Chase Bank Kenya put in receivership - CNBC Africa

Chase Bank Kenya put in receivership

East Africa

by Duncan Miriri and Wendell Roelf 0

NAIROBI (Reuters) - Chase Bank Kenya Ltd was put in receivership on Thursday after it failed to meet its obligations, becoming the third lender in the country in nine months to be placed under central bank control.

The central bank said it took the action, which will last for 12 months, following a run on deposits stoked by fears over the health of the privately held mid-sized lender's finances.

Concerns about Kenya's banking sector resurfaced last week when the chief executive of National Bank, Munir Ahmed, was put on compulsory leave pending an internal audit, as loan loss provisions pushed the lender into a loss. He called the move an over-reaction.

On Wednesday, central bank governor Patrick Njoroge, who has put in place more stringent reporting requirements for banks since being appointed in June, said there were no "systemic problems" in the sector.

He told a news conference on Thursday that auditors flagged concerns about loans of 16.8 billion shillings ($166 million) on Chase Bank Kenya's books, prompting a run on deposits on Wednesday.

"No bank can sustain pressure with everybody running out," he said.

The bank -- ranked 11th of 42 Kenyan lenders last June with assets of 120 billion shillings -- then failed to meet its obligations, like clients' instructions for payments, prompting the central bank to put it into receivership.

Njoroge said Chase Bank's shareholders had committed to raising funds to allow the bank to be re-opened soon and that the problems there were not as bad as that of another lender under receivership, Imperial Bank.

Mid-sized Imperial Bank was taken over in October, two months after a smaller lender, Dubai Bank.

The balance sheet clean-up had put Kenya's financial sector "in a much better position," Njoroge said.

Chase Bank said on Wednesday its chairman, Zafrullah Khan, and group managing director, Duncan Kabui, had left, giving no reasons for their departure. Officials at the lender declined to comment.

The central bank appointed the Kenya Deposit Insurance Corporation to assume the management of Chase, it said earlier.

The African Development Bank, which last week agreed to lend Chase $50 million for onward lending but had not disbursed the funds, said the receivership would not stop it from supporting the sector.

"The African Development Bank remains confident about the stability of the financial sector in Kenya," its regional boss for East Africa, Gabriel Negatu, told Reuters.

($1 = 101.2500 Kenyan shillings)

(editing by John Stonestreet)