Commercial banks have started submitting millions of shillings to the Unclaimed Financial Assets Authority (UFAA), setting in motion a process that could see billions of shillings handed over to the agency.
Initial reports from the newly established agency indicate that seven financial institutions had surrendered Sh929.5 million by November 7 in response to a notice requiring organisations holding unclaimed assets to do so.
“As at November 7, a week after we issued notice of the requirement, seven organisations reported Sh929.5 million,” said Vincent Kimosop, the chairman of the authority.
Standard Chartered bank tops the list of institutions that have surrendered assets with Sh537 million followed by Kenya National Assurance, which submitted Sh300 million early this year.
The list includes small banks such as Victoria Commercial Bank, Fidelity and United Bank of Africa that have surrendered smaller amounts.
This is the first time that companies are submitting assets to the agency that is still setting up administrative structures following enactment of the law establishing it last year.
It is estimated that 56 per cent of the unclaimed assets are held by banks and it remains to be seen what impact submission of the assets will have on the sector.
The bulk of the funds submitted by Stanchart were unclaimed cash deposits of Sh362 million. The rest were uncollected salaries, dividends, cheques and bank drafts.
Cash deposits are classified as unclaimed when the bank account does not have any customer-initiated activity for a period exceeding five years.
Stanchart stands out as the only of Kenya’s six large banks to have surrendered assets to the authority. The six — KCB, Equity, Barclays, Co-operative, CFC Stanbic and Stanchart — control more than half of the industry assets.
Stanchart’s unclaimed assets are expected to be lower than those held by the other large lenders given its preference for corporate banking. Most corporations keep track of their assets and have water-tight succession plans.
Recent reports have shown that the bulk of the unclaimed assets are associated with people who died without a will or disclosing their financial status to family members.
The surrender of unclaimed deposits should reflect on a bank’s balance sheet as it translates to a drop in liabilities that in reverse is likely to result in the tightening of a bank’s liquidity as their deposits to loans ratio, currently at an all-time high of 78 per cent, rises further.
Large banks have been increasing their deposit rates as they seek to attract more savings and improve the liquidity ratio.
Financial institutions are required to submit all assets that have not been claimed for a time specified in law — including cash held in deposit accounts for a period exceeding five years.
Banks and insurance companies are expected to be the main holders of “idle” assets estimated to be over Sh50 billion.
“The number is going to go higher as corporations, telecommunication and insurance companies also surrender unclaimed assets,” said chief executive African Alliance, Stephen Muriu.
A survey by the Unclaimed Property Asset Register found that insurance firms hold 25 per cent of unclaimed funds. Other major holders of idle assets are pension funds and public listed companies.
The list of unclaimed assets includes bankers cheques not cashed for two years and contents in safe deposit boxes unclaimed for more than two years.
Matured life insurance policies unclaimed for more than two years and shares, whose dividends have not been collected for more than three years, are also in the list.
Upon receiving the assets, the authority’s first mandate is to search for the legal owners of the assets or their heirs where they are deceased. The authority is currently in the process of recruiting a chief executive and other top managers.
Those shortlisted for the position of chief executive include Carilus Ademba, the Sacco Supervision Regulatory Authority (Sasra) chief executive, Kellen Kariuki and Mbatha Mbithi.
Parliament is yet to pass the regulations to the Act, giving the agency more powers to demand surrender of the funds from non-complying companies.
The funds are expected to fund the government infrastructure projects through investment in Treasury securities which pay a return, allowing the board to pay back any claims made in future with an interest.
The UFAA is expected to contract fund managers and custodians to manage the funds on their behalf but the law contemplates infrastructure projects to be the main beneficiary of the idle funds.
The cash is currently being held at Central Bank of Kenya where the agency has opened a trust fund.
Banks have been involved in vicious battles to host the authority’s account in the hope of utilising the cheap long-term deposits to grow business.
The authority is pushing to have unclaimed assets held by companies disclosed in financial reports to ease tracking. Public listed companies have been disclosing unclaimed dividends but other assets remain undisclosed.
Since last year a number of companies have been notifying shareholders of intention to hand over the unclaimed assets through media notices, indicating preparedness to hand over the wealth.
Companies have also been changing their articles of association to give them mandate to hand over the wealth.