Chase Bank buyer lends Sh4.7bn to parent firm

SBM Bank Kenya, the Mauritius-owned lender that bought out the collapsed Chase Bank, has returned to profitability and has lent Sh4.7 billion to its parent owner, SBM Holdings.

SBM’s latest financial results show it reported Sh1.8 billion net profit in the third quarter ended September 30, 2018, after making a streak of losses since entering the Kenyan market through acquisition of Fidelity Bank.

The lender reported a Sh330 million net loss in the financial year ended December 31, 2017, which was the last reporting period before consolidation of Chase Bank into its books.

SBM attributed the latest performance to a significant rise of “other income” of Sh3.68 billion, which pushed its non-funded income to Sh3.87 billion and a Sh888 million booking of interest income in the period. The disclosure of the loan by the Kenyan unit of the Mauritian lender to its owner is likely to heighten scrutiny from depositors of the collapsed Chase Bank as they clamour for full payout of their remaining deposits.

“The acquisition qualified as a business combination and valuation of the business combination in line with the International Financial Reporting Standards (IFRS) 3, which gave rise to a non-cash accounting gain that is included under other income. This contributed to the profitability,” said SBM Bank Kenya deputy chief executive Jotham Mutoka in response to Business Daily queries.

“SBM Bank Kenya Limited, like any other financial institution invests in both the local and international inter-bank markets as part of liquidity management. The amount of Sh4.7 billion was a short-term placement with SBM Bank Mauritius.”

Chase Bank was placed under receivership on April 7, 2016 following a run on deposits after reports of liquidity problems spread online.

It was re-opened on April 27, 2016 under the management of the Kenya Depositors Insurance Corporation (KDIC), at a time when it was said to have had a nearly Sh20 billion deficit of depositors’ cash.

About 3,100 large customers had their deposits locked in at the collapsed lender when SBM took over. They anticipate to get access to their deposits over a three-year period in line with a staggered plan mooted by the regulators.

The Mauritian lender officially kicked off operations in Kenya as SBM Bank Kenya after its Chase Bank takeover last August.

The lender had then said it was ready to grant access to the remaining deposits to its large depositors. It would first be keen to offer stability to the Kenyan unit so as to retain all existing customers, it had said.

“We have taken Chase Bank in a weak and turbulent state. Our immediate priority is to bring it back to its peak state when it had a balance sheet of about $1.5 billion (about Sh151.2 billion) and from there together with our new strategy to double the size of SBM Kenya within three to five months,” SBM Holdings chairman, Kee Chong Li Kwong Wing, said during the formal take-over in Nairobi on August 20.

Central Bank of Kenya (CBK) governor Patrick Njoroge, speaking at the take-over ceremony held in Nairobi, hailed the official re-opening of Chase Bank, citing the reviving of the collapsed lender as a landmark for the country’s financial sector.

Dr Njoroge added that the regulator planned to seize and sell off assets belonging to individuals linked to the collapse of Chase Bank to cover a Sh19 billion deficit owed to customers as deposits.

The KDIC chief executive, Mohamud Ahmed, referred our queries on the loan to the CBK. However the CBK governor's office had not responded to our queries by the time of going to press. Banking sector experts said the loan to the parent bank is also likely to heighten scrutiny from regulators.

“A deposit of funds by a subsidiary in its parent bank is characterised as a deposit. For it to be a loan from parent to subsidiary is normal but subsidiary to parent is unusual and normally will have been done for either tax reduction reasons or a technical entry to help disguise another thing happening on the books whereby booking an asset helps balance a liability the subsidiary has incurred for unknown reasons,” said an independent financial expert who sought anonymity.

The Mauritian banking giant, which acquired Kenya’s bottom-tier lender Fidelity Bank in 2016, had also announced plans to invest an additional Sh6 billion in Chase Bank having already said it had injected about $26 million (about Sh2.6 billion) into the troubled lender.

SBM Monday defended the delayed mode of payouts to depositors.

“Fifty per cent of the deposits acquired by SBM Bank Kenya were made available to the customers from the first day and the balance will be made available as stipulated in the agreement and reiterated in the said press statement.

It should be noted that this is the most favourable payout in the industry,” said Mr Mutoka.

Under a staggered approach of access to their funds, 18.75 per cent of their deposits would be placed in current accounts at SBM operated by depositors.