End of Chase Bank after SBM cherry-picks premium assets

SBM bank at Jubilee exchange in Kaunda street in Nairobi.This was on 6 October 2017.[Edward Kiplimo,Standard].

The State Bank of Mauritius (SBM) could emerge as the biggest deal-maker in Kenya following the 2015 banking crisis after it bags two lenders for a song.

Just after buying Fidelity Bank for Sh100 to get its skin in the game, the lender is about to cherry-pick the premium assets of small and medium enterprise lender Chase Bank, a move that would boost its assets by Sh57 billion.

“SBM is using Kenya to launch its sub-Saharan Africa strategy and Kenya to anchor its African operations,” CBK Governor Patrick Njoroge said yesterday.

But how did the second-largest lender in Mauritius cut such a good deal a second time?

When Chase Bank was put to the hammer for auction, 12 institutions expressed interest — three local banks, four foreign banks and a consortium of five financial institutions.

Société Générale, France’s third-largest bank by total assets and the sixth-largest in Europe, led the pack of the six investors that were finally given the greenlight to make a bid offer, along with South Africa’s First Rand and Stanbic Bank, and local lenders Kenya Commercial Bank and I&M Bank.

As talks went on behind the closed doors of CBK’s imposing building along Haille Sellasie Avenue, Nairobi, SBM broke ranks with the rest of the investors and declared it was out of the game. SBM said it would concentrate on its frail baby, Fidelity Bank, and grow organically instead of acquiring another struggling lender.

“We looked at it and did not see the immediate value,” Moses Harding, advisor to the Board of Directors SBM Holdings, told Weekend Business recently.

Central Bank of Kenya revealed yesterday that Chase Bank has a hole of Sh35 billion, part of which was Sh20 billion non-performing loans and has been loss making since it was put under receivership.

However, SBM had an ace up its sleeves, it had offered to buy only good loans and an equivalent value of deposits from Chase Bank.

LEAVE CHASE ILLIQUID

“All the investors in the end indicated that they were not interested in taking up the bank, save for one who was only interested in carving out some assets and liabilities and not an entire acquisition,” Dr Njoroge said.

This left the CBK with a tough call, especially as the end of the receivership drew near. With no viable option in place to sell the bank, CBK has decided to embrace the deal that will save depositors some pain and leave Chase Bank effectively illiquid, without staff and branches and on the way to be wound up.

According to details of the deal, SBM will take up 75 per cent of the Sh76 billion asset book held by Chase Bank.

“There is a mechanism in law that allows for separation and transfer so legally the deal is ok,” Njoroge said.

This means that Sh19 billion will be lost up to until CBK can file suits against the bank’s managers and owners to attach their assets and go after the borrowers who stopped paying after the bank was put under receivership.

Depositors will access part of their money off SBM counters from January next year after the transaction is concluded on December 31. About 180,000 new customers who deposited money in Chase Bank after it was placed under receivership will have full access to their Sh5.9 billion.

The rest of the 3,100 customers whose money was stuck with the ailing lender will have access to a quarter— Sh14.25 billion— which will be deposited in a current account.

Another Sh14.25 billion will be put in a savings account earning interest of seven per cent, which can either be withdrawn or saved up with the Mauritian lender. The rest of the Sh28.5 billion will be set aside as term deposits attracting seven per cent, and will be paid to the customers for a period of three years in tranches of Sh9.5 billion each.

“This could have an accelerated access if the bank does better, you will get your money sooner,” the Governor told depositors. SBM said they would not take up all employees of the failed lender or branches but will next week move in to vet staff and assess the outlets that it will be able to absorb.

“SBM indicated that it will take a maximum number of staff and branches but subject to due diligence,” Njoroge said.

At the height of its growth, Chase Bank was a rapidly growing commercial bank, operating 62 branches. What will be left of Chase Bank will be a shell with Sh19 billion of loans mostly unpaid. Shareholders and management deposits will be stuck in the insolvent shell as well as its creditors including bondholders.

“During the receivership, some people stopped servicing their loans. Large borrowers who had large deposits in the bank decided to stop making payments which led to the Sh20 billion of the Sh35 billion negative equity,” Dr Njoroge said.

“Are we letting them go? Certainly not, what we want is to quickly release depositors from this trap and then deal with the problem.” Njoroge added that contrary to widely circulated reports that he had sidelined shareholders of the bank, he had not but had continued engaging them on a simultaneous yet separate platform from the strategic investors.

FRAUD CASE

“The shareholders were given an opportunity to put in proposals, they were not shut out. However, they did not submit any expression of interest,” he said. Njoroge also added that it will pursue the assets of the owners in several small cases to recover value for 25 per cent shareholders.

He said that they had taken time to collect watertight forensic evidence but would not file an omnibus case, but rather small cases which would deliver maximum results without risking the whole fraud case over a technicality. Chase Bank is currently under frozen receivership after the period granted by the High Court expired.