A run on Chase Bank forced Central Bank of Kenya to immediately place Chase Bank under receivership to save it from further damage. It is understood that after rumours gained momentum yesterday after the bank sacked its chairman and MD, there were panic withdrawals and the management and CBK reasoned that if the bank opens today, the withdrawals would have become worse and left the bank penniless.
Am arm of Central Bank managers spent the better part of yesterday night at Chase Bank auditing its books and systems and by midnight found a number of suspect deals that put the bank’s operations into question. By 4am, CBK made a decision to close the bank and place it under receivership. “CBK never slept yesterday,” said a senior manager at the Central Bank. “We were worried by Chase Bank and had to comb it well and eventually we decided to act.”
CBK confirmed that Chase Bank had under-reported insider loans by a whopping Ksh8 billion as restated financial results showed. Insider loans — money advanced to directors, shareholders, associates and employees of a bank — stood at Ksh13.62 billion last year against the Ksh5.72 billion it reported on March 31. At Ksh13.6 billion, Chase Bank’s insiders effectively borrowed more than the lender’s total shareholder funds (equity), which stands at Ksh11.19 billion.
The CBK press release announcing the move was actually done at 4am this morning and posted on the CBK website first.The Central Bank of Kenya has appointed the Kenya Deposit Insurance Corporation (KDIC) as a receiver for Chase Bank Limited for a period of 12 months, less than 12 hours after CBK Governor Dr Patrick Njoroge exuded confidence in the bank.
See also: Management shake-up fueled bank’s collapse
CBK says appointment of KDIC as a receiver for Chase Bank Limited, which was issued with a banking licence in 1996, has been carried out in the interest of its depositors, creditors and members of the public.
The Kenya Deposit Insurance Act, 2012 requires CBK to appoint the KDIC as a receiver of a bank, if, among others, an unsafe or unsound condition to transact exists; a bank is likely to fail to meet its financial obligations; a bank has substantially insufficient capital or if there is a violation of any law or regulation.
Yesterday, Chase Bank announced that the chairman and Managing Director Zafrullah Khan and Duncan Kabui, respectively, had resigned after the surprise Ksh792 million loss for 2015, down from a profit of over Ksh4 billion the previous year. Mrs Muthoni Kuria was named board chairperson but Paul Njaga will continue as the chief executive officer.
Nope, I was at the conference by the CBK Governor. He did not “exude confidence” in the bank. Rather, he refused to comment on it saying, and rightly so, as a regulator he cannot start commenting on individually banks on such sensitive issues. He equated it to forcing a doctor to reveal his patients medical records, and promised to follow the low on Chase Bank should it the developing situation warrant it.