KENYA GOVERNMENT AMONG LOSERS IN CHASE BANK FALL AFTER PUMPING IN $2M FOR SMEs

Chase Bank customers outside a closed Mama Ngina Street branch in Nairobi after the lender was put under receivership by the Central Bank of Kenya on April 7, 2016.

The Kenya government is among lenders whose money, to the tune of $197 million, is locked up in Chase Bank, which was placed under receivership on Wednesday.

Also in limbo are some 55,000 depositors who had pumped over Ksh92 billion ($892.38 million) into the bank as at December 2015.

The East African has learnt that the government gave some Ksh202 million ($2 million) to the privately owned bank between 2010 and 2011 for on-lending to agribusiness and Small and Medium-sized Enterprises (SMEs).

Curiously, about a half of the amount was given directly by the National Treasury, which under the law should not be involved in dealings with private commercial banks except when settling third party obligations.

The other amount was given to the bank by the Youth Fund, which has been in the news over the loss of Ksh180 million ($1.8 million) for payments for work not done.

Treasury Cabinet Secretary Henry Rotich defended the deposit as normal, saying other banks with a focus on micro-businesses also benefited.
“There are several banks receiving on-lending loan facilities for agribusiness and SMEs, especially those banks who have banking models that reach micro business. Most of these facilities were provided in 2010 and 2011,” he told The EastAfrican.

The money lent to Chase Bank by the Treasury was to be repaid in 2020 at an interest rate of five per cent per year. The money from the Youth Fund was a soft loan, with no interest assigned.

Global institutional lenders, however, could bear the brunt of the closure, with recovery of $197 million now in doubt.

The government of France, Deutsche Bank Investment Fund, European Investment Bank (EIB), PTA Bank, Proparco and Shelter Afrique are jointly owed more than $100 million.

The CBK closed down the bank on Thursday last week and Governor Patrick Njoroge said he did not have a timeline on when the lender would be reopened.

“We don’t have a timeline on when Chase Bank will resume operations. It depends on shareholders’ capital injection. I have implored the shareholders of the bank to do a quick capital injection into the bank to allow its quick reopening,” said Dr Njoroge, adding that CBK and the shareholders had agreed on the amount and timeline. No agreement was reached on who would inject the money.

The closure of the bank followed a run on its deposits after it emerged on Wednesday that the bank’s management had restated the lender’s financial results showing it had under-reported insider loans by $80 million.

The restated financial results published showed that insider loans — money advanced to directors, shareholders, associates and employees of the bank — stood at $136.2 million last year against the $57.2 billion it reported on March 31.

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“The above statements and disclosures are extracts of the bank’s financials as audited by Deloitte and Touche and received a qualified opinion,” the bank said in the footnotes of its financials, meaning the information provided to auditors was limited in scope.

The bank’s shareholders include Amethis Finance, an Africa-focused debt and equity fund, Zurich-based ResponsAbility Global Microfinance Fund, and KfW, the German development-finance group.

Chase Bank chief executive Officer Paul Njaga did not answer calls to his mobile phone.

In July last year, GCR accorded an initial rating of A-(Stable) to Chase Bank Kenya in the long term and short term respectively, with the rating (s) are until May 2016.

In 2014, the bank strengthened its capital base through a rights issue which raised Ksh1.3 billion ($12.6 million) and retained earnings of Ksh2.3 billion ($22.3 million).

Consequently, its total capital and reserves grew by 47.8 per cent to Ksh11.1 billion ($107.66 million). CBK issued revised prudential guidelines in January 2014 that require banks to maintain an additional capital conservation buffer of 2.5 per cent effective January 2015. This effectively increased banks’ minimum regulatory capital requirement to 14.5 per cent from 12 per cent.

Chase had a total risk weighted capital adequacy ratio of 21.1 per cent during the first six months of 2015 compared with 15.3 per cent in 2014, which was well above the revised regulatory benchmark of 14.5 per cent.

In June 2015, Chase successfully concluded a Ksh3 billion bond issue (the bank’s first public offer).

The Ksh3 billion bond issue, with a green-shoe option of Ksh2 billion, was the first tranche (the balance will be issued within the next three years) of a Ksh10 billion ($96.99 million) 7-year Multicurrency Term Note Programme.

The debt issue had a 161 per cent subscription rate, raising Ksh4.8 billion ($46.55 million).

Consequently, Chase exercised the green-shoe option to take up the extra Ksh1.8 billion ($17.45 million).

The bank also raised a further Ksh1.6 billion ($15.51 million) through a rights issue concluded in June 2015 plus Ksh600 million ($5.81 million) from an increase in the employee share option programme.

A private placement anticipated to conclude by October 30, 2015 is expected to raise Ksh2.3 billion ($22.3 million).

The total proceeds from the capital raising exercises will be used to further strengthen the bank’s capital base, support growth and onward lending activities, and fund branch expansion, investments in IT and other product development initiatives.

The East African