Chase Bank has been put into receivership since 2016 as “it was not able to meet its financial obligations,” according to Central Bank of Kenya. The receivership was expected to last for 12 months but it has stretched to date.
What is Receivership?
This is a process in which a receiver is appointed to run an enterprise. The receiver can be appointed by the bankruptcy court or by a government body to be responsible for the assets, right and property of the company declared bankrupt or that can no longer meet financial obligations. This process is introduced to protect the assets, business affairs of the company and liabilities with the ultimate aim of protecting the interests of creditors, depositors and the general public. It also functions to put back the enterprise or the bank into its original position before bankruptcy so it can carry out its normal business obligations.
Why Was Chase Bank Put Into Receivership?
According to Central Bank of Kenya, Chase Bank was placed under 12 months receivership in 2016 due to bad financial conditions.
During this period all 62 of Chase’s branches were shut down until new management was put in place. CBK noted that the bank was at that time experiencing severe liquidity and capital deficiencies, which raised concerns that it was not likely to meet its financial obligation and might close, prompting tensions among customers.
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Governor Patrick Njoroge also revealed that the rumours spread on social media played a significant role in the bank’s problems, as a flood of customers stomped the bank’s branches to withdraw their cash, and Chase could not deal with the withdrawals. The incident affected more than 50,000 depositors who had about Sh 1000 billion at the bank. As a result, the Bank was handed over KCB as its appointed Receiver Manager.
The CBK governor reassured people that the country’s banking system was not under threat even though Chase Bank was seemingly in turmoil. CBK announced the institution’s placement under the Kenya Deposit Insurance Corporation in a statement on Thursday and was posted at the bank branch window and also online.
Paul Njaga, the chief executive and deputy group MD, said their problem began last year due to their financial performance – the bank sank into a Sh742.80 million net loss from a profit of Sh2.31 billion in 2014.
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Chase Bank group MD Duncan Kabui and chairman Zafrullah Khan also had to resign as customers streamed in for their money. Customers were worried as they questioned what would happen to their money since the ban was shut down.
On the other hand, customers of Kenya’s Rafiki Bank – established by Chase Bank – were also concerned about what could happen to their money as Chase had gone into receivership.
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In a press conference, Central Bank Governor Patrick Ngugi Njoroge addressed the issue, explaining that Rafiki will not be affected by the recent development.
Recent Development On Chase Bank Receivership
After the shocking closure in 2016, Chase was reopened on April 7 the same year and handed over to KCB with CBK Director Paul Russo as the receiver manager. This was in a bid to help the bank restore its past excellent reputation. Fortunately, within a short period of time, the bank showed positive growth that suggested it was fast regaining its footing reporting transactions of whopping Sh16billion. At this point, KCB passed the custodial responsibility of Chase Bank management to KDIC.
KDIC assumed management control and conduct of the affairs and business of the institution licensed in 1996, following appropriate strategies to resolve the issue.
Through KDIC management, the bank has jumped bigger milestones thus far. One of its many achievements includes the receipt and acceptance of a binding offer by Kenyan Deposit Insurance Corporation KDIC and Central Bank of Kenya(CBK) regarding the bank. The offer which came from SBM Holdings Limited will surely enhance the current situation of the bank and help resolve its receivership for the benefit of depositors.
It is really tough for a bank to be stable after going into receivership, no doubt. But from indications, Chase Bank appears to be taking the right steps in the right direction. This, of course, will be written down in the history book if stability finally comes since no bank in Kenya has been saved after being put into receivership.
Note that Chase Bank is the third bank to be put into receivership in the last years. Imperial Bank experienced the same in October 2015 when CBK took control of it, handing its management over to the KDIC over “unsafe or unsound business conditions.” Dubai Bank is still under receivership after it was taken over on August 14, 2016.
How KCB Worked To Save Chase Bank Receivership
Chase Bank reopened five days after its shut down on the instruction of Central Bank of Kenya with KCB at the helm of management. KCB gave depositors free access to withdraw up to Sh1 million using ATMs and the depositors who had less than that were also allowed to withdraw everything they had. This was the only transaction that was going on at that time. One would expect everybody to rush in and get all their morning after the reopening, as luck had it customers were kind enough to leave their money knowing they are safe with the bank. This action kept the bank alive till date. KCB took another great step, blocking off some trade instruments like credit cards, withdrawal of foreign currencies, overdrafts, etc. Credit cards were later activated. With staff and customers faith in the bank restored, more accounts were being opened and that meant more cash. Also, the bank invited KPMG South Africa, an independent auditor, to carry out an unbiased investigation that would be passed on to CBK and KDIC to reassure the stakeholders that Chase Bank is still capable of surviving despite being in receivership. Although not out of receivership yet due to complicated resolution processes, Chase bank has shown that it will survive against all odds. The bank has proven that in no time it will restore its lost excellence.
Chase Bank Receivership – The Hope Of The Staff During This Period
KCB was only appointed as the legal Manager of Chase Bank in Receivership. This means the focus was to carry out the business as well as managing the assets and liabilities of the bank. Thus, the old staff of the bank continued in their roles and they have been assisting in the journey to resolving the troubles of the bank.