Chase Bank: Depositors, shareholders wait for information with bated breath

Depositors and shareholders of Chase Bank will have to wait longer to know the fate of the lender or to access their money. TEA GRAPHIC | NATION MEDIA GROUP 

By ALLAN OLINGO

In Summary

• The threat of a legal battle and the behind-the-scenes political wheeling-dealing by shareholders could add to the long wait for individuals, firms and organisations whose deposits have been stuck in the bank since it was placed under receivership in April.
• The EastAfrican has also seen documents showing concerted pressure from the diplomatic sphere, senior government officials, shareholders and depositors, painting a picture of political and legal undertones as players try to use all means to find a solution to the lender’s current state.
• For some depositors and shareholders, the lack of an absolute timeline and ‘dishonest’ statements from the Central Bank and KDIC over the Chase Bank transactions and depositors plight has seen them start questioning the way the bank’s eventual reopening has been handled.

Depositors and shareholders of Chase Bank will have to wait longer to know the fate of the lender or to access their money.

The threat of a legal battle and the behind-the-scenes political wheeling-dealing by shareholders could add to the long wait for individuals, firms and organisations whose deposits have been stuck in the bank since it was placed under receivership in April.

An invitation to depositors with large sums in the bank to attend a meeting with the Central Bank of Kenya Governor, Dr Patrick Njoroge, last Wednesday raised hopes of a solution. But they left with yet another promise: Dr Njoroge told them to wait until March next year when it is hoped the bank will come out of receivership.

During the meeting, admission to which was strictly by invitation to ensure only depositors attended, Dr Njoroge was said to have spoken of the “support and goodwill” the CBK had received from the lender’s stakeholders. This was in contrast to the case of another bank, Imperial Bank (also under receivership) whose shareholders are embroiled in legal battles with CBK.

But even as Dr Njoroge spoke of goodwill, a 21-day notice from shareholders demanding release of audit reports was due to expire in two days.

On November 4, the shareholder committee of Chase Bank sent a letter to the receiver manager, the Kenya Deposit Insurance Corporation (KDIC), demanding the two forensic audit reports done by Deloitte and KPMG South Africa.

The letter states that shareholders would seek legal redress if their demand was not met in 21 days. This deadline lapsed on Friday and it was not clear whether the shareholders would make good their threat.

The EastAfrican has also seen documents showing concerted pressure from the diplomatic sphere, senior government officials, shareholders and depositors, painting a picture of political and legal undertones as players try to use all means to find a solution to the lender’s current state.

No timelines

In their November 4 letter, the shareholders, having conducted a legal review of the KDIC role in the whole process, accuse KDIC and the Central Bank of usurping powers in their current management of the sale process, something that is said to be causing unease at CBK.

Sources say that the letter emanated from the cold treatment in early July that the shareholders received from CBK, after they were denied access to the terms of reference that CBK was relying on to invite bids for the bank’s sale and the KPMG forensic audit report.

It is understood that the KDIC board, chaired by Julius Kipng’etich, called for a meeting on November 8 to discuss among other issues the contents of the letter but the meeting was called off, without proper reasons being advanced.

For some depositors and shareholders, the lack of an absolute timeline and ‘dishonest’ statements from the Central Bank and KDIC over the Chase Bank transactions and depositors plight has seen them start questioning the way the bank’s eventual reopening has been handled.

KDIC has also been accused of failing to meet any of its timelines, with the latest being the KPMG forensic audit report it received on August 31 with a promise to act on it within 30 days. It was only at the depositors’ meeting with Dr Njoroge that he admitted that the auditors had been sent back to the bank’s books to add more information to their report.

The EastAfrican has learnt that KPMG was given till the end of next month to offer additional information about its due diligence report on the collapsed lender but this information hasn’t been officially shared with the shareholders or depositors.

On November 21, the shareholders’ committee, through another letter, shared with the Central Bank, Treasury, the interested diplomatic representatives and the KDIC, its proposal to reopen the bank.

Liquidation mentality

Some players have also started questioning the kind of the transaction KDIC and CBK are trying to push.

“The mentality in KDIC is liquidation, because they don’t understand the mentality of revival. Ideally, the governor would have accepted a proposal that would rope in an interested suitor agreeable to the shareholders and allow the bank to be opened as the latter does its due diligence. In 90 days, the report would be out and the transaction concluded. That’s how corporate financing transactions are done. You have to do post-entry transactions subject to conditions,” a source privy to the meetings with the lender said, adding that under section 43 of the KDIC act, one cannot do an exclusion of assets and liabilities and sell Chase Bank through a bidding process as that will amount to an illegality.

There is also the legal questions that are now arising over the process the CBK is trying to midwife and whether it is within its mandate as it is felt that the Central Bank is going overboard on this matter given that the KDIC board's role to do what the CBK is doing.

However, analysts note that the bank’s sale will be looked at as a rescue given the interest rate cap regime in the market that has seen interested Kenyan lenders’ margins squeezed.  

There is also the limited scope of CBK’s terms of reference in the sale of the bank which could leave the buyers putting in too many demands that could be detrimental to the rights of the depositors and shareholders.