Category Archives: Family Finance

Biggest Banking Stories of 2016

Some are carry-overs from 2015, but still having an impact on the banking sector in 2016 include:

1. The shutdown of Chase Bank in April 2016 came after a 24-hour period that started with a second set of 2014 financial accounts published in unclear circumstances in a newspaper, with different figures. Whether this was due to a reclassification of Shariah loans or (insider) director lending was never explained, but it accelerated an ongoing run of withdrawals and the Central Bank had to close the bank the next day. While it reopened a few weeks later with funding from the central bank (channeled through KCB), and depositors have been able to access some of their funds, the bank is not back to its full standing (it’s till not lending in full, and there’s a moratorium on depositors interest) and  new investors are being sought to enable the bank to stand on its own from April 2017.

2 Njomo Bill: In a rare bi-partisan move, usually reserved for their own salary raises, members of parliament rallied around to take on an even less popular target – that of super profit making, high-interest rate, banks with the Njomo bill. This was the latest attempt to rein in interest rates and the president surprisingly signed the bill, passing on a hot potato which was expected to lead to a slowdown in lending and make banks less attractive to investors.

3. Governor Patrick Njoroge at the Central Bank. Widely admired by the public for his no-nonsense enforcement & understanding of rules, supervision, austerity, and honestly to clean up the banking sector, but vilified in some circles for his unreasonable decision-making that has seen three banks close under his watch.

4. Last year Imperial Bank closure was a shock, and in 2016 the extent of the shell is still becoming clear through numerous court documents pitting the receivers, regulators, shareholders, some customers and even the family of the later managing director who engineered the fraud. But all that pained depositors want to know is, where is the money, how much money is there, and when will they get paid?

5. Lax government banking. From not following up whistleblowers on Family, Chase and Imperial, to a reluctance to act on South Sudan leaders. From double payments to government contractors, to county and national governments having dozens of banks accounts for inexplicable reasons. From a parastatal moving to a single signatory and withdrawing all its’ funds to pay a fictitious contract, and the funny banking of NYS money by Josephine Kabura at Family Bank. The anti-fraud / anti-money laundering/ anti-terror rules are  not being observed.

Banks React to Press

A couple of banks are in the news and are trying to put back some bad news.

Family Bank (No. 14 by assets) had been mentioned adversely at  parliamentary hearing s over the manner in which they handled accounts through which money frofamily-bank-statementm the National Youth Service was withdrawn. Related to that have been stories that the Central Bank of Kenya has recommended prosecution of several bank staff who oversaw these accounts. The bank has put out a vague statement on Facebook responding to the allegations and highlighting its strengths and management.

Another bank, Prime Bank (No. 18 by assets) is in the news after its Chairman was reported to be the second largest shareholder of Crane Bank in Uganda which was taken over last month The Bank first put out a statement noting that it has no links, facilities or exposure with Crane Bank in Uganda.

prime-bank-statementThere have since been more social media messages (WhatsApp and Twitter) including one claiming that some prominent customers had withdrawn cash from the bank in panic.

The bank has now put out a second statement clarifying that the people named as large depositors are in fact not customers at their bank and that they have lodged  complaint with the Central Bank and CID, asking them to investigate the source of the rumours.

Its’ difficult for banks to respond to such rumours, but they have to considering they can have an impact on liquify at the bank, even if they are not factual. The communication does not have to be online, but through reassurance to key depositors, customers and the regulators.

 

Kabura’s Peculiar Banking Habits

Last week Josephine Kabura got to testify about her banking transactions before a televised Parliamentary Accounts Committee (PAC) hearing of an ongoing investigation of the National Youth Service (NYS), and she made some rather startling claims about having tens of millions of shillings from the NYS deposited into her company accounts which she instantly withdrew in cash to pay her suppliers. But in the absence of closed-circuit television (CCTV) footage, which banks typically don’t keep for too long (the security companies erase them over if there are no security incidents), the documentation and bank rules covering cash handling risks, fraud, and money-laundering simply don’t support these claims.

While MP’s asked her about the physical improbability and difficulty of her carrying that money out of the bank (sums of Kshs 40 million in paper bags) to go pay suppliers at a quarry, the possibility of this is unlikely. A vault at an obscure bank branch is unlikely to have more than Kshs 10 million shillings sitting around. Banks allocate money to branches based on their usage (average daily deposits and withdrawals) and it is unlikely that such amounts of money in paper currency would ever sit idly around as there are insurance and cash handling costs and risks. 

Kabura testifies at PAC (pic from Standard)

Kabura testifies at PAC (pic from Standard)

Within the bank, risks managers and systems would have noticed patterns in her company accounts, previously empty, and now suddenly receiving millions of shillings per day, that she immediately withdrew in cash. Also when someone tries to send, transfer, or withdraw over $10,000 i.e. ~Kshs 1 million, it triggers an extra form at the bank that must be filled out and later sent to the Central Bank explaining the purpose of the transaction. Usually, the head office of a bank will ask for extra documentation, such as invoices or contracts to support the processing of such a transaction. A similar case with suspicious payments received from the Youth Enterprise Development Fund at Chase Bank showed how such account activity triggered alarm bells within a bank and subsequently with the regulators.

