First Community Bank was in a fight of its life yesterday as it faced a bank run triggered by what it said was a system hitch that hit its operations.
The lender dramatically withdrew a statement that had partly blamed the Central Bank of Kenya (CBK) for its troubles, sending more confusing signals to the markets, on grounds that the panic withdrawals followed a decision to impose curbs on bank withdrawals as advised by the regulator.
The tier three lender admitted it has placed limits on cheque clearance and withdrawals following an advisory from the banking sector regulator.
The lender with 0.38 per cent market share that ranks 27 among Kenya’s 39 banks had Sh22.2 billion in deposits as at June this year.
The bank has assets worth up to Sh26.2 billion but Sh18.6 billion or 70 percent of the assets are locked in loans meaning if all customers come for their funds the bank would collapse.
CBK has remained tight-lipped on the matter since Friday when trouble was first spotted at the bank, with Governor Dr Patrick Njoroge refusing to directly answer media queries on First Community and instead saying all banks can access short-term loans to forestall liquidity crises.
“Those questions about the bank I cannot comment on that. But the point is all the banks we are working with have access to liquidity instruments both with the central bank and in other places like the interbank, bilateral lines etc,” Dr Njoroge said during the Monetary Policy Committee media briefing on Friday.
“The point is all banks are working to deal with any liquidity issues or any of those challenges that may happen from one day to the next.”
First Community Bank customers who lined up to draw their cash claimed the bank is only cashing withdrawals of less than Sh10,000 a day and has placed curbs on cheque clearance. The bank's problems became public after it said it was experiencing system disruptions that affected most of its services creating a backlog since last week. This triggered panic withdrawals raising fears that it was headed for a bank run.
A bank run occurs when large groups of depositors withdraw their money from banks simultaneously based on fears that the institution will become insolvent.
In the retracted statement, the lender says it is working with stakeholders including the regulator to resolve the crisis that threatens to collapse the fourth blender under CBK Governor Patrick Njoroge’s tenure.
“We acknowledge that our customers may currently be experiencing challenges in some of their transactions occasioned by panic withdrawals informed by malicious rumours,” the bank said.
“These unprecedented withdrawals have caused a strain on our daily operations, necessitating the Bank under the guidance of the regulator to limit some services. We are working very closely with all our stakeholders to ensure that we continue to offer good and reliable Shari’ah-compliant banking services to Kenyans.”
Kenyan regulators would be keen to act to stem the lenders’ demise and avoid contagion akin to what was seen in 2015 when three lenders collapsed within nine months.
Dubai Bank was placed under receivership in August 2015, followed by Imperial Bank in October the same year and Chase Bank in April 2016.
The shock collapses saw the regulator step up support for ailing banks while midwifing deals between weak lenders and stronger peers to avoid a repeat of the crash.