Category Archives: CBK

Kenyan Mergers and Job Retention

This week the deal for Diamond Trust Bank to acquire Habib Bank was approved by regulatory authorities. The Central Bank of Kenya approval notes that Habib will acquire 4.18% of Diamond Trust (the 6th largest bank in the country) and that the transaction would be completed on August 1, 2017, when Habib Bank (the 33rd largest) will cease being a licensed bank, and all its depositors, borrowers, employees, and creditors will be transferred to Diamond Trust.

As is the norm these days for large M&A deals to be approved in Kenya and the COMESA trade zone of Africa, there is a focus on job retention for as many of employees, and that there be no layoffs, while some business will continue with existing partners in terms of sales, distribution, servicing, and licenses for a defined period of time after the deal.

  • The Competition Authority (CAK) has approved the Diamond Trust Habib deal “on condition that the acquirer, Diamond Trust Bank Kenya retains at least 41 employees of Habib Bank post transaction.” This is also seen in other recent deals approved by the Competition Authority:
  • Distell Holdings which became the majority owner of Kenya Wine Agencies Holdings East Africa earlier this year was required to “retain the 42 employees at the production unit of KWAL for at least three years,”
  • For the Coca Cola Beverages Africa purchase of Equator Bottlers (at Kisumu through Kretose Investment) “the merged entity retains at least 2,279 employees post transaction”
  • And approval of the acquisition of 57.7% of General Motors East Africa by Isuzu Motors has a “condition that the merged entity will absorb all of the 383 General Motors East Africa employees.”
  • Also, earlier, CAK, ordered listed banker I&M Holdings to retain 108 employees of Giro Commercial Bank, as a pre-condition for approval of the takeover.

Chase and Imperial Banks receivership updates

The last week of June was quite eventful for Chase and Imperial – two banks in receivership in Kenya.

First, former Chase Bank Chairman Zafrullah Khan was hauled before a court. He was charged with committing a Kshs 1.7 billion fraud at the bank and was then freed on bond after two nights in jail so he could travel to the US for medical treatment.

Mr Khan had appeared before Senior Principal Magistrate Martha Mutuku where he was charged with conspiring to defraud Chase Bank of nearly Sh1.7 billion besides three counts of stealing…
The court heard that Mr Khan had committed the offence of conspiring to defraud Chase Bank Sh1,683,000,000 by falsely pretending that the money had been disbursed to accounts of Carmelia Investments Limited, Cleopatra Holdings, Golden Azure Limited and Colnbrook Holdings as genuine loan facilities.

There were reports that seven other officials of the bank were being sought, but so far only Khan was charged.

On the same day that Khan was in court, Imperial Bank depositors had a meeting with the Governor of the Central Bank. It was quite a long session, after which they surprisingly endorsed support for the new turnaround plan at Imperial that was revealed last week. The despises of Chase have a had a long receivership period, and many of their large depositors still have not got the bulk of their savings and funds from the bank in the 21 months since the bank closed.

Kenya CMA drafts Sandbox Rules to test Bitcoin and other Fintech

Kenya’s Capital Markets Authority (CMA) has proposed rules to create a regulatory fintech sandbox for innovations which do not fit within the country’s current financial regulatory framework.

The proposed draft rules to enable the introduction and testing of financial technology (fintech) products such as peer to peer finance (crowd funding), cryptocurrencies, distributed ledger technology (blockchain technology), artificial (e.g. algorithmic trading), big-data, RegTech credit rating, online lenders, and online banks. 

They give a safe legal status and safe space to investors and developers to confidently test and unlock these unique financial innovations tailored for Kenyan consumers. The draft rules were drawn after consultation and in lines with rules in  Australia, Singapore, Abu Dhabi, Malaysia and UK as guides.

The fintech tools must be ready for testing in a live environment; this will allow them to be tested for defined periods of time and for them to be reviewed by peer groups who work with the CMA. Once companies apply to the CMA, they are to get decisions within 21 days, and at the conclusion, they are to give the CMA a report of their outcomes.

Also
• The CMA will have an annual fintech day that will feature all the sandbox participants.
• Participation in the sandbox can be revoked if a company does not do what it says it intended to, has a security breach, or harms the public, among others violations.

The sandbox rules aim to position Kenya as an investment destination of choice. CMA has in the past drafted rules on REIT’s, bonds and venture capital. Will these new fintech sandbox rules lead to more M-Pesa-like innovations? Will they enable the legal use of bitcoin in Kenya?  Review the rules (download)  and give the CMA feedback by July 26.

Kenya Bankers launch Cost of Credit Calculator

Last week, the Kenya Bankers Association (KBA) in conjunction with the Central Bank of Kenya launched the cost of credit loans calculator feature.

It is available on the KBA website and as an app (in the google store) and one important feature is that it allows borrowers to see the annual percentage rate (APR) – the true cost of a loan, which can vary greatly from the original loan interest rate that is advertised. It also enables customers to download repayment schedules and see the entire amount that has to be paid back to a bank (the total cost of credit).

Many loan customers pay their installment and get to what they consider the end of the loans only to find they owe a bit more. This is because they only go by the amortization rate (schedule of principal and interest) but leave out other charges and fees which are incurred in securing the loans – such as legal fees, insurance, government taxes and fees, valuation, security and other loan fees.

At the time of drawing a loan, there’s a temptation to forego paying many of these upfront, and ask the bank to add the myriad charges on to the loan – but these can add up over the duration of the loan.

This comes after an earlier attempt by the KBA to get all banks to price their loans around a single rate – the Kenya Bankers Reference Rate – KBRR. This was abandoned after interest rate caps law was passed in 2016.

Receiver to salvage Imperial Bank

Today the Receiver Manager of Imperial Bank, the Kenya Deposit Insurance Corporation and the Central Bank of Kenya issued a notice of, and a timeline for, the recovery of Imperial Bank.

This is a suprising about-turn from the perception for much of period since Imperial Bank was suddenly closed in October 2015, in which there appears to have been a leaning by the receiver-manager that Imperial was beyond recovery and that it should be liquidated. Today’s notice comes exactly a year after NIC Bank was appointed to liquidate Imperial bank assets and pay off Imperial’s depositors.


Now, the envisioned recovery process is similar to one being used for Chase Bank which is open, but still in receivership. Expressions of interest are invited from strategic investors. They will be evaluated and the short-listed ones will be given further confidential data to enable them to do due diligence and come up with formal offers that they will present to the to the receiver-manager to decide on. The process will take about a year.

This is a nice sign, but is it one that should have happened earlier? In the same period the fate of other troubled banks in the region has been concluded – in Uganda (Crane and Imperial) and in Rwanda (Crane, which was bought by Kenya’s CBA last week from DFCU of Uganda.