World Economy

Kenya Offers Liquidity Support to Lenders

Kenya Offers Liquidity Support to LendersKenya Offers Liquidity Support to Lenders

Kenya’s central bank will provide liquidity to domestic lenders facing constraints after a run by depositors forced it to close Chase Bank Kenya Ltd. last week.

The central bank will offer support through overnight lending, seven-day facilities and repurchase agreements, Governor Patrick Njoroge told reporters Sunday in the capital, Nairobi. The so-called liquidity support framework is being introduced because regulators are concerned about “anxiety” in the banking sector, he said, Bloomberg reported.

“We will avail a facility to any commercial or microfinance bank that comes under liquidity pressures arising from no fault of its own,” Njoroge said in a statement e-mailed by the bank. “We will avail this facility for as long as is necessary to return stability and confidence to the Kenyan financial sector.

The central bank on April 6 said it placed Chase Bank in receivership, a day after the lender’s chairman and group managing director resigned when it announced restated earnings with a qualified opinion by auditors. Chase Bank is the third Kenyan lender to be seized by the authorities since Njoroge was appointed governor in June. Imperial Bank Ltd. was taken over by the regulators in October, while Dubai Bank Kenya Ltd. went into liquidation in August after running out of money.

  Arrest Warrants

On April 8, the police ordered the arrest of Chase Bank Chairman Zafrullah Khan and Group Managing Director Duncan Kabui. It also asked for the detention of six other directors from state-owned National Bank Ltd. who were placed on forced leave last month pending an internal audit.

Smaller banks in Kenya are starved of liquidity, with seven of the nation’s 42 institutions holding 80% of the financial system’s cash, according to the regulator. At the same time, they’re also having to struggle against an increase in non-performing loans with not enough money set aside to cover them.

Njoroge and Treasury Secretary Henry Rotich on Friday sought to reassure Kenyans that the country’s banking system is sound. The central bank won’t tolerate “rogue bankers” that defraud depositors, Njoroge said, without identifying anyone.

The objective remains to reopen Chase Bank as soon as possible, amid talks with shareholders as well as “interested parties and with suitors,” Njoroge said Sunday. Domestic and foreign lenders have expressed an interest in the bank, he said, without providing further details.

Equity Group Holdings Ltd., Kenya’s biggest bank by market value, KCB Group, the largest by assets, and Centum Investments Ltd. are among companies interested in taking over the Chase Bank, Business Daily, a Nairobi-based newspaper, reported on Monday.

Shareholders in Chase Bank include Amethis Finance, a Paris-based company focused on investing debt and equity in Africa, responsAbility Participations AG, a Swiss investment company known as rAP, and KfW, the German development-finance group, according to an April 2015 document published on the lender’s website.