KCB plans audit Chase Bank to establish its financial health

Receiver manager says aim is to expose cash holes and advise on the way forward.

Customer is seen at ATM at the Chase Bank head office branch in Nairobi on April 27, 2016 on the bank's reopening under the management of Kenya Commercial Bank. KCB and the Kenya Deposit Insurance Corporation plan to hire forensic auditors to conduct investigations into affairs at Chase Bank prior to its collapse. PHOTO | SALATON NJAU | NATION MEDIA GROUP 

In Summary

• Plans to stabilise Chase Bank’s operations were successful, resulting in resumption of key banking services and access to funds.
• Only depositors with balances of Sh1 million and below have full access to their cash.
• Chase Bank’s 57 branches re-opened on April 27 under the management of KCB, working with KDIC.
• In late April CBK seized Sh8 billion from disgraced Chase Bank directors who awarded themselves the hefty interest-free loans.

By BRIAN NGUGI
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KCB and the Kenya Deposit Insurance Corporation (KDIC) plan to hire forensic auditors to conduct investigations into affairs at Chase Bank prior to its collapse.
KCB Group chief executive Joshua Oigara says the auditors will look at the bank’s books to unearth financial holes and advise on its future.
“We will have a competitive process to select an independent auditor. That is between KDIC and us,” said Mr Oigara in an interview.
Mr Oigara spoke a month after Chase Bank’s reopening after being put under statutory management by the Central Bank. KCB was appointed the receiver manager of the lender on behalf of the corporation.
Mr Oigara said the planned comprehensive audit would give KCB, which has expressed interest in acquiring a majority stake of the bank, a clearer picture of Chase Bank’s financial health.
“We cannot make another move until we have a comprehensive review. I think that will be a very good way of assessing the business,” said Mr Oigara.
The KCB boss said plans to stabilise the lender’s operations had borne fruit, resulting in resumption of key banking services and access to funds by its small depositors.
The bank was placed under receivership after a run on deposits triggered by the ejection of two directors and restatement of accounts, which revealed huge non-performing loans.
FAIRLY GOOD SUCCESS
“We have had a fairly good success in the last one month. Initially we had a facility of Sh5 billion which we would pay depositors; so far we’ve been able to pay out close to Sh3 billion. We have seen in addition of Sh1 billion in deposits in this period,” said Mr Oigara.
Only depositors with balances of Sh1 million and below have full access to their cash, with Mr Oigara estimating that it will take “about 60 days” for the large depositors to know when they will access their money.
Chase Bank’s 57 branches re-opened on April 27 under the management of KCB, working with KDIC.
Mr Oigara said Chase Bank’s woes could be summed up as “gaps in oversight, governance and lending”.
Chase Bank’s flawed loan issuance system saw it lend billions of shillings unprocedurally in what nearly brought it down. CBK said the directors had awarded themselves 15-year interest-free loans under the guise of Islamic banking.
KCB has been verifying the collateral and documentation of existing advances. In late April CBK seized Sh8 billion from disgraced Chase Bank directors who awarded themselves the hefty interest-free loans.
KDIC has in the past turned to external forensic auditors to probe the books of troubled banks under its management.
Following the receivership of Imperial Bank, the Central Bank of Kenya hired an American consulting firm FTI Consulting to comb through the bank’s books, processes and governance system to unravel the “unsafe and unsound business conditions to transact business” that led to the closure of the mid-tier lender in October last year