On Kenyan Banks

Kenyan banks are experiencing some tough times. In the recent past, Imperial bank and Dubai bank have been placed under receivership given gross mismanagement that has resulted in huge losses and an inability to meet obligations. Further,

National bank, a listed entity that was formerly wholly government run, has had a major part of the management team including the CEO sent home on compulsory leave. The bank had issued a profit warning just last week stating that profit would fall by more than 25%. In the past few days, there have been concerns on Chase Bank also and today the central bank has placed it under receivership. Meanwhile, Bank of Africa Kenya is sinking into loss making territory with the mountain of bad debts piling up.

Coming in the wake of revelations of allegations of mismanagement and fraudulent accounting practices at Uchumi Supermarkets, another listed company, that sent the share price spiralling downwards to all time lows, there seems to be a need to be cautious on inherent weaknesses in the Kenyan banking system. Further concern is on material shock wave effects on other banks and other parts of the economy especially through losses of jobs and reduced financing to businesses. It is notable that Chase bank has been a pioneer in loans to small businesses and has sought expansion into this segment. Another key concern is on the corporate governance structures in the banking sector and, by extension, other banks.

The prevalent feeling is the real fear in Kenyans that their money may not be safe. Taken to the extreme, there would a bank run as they withdraw their money in droves and, literally, stuff them under the mattress. Interestingly, the central bank’s statement on Chase bank states that, ‘Chase Bank Limited experienced liquidity difficulties, following inaccurate social media reports and the stepping aside of two of its directors’. The liquidity concerns are real and are exacerbated by the recent revelations by the Central Bank governor on the concentrated nature of the banking system in Kenya where 7 of the 42 banks hold 80% of the cash of Kenyans.

The hope though is that the risks are not systemic and the challenges will be minor and that the Central Bank team is committed to resolving the issues in these and other banks and that there will be respite for investors, borrowers and depositors.