An Illicit Affair – The Case of Chase Bank Kenya Limited

An Illicit Affair – The Case of Chase Bank Kenya Limited

It first started with Dubai Bank, then came Imperial Bank but who would have imagined that Chase Bank the pre-eminent Kenyan relationship bank would have been the next patient to be wheeled into the “ICU Emergency Room” by the Central Bank of Kenya (CBK).

Brand Positioning

For two years in a row, that is 2014 and 2015, Chase Bank has been honoured as the “Best Company To Work For in Kenya” by Deloitte. Having positioned itself as the one-stop SME bank of choice, by alluring and courting upto a million customers both in Kenya and the diaspora with very competitive financial products and suave marketing brand equity, she was no doubt the darling ‘light-skin’ of the banking sector.

It was the bank of choice for several investment clubs (chamas), young and upwardly mobile professionals who connected well with the vibrancy of the Chase brand as well as lawyers – what with the dazzling “Wakili Account” on offer.

Its e-banking and m-banking platforms were world class. Yet ironically, it is these same platforms that would later turn out to haunt the bank as they became the leading channel of capital flight precipitating a financial hemorrhage of a record Kshs 8 billion in a single day.

Cost of Non-Compliance

The CBK Prudential Guidelines allows a bank to lend internally to staff and directors a maximum of 25% of core capital. In the case of Chase Bank, the core capital is Kshs 11 Billion whereas the insider loans amounted to Kshs 13 Billion inferring that internal borrowing had skyrocketed to 118% of core capital. This is a gross contravention of the “Banking Marriage Act”(read CBK Prudential Guidelines). In fact, it is alleged that one director alone could have personally secured a Kshs 7 billionloan; approximately 64% of the entire bank’s core capital. It is such clandestine affairs” that are largely blamed for catalyzing the bank’s liquidity quagmire.

According to the provisions of International Accounting Standard No. 39 (IAS 39) Loans and receivables for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration, should be classified as available-for-sale.[IAS 39.9].

Corporate Governance, Ethics & Integrity – The Way Forward

In all the three banking crises that Kenya has witnessed in the past nine months have been dogged by boardroom wrangles that have ended up making these banks ungovernable and seeking the intervention of the CBK.

Going forward, it is going to be vital for the regulators both the Capital Markets Authority (CMA) and the Central Bank of Kenya (CBK) to do a fresh vetting of the management and directors of the boards of all the banks and financial institutions and disqualify those who are unfit to hold the fiduciary duties on behalf of the shareholders, depositors, customers and the public interest.

These managers and directors should then pay a visit to the Directorate of Criminal Investigations (DCI) along Kiambu Road” and seek clearance by obtaining a certificate of good conduct. They ought to equally renew their ethics clearance certificates from the EACC on an annual basis.

They should also annually file their individual returns as well as those of their spouses and immediate family members to both CBK and CMA detailing their financial dealings with the banks they represent in order to avert Kenya’s banking financial meltdown.