Central bank needs to reassure FCB depositors

FCB
FCB

The run on First Community Bank (FCB) on Tuesday brought reminders of a traumatic period for local banks in 2015 and 2016 when three small lenders collapsed in quick succession.

Banks survive on confidence, where people place deposits with them with the expectation that they will keep the money safe.

It is therefore in the interest of all players in the sector that this confidence is maintained.

The withdrawals at FCB need to be urgently addressed before they become a full-blown crisis for the lender and the industry as a whole.

Following the collapse of Dubai Bank, Imperial Bank and Chase Bank within months of each other, there emerged a trend where depositors shunned small lenders out of fear that the same fate could befall them.

The liquidity problems that subsequently beset small lenders lingered for years, forcing a number of them into mergers and acquisitions that were to some extent midwifed by a regulator keen on avoiding a new round of bank collapses.

The sector is yet to fully rebalance in terms of the distribution of assets and liabilities.

A reassurance from the Central Bank of Kenya (CBK) that FCB is on sound footing, or an outline of plans of how to protect it should there be any emerging issues will go a long way towards calming depositors who are clearly still alive to the risks facing small lenders.

In the matter of banking stability, the regulator can ill afford to issue generic statements that there are support systems for lenders in distress. That will hardly reassure panicky depositors.

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