First there was Imperial Bank, placed under receivership in October 2015, which was immediately followed by Chase Bank during this month of April. The latter banking institution, Chase Bank Limited, experienced liquidity difficulties following inaccurate social media reports and the stepping aside of two its directors. As a result, it was not able to meet its financial obligations. So what happens, and how do customers and victims of the receivership recover their monies, if at all, during these pressing times?
The Receivership of a Bank is a nightmare to many. Placing trusting clients in financial ruin, while the banking staff are immediately rendered jobless, worse still if they made investments and placed their livelihood in the bank. Life almost comes to a standstill since one is completely unable to access their accounts. The phrase ‘don’t put all your eggs in one basket’, hits those who deposited all their money in the institution just a little harder.
According to lawful procedure, The Central Bank of Kenya appoints a receiver, in this case the Kenya Deposit Insurance Corporation (KDIC), for a period of twelve months, as provided under of Sections 43 (1), 43(2) and (53)1 of the Kenya Deposit Insurance Act, 2012. A receiver usually figures out what caused the problems at the bank and the appropriate course of action. They ascertain what the prospects for business are and decide whether to sell some or all of the assets, the business as a whole, resurrect and finally re-open of the bank or to continue to trade whilst a better deal can be achieved. They ultimately decide the way forward.
It is only in the event of liquidation that people can be paid insured deposits. In addition to the payment of insured deposits, depositors with balances in excess of the guaranteed sum of Kshs.100,000 are entitled to receive liquidation payments based on the value of recoveries and proceeds from the sale of the institution’s assets. Basically any additional payment and any balances can be made once assets are sold and debts collected through liquidation.Nothing can be paid to anyone during receivership and the depositors and creditors need to wait for the Kenya Deposit Insurance Corporation to work out the best resolution options.
A scenario where a plan to ensure that a bank’s customers were compensated, was Imperial Bank’s payout to depositors made in December 2015. It provided that holders of accounts with up to Kshs. 1,000,000 to receive their cash, while The Central Bank reached an agreement in which two banks, being KCB and DTB, would give some 44,300 small depositors a total of $80 million, subject to a maximum of Kshs.1,000,000 per account. The remaining 5,700 account holders, who were mainly owners of small and medium-sized enterprises, would unfortunately have to wait until the end of March this year, when CBK will release the details of the payout plan, and may only receive a portion of their deposits. Those with loans will have their accounts scrutinized and inspected to see whether the same can be transferred to either KCB or DTB, under specific conditions that cater for each case. Concerning Chase Bank, its too early to call out what payout option would be the best.
Many may not retain the full amount they deposited, while others may be luckier. For those who may lose out on more, there’s no option other than working towards growing again. When doing so, lick your wounds while banking at more secure institutions such as KCB, Co-operative Bank, and Equity, all dubbed as establishments that are “too big to fail”.