CBK risks liability for Chase Bank claims

Chase Bank on Mama Ngina Street in Nairobi on April 7,2016, shortly after it was placed under statutory management. file photo | nmg
Chase Bank on Mama Ngina Street in Nairobi on April 7,2016, after it was placed under statutory management. file photo | nmg 

The banking sector regulator risks being held liable for debts owed to Chase Bank creditors if it fails to protect their interests during the anticipated takeover of the troubled lender by Mauritius’ SBM Holdings.

Ruling in a petition filed by two foreign banks who claim they are owed Sh1 billion by Chase Bank, Justice Francis Tuiyot said the Central Bank of Kenya (CBK) and the Kenya Deposit Insurance Corporation (KDIC) could be held liable if they fail to protect legitimate claims by creditors in the buyout of Chase Bank.

Noting that the takeover is of great public interest, however, the judge declined to grant a request by United Bank Limited (UBL) of Dubai and its London-registered subsidiary United National Bank Limited (UNBL) seeking to stop the transaction.

“There is therefore a public interest element and the court must weigh this against the prejudice to be suffered by the plaintiff if the order is not granted,” ruled the Judge.

“It seems to this court that even if the deal is allowed to proceed and liability of the plaintiff will not be acquired they will nevertheless have a remedy in respect to any loss they may able to prove against the KDIC or CBK,” he added.

“The claim would likely be on the basis that the second respondent (KDIC) and or the bank (CBK) would have allowed the transactions to proceed without securing a claim that KCID should have settled while on receivership,” said the judge.

UBL and UNBL claim that Chase Bank owes them Sh1.1 billion arising from two separate letters of credit they issued on its behalf in 2015 and 2016, a few months before it was placed under receivership.

The two firms further want the KDIC, a State body that protects depositors in case of a bank failure, ordered to deposit $10.5 million (Sh1.1 billion) in a joint interest-accruing account.

The amount is the total sum allegedly owed the two firms by the Chase bank and the accrued interest so far.

Chase Bank is under receivership and was temporarily closed in April 2016 by the regulator after an unexplained loss of billions of shillings.

The bank issued the Sh1.1 billion letter of credit to Louis Dreyfus and guaranteed to pay their suppliers.

But the payment to supplies were made by UBL and UNBL in a deal agreed with Chase Bank. In its response filed in court KDIC accuses the two firms of being determined to scuttle a deal for the reviving and resumption of full operation of Chase Bank.

While it admits the alleged debt, it says it cannot settle the debt due to a moratorium which came into force with effect from the time chase bank was placed under receivership until such a time normal operations resume.

It says moratorium apply equally to all liability of Chase bank without discrimination.

The regulator says it has always been transparent in its dealings, constantly updating the public and stakeholders.

It says SBM Holdings submitted an offer on December 22, and that if the deal is not signed by January 7 SBM might withdrawal the offer putting the revival of Chase Bank at risk.

But even as the Judge was making its ruling on Friday morning, CBK announced that it has accepted the offer by SBM.

As part of the deal, the regulator said SBM will acquire the lender’s carved out assets and liabilities.

The deal will also see the Mauritius-based lender absorb Chase Bank’s staff estimated at 1,300 and about 62 branches.