House Committee names StanChart in shilling crunch

Standard Chartered Bank was on Monday named as one of the three lenders whose forex activities attracted attention from the Central Bank of Kenya as the Parliamentary committee formed to investigate the fall of the shilling last year closed its public hearings.

Committee vice-chairman Naomi Shebesh said the committee had obtained the information on StanChart from Central Bank governor Njuguna Ndung’u who last week requested to name the trio in a closed session.

CEO Richard Etemesi ,who was questioned under oath, told MPs that his bank had neither been asked for clarification nor warned over its forex market activities.

“We never received any warning letter from the Central Bank…Standard Chartered has not been sanctioned in any way,” had said Mr Etemesi.

Last week, CFC Stanbic was named as one of the banks and later admitted being fined Sh1 million besides being suspended over currency swaps. The two others did not attract sanctions according to the CBK as their actions did not warrant any.

StanChart, which in its over 100-year Kenya history had not appeared before any House Committee, failed to appear before the Adan Keynan committee on two occasions. The bank had explained that the information sought by the committee had nothing to do with it.

But StanChart area head, global markets Saloum Jobarteh said CBK “routine” checks on its currency activity at the time showed activity as normal. He added that during the crunch, StanChart was a net seller of forex and only held hard currency on behalf of clients.

Mr Etemesi and his two managers were put on oath before their statements, with Mr Keynan explaining that the action was partly prompted by their refusal to honour invitations, compelling the committee to summon them under Article 125 of the constitution. He said the committee also doubted that the bank did not hold information relevant to its inquiry.

“This would have been avoided if you had appeared,” he told the bank managers, while dismissing their pleas against revealing details about Kenya Bankers Association (KBA) deliberations with CBK. Mr Keynan warned of severe penalties for anyone withholding information from Parliament.

The shilling last year depreciated to touch an all-time low of Sh107 to the dollar with the balance of payments position thought to be the main cause. But eyebrows were raised about the rapid change more so after CBK accused some banks of contributing to the decline through arbitrage—profiting from dealing on diffrent money markets segments.

Yesterday, Mr Etemesi who was also accompanied by head of compliance Munir Ahmed, said the bank never used the discount window at the time CBK sanctioned its use for more than two times a week. CBK had accused some institutions of borrowing from its overnight window to fund trading in the forex market.

StanChart said it avoids the discount window because under its policy that is indicative of poor liquidity management.

“We used our own funds and customer deposits. In fact we were net lenders in the period; we were one of the few not borrowing from the window,” said Mr Etemesi. His remarks seem to tally with those of Family Bank CEO Peter Munyiri who last week hinted at segmentation between local and foreign banks, with the latter having better liquidity but trading the same within the same circles.

Mr Munyiri said his bank for instance had been forced to visit the discount window thrice despite the sanctions which included CBK auditing their operations and having to pay higher for the liquidity.

Banks at the height of crisis last October were paying as high as 30 per cent in the discount window and the inter-bank market.
Mr Etemesi says at the time there was lack of clear policy direction regarding the actions of CBK, Treasury and KBA – which he chairs – as demand for foreign currency increased amidst low domestic interest rates that expanded money supply. He however said quick co-ordination by the players had seen the rates rise and the Kenya shilling strengthen.