Kenya’s banking industry has suffered a confidence crisis following the collapse of three privately owned commercial banks in the last eight months.
The fall last week of Chase Bank, Kenya’s 12th largest bank valued at Ksh 93.6 billion ($1.04 billion), caught authorities unawares as regulators struggled to stem off a ripple effect that threatened to snowball into a banking crisis as wary depositors queued inside 10 other mid-tier privately owned lenders to withdraw all their money.
East Africa’s largest finance hub started wobbling last August when Dubai Bank, valued at Ksh2.92 billion ($34 million), collapsed followed closely in October by Imperial Bank which went down with Ksh.58 billion of depositors’ funds. The National Bank of Kenya
- a government controlled lender – is tottering as it fired its chairman, chief executive and three other executives for cooking financial books to present a rosy picture to shareholders.
The Central Bank of Kenya (CBK), which regulates financial institutions, is struggling to stabilise the country’s financial sector by setting aside a facility to cushion banks experiencing liquidity pressure.
Central Bank boss Patrick Njoroge, a Catholic monk of the Opus Dei order who was appointed last June to bring order to the sector, says the facility would be available “as long as necessary to return stability and confidence to the Kenyan financial sector. It will be sufficient for the institutions to stand. We don’t have an upper or lower limit.”
According to the Central Bank of Kenya, the East African nation has 42 commercial banks and one housing mortgage finance company. Out of the 43 institutions, 39 commercial banks and the mortgage institution are privately owned while the Kenya government holds controlling stakes in the remaining three commercial banks. Of the 39 privately owned banks and the mortgage financer, 25 are locally owned and 14 foreign.
The CBK boss now blames Kenya’s active social media users and insider lending by bank executives for the confidence crisis in the banking sector as President Uhuru Kenyatta attempted to cool depositors’ nerves.
“We will make sure we protect depositors’ money in all the banks,” President Kenyatta said as police swung into action arresting a blogger in Nairobi after accusing him of causing panic cash withdrawals from financial institutions by posting a list of shaky lenders.
But the Central Bank has also acknowledged that the umbilical cord tying the collapsed banks together is the malfeasance of rogue and greedy bank directors who secretly lent themselves billions of shillings of depositors’ funds, breaching banking regulations.
Police Inspector General Joseph Boinnet ordered the arrest of eight former executives of Chase Bank and National Bank who were taken in for questioning over insider lending practices.
It has emerged directors, shareholders, associates and employees of Chase Bank borrowed Ksh.16.6 billion Ω more than the bank’s Ksh11.9 billion shareholder equity, without proper securities, putting the funds of the bank’s 55 000 depositors – most of them small scale entrepreneurs – at risk.
Chase Bank executives chose to underreport the insider lending by Ksh8 billion thereby fooling regulators and the financial markets as to the bank’s health.
“We do see the pain of the people who do not have access to their money in their banks. Chase bank would have survived had directors returned the irregularly acquired loans,” said the CBK governor.
President Kenyatta has waded into the uncertainty in the financial sector saying the CBK boss has his full backing to clean up.