Category Archives: receiverships

Chase Bank to Reopen Part II

Since the announcement, more service have become available to the customers of Chase Bank that reopened. This past week, more services became available. Here’s a summary

Services That Have Resumed

Mfukoni (the bank’s mobile phone app)
ATM cards (but only at Chase Bank ATM’s)
Xpress branches (open from 10 a.m. to 6 p.m.)
RTGS outgoing and incoming
Foreign exchange (forex)
Inward and outward cheques
SWIFT transfers
Trade finance products
customer can repay existing loans to Chase Bank (in receivership)
New accounts can be opened
customer can get payments via mpesa paybil (mpesa to bank)
Withdrawals of up to Kshs 1 million (from every account)
SWIFT/ telegraphic transfers (money from foreign countries) (Edit)

Not Yet Back

No interest is accruing on funds in savings accounts
No new loans are being issued yet
Credit card services
Online card purchases/Point of Sale
Access to fixed deposit accounts (that have not yet matured)
Funds that were in transit on April 6 & 7 (the day the bank close – and it seems these are being dealt with an a case by case basis)
No new ATM cards and no Pin re-generation

Most info from the very active Chase Bank responses to customers via Twitter

As more services become available, the outcome of the bank from receivership, access to large deposits, the possible sale to new investor, the matter of insider loans taken by directors that led to the bank run and close are yet to be concluded.

EDIT: On August 15, Chase Bank announced that they had received approval to resume lending and taking long-term deposits.

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Chase Bank to Reopen

This morning, the Governor of the Central Bank announced that Chase Bank would soon reopen. This will be facilitated by KCB, and comes a day after unconfirmed reports that QNB of Qatar was poised to win the race to take over Chase.

KCB’s credentials as a strong bank with a solid brand, adequate human resources, and wide experience in the country, will facilitate safeguarding the interests of CBL’s depositors and creditors, and the wider public interest. CBK will continue to monitor closely developments in CBL. Accordingly:  All Chase Bank Ltd (In Receivership) branches will open by Wednesday, April 27, 2016. The online and mobile banking services will also become available. However, branches may initially offer limited banking services.

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Why Imperial Bank May Not Reopen – Part II

Now’s it’s out in the open. That is the story of the non-executive directors and shareholders at Imperial bank.At a press briefing today they broke free of a media blackout that was requested by the Central Bank (CBK) and the Kenya Deposit Insurance Corporation (KDIC) (the receiver manager of the bank), but which they now feel has been used to leak only one side of the story on the collapse of the bank.

Discovery: Governance rules exclude non executive directors from running the bank, so they are blindsided by the 13-year long fraud at Imperial.
CBK & PKF failed in their audit duties; PKF in their tests, and CBK in supervision and not responding to whistleblowers
(The late Managing Director) Janmohamed was friend & none could imagine the betrayal; that a disturbed man with weak managers destroyed the lives of Imperial Bank depositors

Reaction: From when they discovered fraud, the non-exec directors & shareholders have tried to protect Imperial bank depositors & bondholders
CBK & KDIC asked them not to speak, but we should have been more proactive in communicating with depositors and bondholders.

Recovery Plan: After discovery of the fraud, Imperial Bank directors took CBK a plan that called for recapitalization of the bank, recovery from wrongdoers, a payment of Kshs 1 million to all depositors and attracting a strategic investor within 12-18 months of reopening
When they presented the recovery to CBK/KDIC, Imperial Bank had good liquidity – ~Kshs 20 billion cash.

Way Forward: They, as shareholders (& associates) are ready to capitalize Imperial Bank, but only after a due diligence is done.
While directors have joined the bank suit against Janmohamed’s estate, they say KDIC is not pursuing all people involved in the fraud at the bank.
The CBK Governor is a principled man but his institution is being let down by dishonest people, a similar situation to what happened to them at Imperial.
They are unaware of what KDIC / CBK plan for the bank, and are concerned that Imperial Bank customer data has been shared with KCB and Diamond Trust banks.