When Kshs 100 million is wired to your bank, it does not mean that Kshs 100 million magically appears at your bank branch to be withdrawn as cash. At any branch, the tellers and cash managers have limits of cash they can handle or approve at any given time. They have to get approval, or witnesses to do larger transactions and those are in exceptional requests. Bank systems are set up not to allow suspicious transactions that exceed pre-set limits and daily thresholds.

For more money to be allocated to a bank branch, a top decision would have to be made by bank directors to allocate and transport more money to serve the enhanced needs of customers at a particular branch. But it is more probable that such a customer would be “upgraded” and transferred to another branch for premium customers with better security and with higher cash limits. Such a customer would also be assigned a relationship manager to help them manage their liquidity (in this case – Kshs 1.6 billion in 14 months) even better and cross-sell them other bank products.

It is more probably, as MP Abdikadir Aden, postulated at the PAC hearing, that the cash was never really there. When large sums were wired in, withdrawal transactions were initiated to show that cash was being withdrawn, but that the reality was that, simultaneously, other transfers were done and cash deposit slips were filled in to reflect cash deposits for the exact same amounts, into other accounts, a few minutes later.

Finally, earlier this year, the Central Bank issued new rules that further restricted deposit or withdrawal of cash. Could this have been due to the same Kabura activities that happened over a year before?

Banks that Serve Blackberry Apps

I am a Blackberry (BB) user. It’s been a struggle to keep up with the world as not many new apps are being created or updated for Blackberry.  While the number of BB users has flat-lined, many remain loyal, and tied to their devices.

They also appreciate the platform and new apps that improve the phone experience. The app world today is considered to be either Android (Google) or iPhone (apple)  – and  developers and institutions are primarily making apps in this two formats only. So it’s nice to see a few banks still coming up working apps for with Blackberry, and the BB10 (platform). Here are a few:

IMG_20160506_203327Chase Bank (Mfukoni): Chase customers always rave about Mfukoni online. But starting the BB10 app starts with a somewhat sinister request for loads of data, even to open and run the app. This includes a request to connect with, and invite other BBM users, location data, shared files, calendar contacts, camera, SMS , email & PIN messages etc. If you decline, you can’t do things like search for branches or ATM’s without enabling location settings.  Once connected, It seems you can open accounts,  view products (youth current, women accounts, etc), request insurance, and ATM cards.  But it has a few dead menus too.

Co-Op (MCo-Op  Cash): From the start you can log in or do self registration. You really can’t browse the products, or see how rich the app experience is for customers until you first register. But this is an easy process, that does not require much information – just your name, telephone number,  national ID number, birth date, and your existing account number (if you’re already a Co-op customer).

Family Bank (Pesapap): The app also starts with a request for lots of information like the Mfukoni one. So, once agin, it wants to access your camera, device information, location data, microphone, text. email & PIN messages, calendar, and contacts. Later, you can log-in, request for cards, get locations of branches & ATM’s, but while it only took a few MB to install, it sometimes kicks you out, with a warning that your phone needs more memory.

Sidian (Vibe): It’s nimble, light, and not intrusive, with good navigation and responses. It has a  menu that you can jump back to, sending you back to the main menu if you cancel (e.g if you’re checking out a service that requires you be registered / or you don’t have an account).

Self-registration, and signing in is simple, and you only have to enter you user name (usually your mobile phone number) and a PIN. Even from the outside, you get to see a lot of what account holders can do – merchants, ticket sasa, you can search for branches and ATM’s , and they show up on a map, after which you can enter a starting point (in lieu of it pulling your phone location data) and it will give you driving directions, and even traffic information enroute, (Google has activated for Nairobi). It has the crucial m-pesa link (bank account to m-pesa, and m-pesa to bank account) and if you click to contact the bank. one click call the bank, or creates an email message to the bank.

Bank of Africa (BMobile): Also asks for the voluminous info as some of the other apps, but you can bypass that request. Once you get to the products, the navigation is not very good as the menus are limited, but if you get stuck there’s a home button which takes you right back to the start. It also has a few dead menus like the debit and credit card types.

Funding Youth & Women Enterprises In Kenya

Today, it became news that the government would no longer extends funds to  youth and women  programs. So far, the government has distributed more than Kshs 10 billion (~$10 million) to youths and Kshs 7 billion (~$70 million) to women.

Chase Bank Youth & Women FundsThe ending was not really new as a previous report released by the Central Bank of Kenya in 2015 noted that “the intention was not for the Government to lend, but to create an incentive for banks to engage with SMEs”.  Chase Bank Youth and Women Funds

Looking at financial results of two banks that had bond issues in 2015, and for which they released detailed information memorandums (IM’s), these show the flat or declining status of the youth and women fund programs. Both Chase, and Family, banks were intermediaries in the incentives by the Youth Enterprise Fund and the Women Enterprise Fund to advance funds to the respective target groups.

Family Bank Youth & Women FundsThat does not mean that the Kenya government has stopped supporting entrepreneurs in the sectors, as there’s now the Access to Government Procurement Opportunities (AGPO) initiative under which the government aims to allow 30% procurement contracts to be given to the youth, women and persons with disability without competition from established firms.