB as the manager of the bank with authority to carry out its business and manage its assets and liabilities.

During his weekly briefing CBK Governor Patrick Njoroge placed Sh1 million as the maximum amount depositors will be allowed to withdraw once the bank reopens.

However, 167,290 accounts (equivalent of 97 per cent of the accounts) have less than a million shillings saved, raising fears that the bank could face liquidity pressure when it reopens.

FINANCIAL MUSCLE

Speaking to the East African in an article published on Saturday, KCB Group Chief Executive Joshua Oigara said there were adequate stop gap measures in place to prevent a run on deposits.

“This is a very dynamic institution. It has been engaging its customers so the day Chase Bank reopens there will be no surprises,” he said.

“We have tried engaging with them and we understand the challenges. Chase Bank is a great relationship bank and we do believe that when it reopens we will actually get more deposits. I don’t expect a run on deposits.”

Although 97 per cent of customers had less than Sh1 million deposited at the bank before it collapsed, CBK said the number only represents 6 per cent of the total deposits, offering some relief to KCB. 

At the time it was placed under receivership Chase Bank had 170,000 depositors, 62 branches, Sh142 billion in assets and a 3 per cent market share.

By comparison KCB, which is the biggest bank in terms of capitalisation in the country, had Sh366 billion in assets and Sh276 billion worth of deposits at the end of the last financial year.

In this regard it is believed that it has financial muscle to sustain liquidity pressure from Chase Bank depositors.

BUYOUT PLAN

To a majority of the customers at Chase Bank, however, its reopening is expected to only offer some relief since a large percentage of its clientele were large volume depositors.

According to data from CBK, the bank had 27,000 SMEs, 431 non-profit organisations and 147,000 Saccos as its depositors.

The NSE and the Capital Markets Authority (CMA) are currently figuring out with CBK how to recover the bond owed to investors in order to allow a buyout.

“We are still in discussions with the Central Bank to see how we can secure positions with bondholders,” said Mr Geoffrey Odundo, chief executive of NSE.

“We need to put our heads together and look at the bigger issue. The survival of this bond is very important for the growth of this market.”