Avoiding crisis in Kenya.
Summary: A rash of recent bank failures has put customers on edge but could shape a resilient long-term banking sector
When annual reports began to come out last month, there were more than a few surprises. National Bank of Kenya (NBK) report a startling KES 1.2 billion loss in 2015, despite its previous report of record profits for the first nine months of the same. Top executives at the bank have been dismissed pending an internal audit.
Less than a week later, Chase Bank published two published two wildly different financial statements. The first statement understated staff loans and advances by KES 8 billion. The later report showed losses of KES 743 million. The subsequent panic amongst Chase Bank clients to withdraw their money before a bank failure led to a liquidity crunch and a swift move by the Central Bank of Kenya (CBK) to put the bank under receivership.
In both instances, lending policies have been cited to explain shaky performance (to see our poll on the subject, visit 'The View' on pg. 50). However on 7 April, President Uhuru Kenyatta gave a speech during a state visit in Germany in which he commended CBK Governor Patrick Njoroge's efforts to stabilise the banking sector.
"I am not worried about the banking sector. I support the Governor on this. He is saying we must strengthen [the sector] and remove the weaknesses," Kenyatta said. "I believe the governor is doing the best for the sector. The banks must follow the law. The cleaning up does not mean it is falling down. We must strengthen the financial sector as we move forward."
Since Njoroge became Governor in June 2015, two banks have gone into receivership--Chase Bank now and Imperial Bank in the fall--while one, Dubai Bank, was liquidated. The series of bank failures has led several-- including Parliamentarians that have demanded an investigation--to wonder openly if past CBK officials such as former Governor Njuguna Ndung'u were to blame. But others have pointed to the CBK's decision last year to increase its lending rates, causing banks to do the same and spurring a rise in non-performing loans.
In the meantime, the Central Bank has tried to calm fears and even admonished social media users, accusing enthusiastic Tweeters of causing the withdrawal panic that led to Chase's receivership.
"Chase Bank Ltd experienced liquidity difficulties following inaccurate social media reports and the stepping down of two of its directors," it said in a statement. "Consequently, it was not able to meet its financial obligations on 6 April 2016."
In a ratings review published on 15 April, Standard & Poor's reaffirmed Kenya's 'B+/B' sovereign ratings and stated that, "recent announcements on the administration of three smaller banking institutions indicate that pressures continue in the system, but we do not view these cases as systemically destabilising." It did however note that nearly 26 per cent of the banking system's assets are exposed to the Government, potentially increasing risk. Though Kenya's growth prospects remain strong, these factors combined with external debt and currency pressures led S&P to keep the country on a negative outlook.
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