Central Bank of Kenya assures depositors as Imperial Bank woes spark panic

Imperial Bank’s head office in Westlands, Nairobi. (PHOTO: BEVERLYNE MUSILI/ STANDARD)

Panic hit the banking sector Wednesday after a list of some banks circulated on social media with claims that they could be closed a day after the collapse of Imperial Bank.

This prompted the Central Bank of Kenya (CBK) to issue a statement to calm fears of a run on commercial banks, which could have devastating outcomes for the sector.

A memo issued by the CBK to all banking chief executives and micro-finance institutions assuring them that their respective firms were safe. “It has, however, come to the attention of the CBK that there is erroneous information circulating in the social media purporting to identify banks that have failed to meet “certain thresholds,” said Governor Patrick Njoroge in a statement issued mid-morning.

A list purported to have been issued by the regulator detailing the commercial banks whose capital base was below Sh5 billion had been in circulation in social media platforms. It is feared that this list, which banking executives have contested, may have informed the depositors’ jitters and the subsequent mini-run.

“CBK wishes to assure the financial markets and members of the public that this information and the allegations therein are false.” It was clear that the statement was prompted by speculation on which lender could be taken over, with CBK announcing that it would work with the Kenya Bankers Association ... “to avert any speculation that may undermine market confidence.”

Twenty-two commercial banks were scheduled for closure, according to the list that banking executives and CBK have discredited, but which may have already caused damage and distress among lenders.

KBA was yesterday fighting the closure claims supposedly targeting half of the commercial banks.

However, KBA Chief Executive Officer Habil Olaka downplayed the panic withdrawals but conceded there was ‘some excitement’ about the false alarm.

“The assurance from CBK (on the safety of deposits) only confirms that it has control over the sector and is fully aware of the events in the market,” Olaka said.

The chairman of one of the small banks who sought to share his experience, but requested anonymity to avoid speculation, told The Standard the list was a false alarm as it contained the banks whose capitalisation was below Sh5 billion.

That amount, which would effectively raise the core capital requirements five-fold from the current Sh1 billion, had been proposed by the National Treasury but objected by the CBK, before the proposals were shot down in a debate by MPs.

It all started early morning when depositors started taking out their cash from their accounts over safety concerns, according to a top banking official, with the bigger banks being recipients of the funds.

Largest shareholder

Some banks also moved to assure their clients. “Our esteemed customers, CBK has issued a press release today assuring the public that the information going round on social media is false. Rest assured that First Community Bank is a stable Bank and we thank you for choosing FCB as your preferred financial partner,” FCB wrote to its customers.

Imperial Bank went under on Tuesday over what the CBK termed as serious unsafe and unsound business conditions. But as it would later emerge, it was actually the board of directors who had invited CBK to carry out the audit that prompted the closure.

Imperial Bank has had a change in the top management after the death of its former managing director Abdulmalek Janmohamed - who passed on less than a month ago. Apart from the replacement of the late Janmohamed on the board by Mr Naeem Shah, the other members have been retained under the chairman business mogul Alnashir Popat, who is also the single largest shareholder.

The late Janmohamed had been at the helm of the bank for 23 years, since its inception as as a Finance and Securities Company, before the firm was granted a commercial banking licence in 1996. Coming only weeks after the entry of Shah – formerly the head of credit, to the top office, violations that have led to the collapse may have started much earlier.

A banking analyst who talked to The Standard in confidence said the fact that it was directors who blew the whistle was in itself very telling of the magnitude of the problem that had afflicted their bank.

The Capital Markets Authority, which approved the bank’s corporate bond issue worth Sh2 billion, has denied any complacency, saying the directors and the professional firms involved in drafting the Information Memorandum would take responsibility for the accuracy of the data.