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My take, is still the same as in Part I

The only way for Imperial Bank to survive is if it is bought out by a large, multi-national, or regional bank. That bank will have deep pockets and will have done its due diligence on the true value and exposure that Imperial Bank carries, and received a waiver of obligations above an agreed threshold and from additional liabilities, prior to their agreeing to buy the bank. And if such a deal happened, the new bank will want to take on the Imperial customers and business but erase all traces of the Imperial Bank name, forever.

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Imperial Bank Unlikely to Reopen

Last week, I watched some very moving clips of customers of Imperial Bank who lost their investments and life savings when the bank was closed on October 13, 2015. The Jeff Koinange Live TV show (part 1, 2, 3), featured three different depositors who spoke of their shock on getting the news and the impact that the last month has had on their families, businesses, and plans for the future.

#CountingtheLosses

The program featured Aleya Kassam who’s blogged about her lost money at Imperial Bank and two others, a businesswoman who runs a children’s home and a Nigerian businessman who lives and invests in Kenya. They also narrated tales of other people they know who lost colossal amounts (Kshs 30 million, Kshs 65 million, and even Kshs 500 million (~$4.9 million), some of who were retirees who had had all their life savings at Imperial bank

Jeff and the business lady had a light moment when they realized they had both been customers of Diners Bank which collapsed in the mid-1990’s and in which she lost Kshs 200,000 (a large amount then) that she never recovered. How cruel was it then that she was going to lose money in another collapsed bank that offered good rates and good services twenty years later, but which also collapsed?

You could see the depositors frustration with the process over the last month since the closure. They were at times angry with the Central Bank of Kenya Governor, the shareholders of Imperial Bank, the directors of Imperial Bank, the companies that took illegal loans from the bank, and the auditors of the bank. They kept asking how did Kshs 34 billion ($333 million) vanish in fifteen years and none of these regulators and guardians at the bank not realize something was amiss? How could they allow a bank to operate that even took in their money the day before it closed?

They were doubly frustrated on hearing of plans being formulated over the last month for the bank, with little involvement, or communication, to them as depositors. Why is the bank not open when the Governor said it would resume in a month? Why can’t the government allow controlled withdrawals by the ‘legitimate’ deposits and customers? Why has the (new) bank CEO not made a statement, and Is he even in the country or has he fled to Canada like the CEO of another large collapsed bank? Why has the Central bank not involved depositors in their talks with the shareholders and directors of the bank? Etc.

What’s been in the news seems to have taken the bank further back from reopening including revelations of “off the books” loans, some of which the takers have offered to partially return. The Kenya Deposit Insurance Corporation [KDIC], who insure all depositors up to Kshs 100,000 [$980], have asked customers to ignore fraudulent emails asking them to convert their deposits into shares at the bank in their desperation to get the bank reopened. There have also been stories of there being a Kshs 40 billion hole at the bank, and shareholders only offering a quarter of the amount, ~~while insisting that they want immunity before they place the money in.~~

Imperial Bank was an award-winning Kenyan bank

In addition the family of the former CEO, who’s widely blamed for the bank fraud, are now denying that he stole money, and shareholders of the bank also blaming the Central Bank for failing in its regulatory and oversight role at Imperial which won numerous awards for growth, finances, customer service and marketing. Shareholders of the bank want to sue the companies who had borrowed off the books, and depositors want to be included in cases as they also accused the government of being slow in reopening the bank and for being lax in oversight.

The outlook for Imperial Bank is not good. Even if the estimated Kshs 43 billion in ‘official’ loans, along with the Kshs 17 billion of government securities Imperial Bank had, and whatever amount is in ‘unofficial’ loans, are recalled and paid, the official amount owed to depositors is Kshs 60 billion. But the day the bank doors reopen, you can expect all the depositors to run to the bank to draw their funds in full. They will not be banking at Imperial in a week’s time and are unlikely to ever entrust their funds to the management or shareholders of the bank ever again. The same goes for other banks, and financial intermediaries, who rely on trust and confidence as a basis for banking relationships.

