Category Archives: Chase Bank

Chase Bank Depositors Update

This morning, the Governor of the Central Bank met with depositors of Chase Bank. He reassured them that, even if the receivership process had been silent, they were his priority and that they were working as fast as they could to reopen the bank and give them full access to their deposits. He said there was a lot of support and goodwill (no one has sued him in this case, as has happened with other banks), and that the numbers at Chase Bank were not mysterious (unlike with other banks). He mentioned that they recovered Kshs 8 billion from directors within two weeks and that they were working to accelerated debt recovery and get non-performing loans performing.

He added that contrary to the perception that the bank should never have been placed under receivership other banks and that this has made investors lose faith in banking in Kenya, he said that other bankers tell him that the sector has gotten stronger, more stable and more credible as they believed it was important to clean up this sector and that laws were followed. He said that other countries were looking at Kenya and emulating actions e.g. Uganda, Tanzania, Mozambique.

Phase three of the receivership now commences, and in the next few weeks, they are inviting final expressions of interest to invest in Chase Bank for them to review. They want serious investors who will have the resources (no Mickey-Mouse, or Johnny-come-Lately ones) to support the bank and take it higher even after the receivership is lifted which should be sometime in Q1 2017. He hoped that matter is wrapped up by the time the first anniversary (Chase Bank was placed in receivership on April 6 2016) comes round, and that Chase Bank becomes a case study for bringing a bank out of receivership and sustaining it.

There were lots of question from shareholders, on asking for timelines for full restoration of the bank, payments of any other tranches (no plans for that), that they should get paid interest for the receivership period (he said he’d rather work towards them getting full access to their principal deposits and have any discussion of interest with the new investors).

He thanked KCB and the hard working staff of CBK, and mentioned that a KPMG audit of Chase was still ongoing. He thanked the customers for their support which he said was indicative of their belief in the bank. 13,000 new accounts have been opened since the receivership was lifted and only a tenth of what they expected was withdrawn when the bank was reopened.

Bad Debts in 2016

According to the Central Bank’s Q1 summary,  non–performing loans at commercial banks have increased this year by 15% to Kshs 171 billion in March 2016..Real estate sector recorded the highest increase over the quarter by 42% – attributable to slow uptake of housing units. apartment blockPersonal/household sector registered increases of 21% as a result of negative macroeconomic drivers such as job losses and delayed salaries. The manufacturing sector had an increase of 15% due to slow down in business leading to failure to generate enough cash flows to meet all financial obligations. Transport and communication, agriculture and mining and quarrying economic sectors registered decreases in non-perfomign loans between December 2015 and March 2016. 

Non-performing loans are still only about 6%, but the report also excluded Charterhouse, Chase and Imperial banks.

Bank Mergers & Musical Chairs in 2016

There’s a moratorium on new banks licences, but still a lot happening in the ownership suites.
Who’s In
  • Bank M (of Tanzania) has bought out and rebranded (the former) Oriental Commercial Bank.
  • Sidian Bank: Centum bought out and rebranded (the former) K-Rep bank.
  • Spire Bank: Mwalimu SACCO bought out and rebranded (the former) Equatorial Commercial  bank.
Who’s Hanging On
  • Chase bank now reopened, but yet to resume lending. An ownership decision  is expected soon (process being managed by KCB)
  • Credit bank:  Discussions are ongoing about a sale to  FEP Holdings
  • Imperial bank (assets will be assessed and managed by NIC bank)
Who’s on the Way Out
  • Dubai bank (proceeding into liquidation)
  • Giro bank which has been bought out by I&M bank.
  • edit The CFC brand as CFC Stanbic Bank and CFC Stanbic Holdings (i.e group) becomes Stanbic Bank Kenya and Stanbic Holdings PLC respectively  – this comes about nine years after their merger of CFC and Stanbic banks.

When Bankers own Banks

Managers and employees are often given a chance to become part owners in the banks. This ‘aligns their interests’ with the institutions and gives them an added incentive to help the institutions do better as it individually rewards them for the good performance. The incentives are usually facilitated through employee share option schemes (ESOP’s) which convey some tax benefits and discounted buying prices. Typically, in conventional ESOP’s,  there a general pool for all employees and another for senior managers.

The method of calculation and award of these benefits is done in secrecy, usually by board committees. This is to ensure the privacy of employees and security of their families, but one outcome is that any revelation of these perks sparks a lot of interest.  In fact, you sometimes find a higher level of disclosure of compensation practices at listed banks in Uganda and Rwanda, than you do with Kenyan ones.

Stanbic Uganda compensation guide

Consider these examples:

CBA: Shareholders include a ESOP who own 2.5%.

Chase Bank: Employees of the bank own  4.3% of Chase through an ESOP. Elsewhere a bonus to the former chairman was one of the deals that the auditors queried in 2015.

Cooperative Bank: Stories about shares to bank management and directors first surfaced in 2008, ahead of the IPO in which bank staff got 9% of the shares. and has been on twitter this year. The company’s accounts show that the CEO owns 2% and the bank links the story to a smear by a former CEO who has an ongoing tax case with the bank.

Equity Bank: CEO owns 4%, while an employee ESOP owns about 3%.

Jamii Bora:  The CEO own 1% and is also an investor in the largest shareholder of the company.

Family Bank: In 2011, shareholders voted in an ESOP for managers and a transfer of 1 % transfer of shares of the (then-new CEO , which he purchased at a discount as part of his employment package.

Housing Finance: Has has an ESOP since 2006 that’s open to  all employees: Eligible employees pay for the units by cash at a price determined by Trustees either in full or by instalments until price is paid in full. The Unit holder is not allowed to sell, transfer or otherwise dispose of Units registered in his name to another Unit holder or to any third-party whatsoever.

KCB:  When KCB CEO Joshua Oigara declared his wealth (assets of Kshs 350 million comprising land, buildings, motor vehicle, cash bank balances and shares) and salary (with allowances that totaled  Kshs 4.9 Million a month),  last year his statement added that  “..My public declaration is driven by the need for us as private sector players to initiate greater transparency. Kenya is bleeding from corruption mainly driven by secrecy in organizational operations..”

$1 – Kshs 101.

Reading the Tea Leaves at Chase Bank: Part II

Yesterday the directors of Chase Bank appeared before a parliamentary committee looking at the closure of the bank. They traced the events at their bank, back to the sudden close of Imperial Bank which was followed by a slow down in liquidity in the banking sector, and finally late disagreements with their audit firm – Deloitte on some items in their financial statements, including reconciliation of Islamic bank products.

 These Islamic loans were reclassified, at the auditors insistence as insider loans, and new sets of accounts were published in the newspapers, which the directors did not sign. Later, the same day, the Chairman and Group MD also said they were forced to resign. All this bad news coming out on one day precipitated a run on the bank.  There were also a few (in-camera)  sessions at parliament from which the media were barred.

This public spat between Chase and Deloitte all adds to what’s been an unusually busy news cycle for auditors and audits. Chase was big in Islamic banking, and in their 2015 memorandum to raise funds though a bond issue, the noted that they started Sharia compliant banking solutions in 2008 and these now amounted to 12% of  their customer deposits. KCB over Chase

This is close to the size of fully complaint Shariah banks like Gulf and First Community, and far larger than other more established banks who had ventured into Sharaih banking like KCB and Barclays.

Since reopening at the end of April, Chase Bank has opened its doors, apps, and platforms to its customers. In conjunction with KCB and the receiver manager at the Kenya Deposit Insurance Corporation they were able to avail funds to depositors. But the bank is yet to resume loans and lending – and that is the life blood of any bank.