On Monday, October 9, the Central Bank of Kenya (CBK) issued a statement about their receipt of a non-binding offer from the SBM Holdings (State Bank of Mauritius – SBM) for parts of Chase Bank.
It came after another meeting last Friday to update Chase Bank depositors about the progress of the expression of interest (EOI) with depositors, and which was then followed by some news articles that prompted some alarm over the ‘loss’ of deposits at Chase from the SBM takeover.
The statement mentions SBM’s offer to acquire some assets (i.e. loans) that are matched (i.e. equal) to some liabilities (i.e. customer deposits at Chase) and went ahead to mention that there would be a substantial recovery of deposits and retention of staff and branches of Chase Bank.
The bank, which was expected to be a quick receivership, and concluded in April this year, now has a hole of Kshs 35 billion and the estimate is that SBM will support the recovery of 75% of the deposits as at when Chase Bank was closed in April 2016. One third of the funds will be available on January 1, another third will be available in a savings account that will earn interest (it was a sore point for depositors to hear that their funds in the bank that was known for great rates had not been earning interest since it was closed in April 2016), and a third will be available in installments over the next three years.
The final amount will be recovered by suits and fraud cases against the defaulters who may include directors and managers (insiders) at the bank.
— Central Bank Kenya (@CBKKenya) October 9, 2017
While CBK had earlier reported that 12 banks had replied to the EOI (three Kenyan banks, four foreign banks, and five financial consortiums), the standard quotes the CBK Governor, Dr. Patrick Njoroge, as saying “All the investors in the end indicated that they were not interested in taking up the bank, save for one who was only interested in carving out some assets and liabilities and not an entire acquisition.”
SBM has a substantial Government of Mauritius shareholding, and this will be the second bank that SBM is buying in Kenya, after they took over Fidelity Bank and one story is that their rescue of Fidelity was tied to some assurance that they would also get Chase, ahead of other bidders.
SBM will do due diligence on what branches and staff it wants to retain going forward. The Chase recovery seems similar to one that Imperial Bank shareholders had initially proposed when they found a hole at their bank – one of staggered access to funding, immediate, then some spaced over three years.
In a press conference this week the Central Bank of Kenya (CBK) governor spoke about non-performing assets i.e bad debts and highlighted manufacturing, real estate and, trade sectors.
This comes after the half-year 2017 bankers credit survey released by the CBK noted that the ratio of gross non-performing loans to gross loans increased from 9.5 percent in March 2017 to 9.91 percent in June 2017. The increase in the gross non-performing loans was mainly attributable to a challenging business environment
- Non-Performing Loans: Generally, the commercial banks expect an increase in the levels of NPLs in the third quarter of 2017 with 42 percent of the respondents indicating so. This expected rise in NPLs is attributed to the industry’s perception of increased political risk in light of the upcoming general elections.
- Credit Recovery Efforts: The banks expect to tighten their credit recovery efforts in eight out of the eleven sectors.
The Governor said that in manufacturing, the bulk of the Kshs 5 billion of bad debts increase could be attributed to a sugar company, two cement companies, and a plastics firm, while In real estate, Kshs 3.9 billion was due to two projects – one a golf course, and the other was a housing one. But he added that, for all of these projects, the banks that had financed them were working to resolve the loan performance.
On trade, he said that Kshs 2.8 billion increase of bad debt loans was spread across many banks and that a lot of it relates to delayed payments by government – both national and county ones – to suppliers.
— Central Bank Kenya (@CBKKenya) September 8, 2017
Imperial, Kenya’s 18th largest bank, was shut in October 2015 following revelations that only emerged after the sudden death the sudden death of Imperial’s group managing director (GMD), Abdulamek Janmohamed, in September 2015. The bank had assets of Kshs 56 billion and officially had about Kshs 47 billion of depositor funds as at December 2014.
Since the closure, thousands of small depositors have been paid off the but many wealthy depositors including the elderly, Italians and Asians families and business people still have tens of millions of shillings in deposits there – funds that they had placed for the high returns offered at the previously solid (apparently), fast-growing, business-friendly, and award-winning bank.
It appeared that the bank was headed for liquidation, but for a sudden change of plan and decision to salvage Imperial Bank three months ago. A new timetable was posted and the CBK Governor met depositors of the bank to reassure them of the new process, and they have been keeping track since.
— Lobby Group – IBL-IR (@lobbygroupiblke) September 4, 2017
The deadline for the EOI is September 29, three weeks away, after which short-listed investors will be invited to see confidential data on the bank. This is despite a long forensic audit and data mining process that was started after the GMD died, some results of which have been cited in court documents and media reports – and which paint a shocking picture about the tenure of Janmohamed and oversight by regulators at the CBK.
Proposals from the short-listed investors are expected in January 2018 for further discussions with a single preferred bidder in February along with other consultations with the shareholders, depositors, and creditors of Imperial Bank.
KPMG has been appointed as a transaction advisor for the Imperial Bank EOI as they also are in the Chase Bank one.
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.
— Lobby Group – IBL-IR (@lobbygroupiblke) June 29, 2017
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.