to agree with the management on
how to account for some monies lent
to the notorious Kenyan real estate.
There is also a mention of insider and
staff loans with staggering amounts
well beyond regulatory limits.
Accounting records are basically
historical. What they tell you may
be absolutely true but completely
useless. Regulators too must never
be obsessed with simple accounting
figures.
Kenya Airways for example had a
book loss of Kshs. 26 billion and
is still flying. Uchumi’s loses are
unprecedented in the industry and its
doors are still open. Admitted, Chase
is a bank and liquidity for a bank is
critical.
the banking sector?
Insider Fighting/Loans
Who blew the whistle on Chase
Bank? Was there harmony at the
top management? Did insiders tip
the auditors of the goings on at the
bank or they just stumbled upon this
through their superior expertise?
Interestingly, fellow bankers never
came to their rescue. Instead, they
spoke like angels with one competitor
boasting that they stopped insider
loans 10 years ago. Insider loans are
an industry hazard. There is nothing
wrong with insiders borrowing from
their bank. There are limits of course.
The role of any Central Bank in the
world as a lender of last resort is to
lend to banks in the industry that are
solvent but face liquidity problems.
What is in doubt is whether the
insider’s intention was to bring
down the bank whose net worth was
much more than the Kshs. 10 billion
that they could have borrowed unprocedurally.
“To avert panic, Central Banks
should lend early and freely (e.i
without limit), to solvent firms,
against good collateral, and at ‘high
rates”. Bagehot’s Dictum one of the
most enduring pieces of economic
wisdom”, as quoted by ecomomist
David Ndii.
Another paradox is how come CBK
could locate and confiscate assets
worth over 10 billion belonging to
them in less than a month. If the
directors were stealing, then they are
the dumbest thieves on planet to take
that kind of money a nd place it at
their doorstep.
Was Chase bank insolvent? Why
couldn’t Central Bank lend to
chase Bank in good time to stem
the panic? Wasn’t Equity Bank in
a similar predicament when they
disagreed with one of their female
board member in 2005? Doesn’t
Chase Bank boast of a huge portfolio
invested in government bonds that
could have acted as security for CBK
in the interim period?
Many Kenyans know better to
hide stolen loot. We cannot
rule out disharmony at the top
management as the stroke that
broke the Camel’s back.
Was the regulator overzealous or
mesmerized with accounting figures
to the extent that they lost the big
picture in maintaining confidence in
The False Estate
The allure of Real estate in Kenya
is real. This is driven mostly by
hot money from foreigners and
corruption proceeds. Everybody
yearns to make a quick buck by
investing in real estate.
Most likely, the directors saw a great
‘‘As a marketer, I
loved Chase and my
opinion may be biased
but I posit that the
regulator failed us as
depositors. You do
not save us by closing
banks. We lose more.
Save us by keeping
banks open.’’
opportunity to multiply money, sell
and return the depositors funds
before they were discovered. They got
in at the wrong time and the money
got stuck. It happens.
Expansion Craze
Like all bitten with the success bug,
Chase also went on an expansion
spree. They opened branches all over
while at the same time registering
subsidiaries.
Questions will be asked whether
the rapid expansion that included
the addition of Islamic banking that
became their waterloo spread them
too thin. We have many examples of
companies that were dazed after a
period of rapid expansion. The jury is
still out.
As a marketer, I loved Chase and
my opinion may be biased but I
posit that the regulator failed us as
depositors. You do not save us by
closing banks. We lose more. Save us
by keeping banks open.
Evans Majeni sells Apple Products in
Westlands Nairobi. He enjoys stepping
on big toes and paying the price. You can
reach him via mail on this or related
issues at: [email protected].