Kenyan bank depositors being administered by KDIC

The current issue of the East African compares the situation at Imperial to Trust Bank which was placed in receivership in 1998. It briefly reopened after depositors converted their funds into shares at the bank, then again shut down, this time permanently, in 2001 after finding it hard to win new business.

Correction: There has been no demand by shareholders for any immunity

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SME Lending in Kenya

The Central Bank of Kenya, Financial Sector Deepening Trust Kenya and the World Bank, have published a study on bank financing of Small and Medium Enterprises (SMEs) in Kenya ($1=Kshs 100). Excerpts

The total SME lending portfolio in December 2013 was estimated at Kshs. 332 billion, representing 23.4% of all banks’ total loan portfolio
Donor Support: Nearly all of the banks interviewed received some form of donor support or were in discussions with donors for support directly related to financing of SMEs. In several cases there were banks with support from as many as four donors at a time.
Limited Government Intervention: In 2010 The Government (though the Treasury) established a special SME scheme, called the MSE Fund, but since 2012 no new loans have been approved by the fund. According to Treasury, the scheme was discontinued because “the intention was not for the Government to lend, but to create an incentive for banks to engage with SMEs”. After only a year of the fund’s operation, banks started to lend more to SMEs from their own books, especially Equity Bank, and therefore Treasury did not see any reason for the continued operation of the fund. In addition to the MSE fund, the Government set up a Youth Fund and a Women Entrepreneur Fund, in which a number of banks are participating. The Government is also contemplating a partial credit guarantee for agricultural loans.
Courts Not Good at Dispute Resolution: Enforcement of secured claims appears to be slow and costly, affecting the cost of credit. It takes 4.5 years, costs 22% of the value of the debtor’s estate, and only yields 30% of what is owed
PE & VC’s: The majority of around 15–20 active private equity funds focused primarily on SMEs with a perceived financing gap of typically between US$50,000 and $5 million. The funds target deal sizes of around $1–3 million, which is still at the high-end of the SME segment and is therefore out of reach for most SMEs in Kenya. The venture capital industry is still nascent with about 10 venture capital type funds, but interest from international firms, as well as local ones, especially in the emerging ICT industry, has recently been on the increase. There are several incubators which have been set up to help build the pipeline for such deals, but the sector is still at an early stage of development
3 Kinds of Banks: Banks target the market segments they are most effectively able to service. There are 1. Corporate oriented (Barclays, CfC Stanbic, Standard Chartered) 2. Supply-chain oriented (BoA, Chase, DTB, Ecobank, FINA, I&M, NIC) 3. Micro-oriented (Co-op, Equity, Family, KCB, KREP, Jamii Bora)
Overdrafts are Bad: The most interesting finding from this analysis is arguably the central role played by overdrafts in SME lending in Kenya. While overdrafts can be useful to meet immediate liquidity needs and to avoid firms having to turn to informal lenders or shadow banking, a problem arises when firms use overdrafts to fund specific working capital or investment financing needs. Overdrafts tend to be very expensive and inefficient in addressing specific business funding needs. Banks, on the other hand, may have limited incentives to reduce firms’ reliance on overdrafts, as the overdrafts usually provide high profit margins. Nonetheless, during the interviews some bank managers confirmed that over-reliance on overdrafts can be a major hindrance to the development of SME finance in Kenya: overdrafts are a financial ‘black box’ because they do not reveal why firms are borrowing nor how the loans are used.
Interest Rates: The average annual interest rate is 20.6% for microenterprises, 18.5% for small enterprises, 17.4% for medium enterprises and 15.3% for large enterprises.
Potential 20 Million Credit Reports: As of 31 December 2014, a total of 5.2 million credit reports were requested by banks, compared with 2.3 million as of December 2012. Adding the information from the over 20 million registered mobile money/mobile financial services users would lead to a significant expansion of the underlying information base.

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Bankelele

Nairobi writer on Banking, Finance, Technology, and Investments

Category Archives: receiverships

Chase Bank to Reopen Part II

Chase Bank to Reopen

Why Imperial Bank May Not Reopen – Part II

Imperial Bank Unlikely to Reopen

SME Lending in Kenya