Test for SBM-Chase Bank deal as reopening beckons
All eyes are on the State Bank of Mauritius (SBM) and how it will manage and execute the delicate deal that will see the banking halls of Chase Bank reopened to customers in the next 10 days.
SMB hopes that customers will remain calm and will not make panic withdrawals which may defeat the purpose of buying out the troubled bank.
This should be easy for a bank its size with the backing of the State and regulator.
SBM says it is ready with a Sh6 billion war chest but it will need more assurance from Central Bank of Kenya (CBK) if it is to make available to customers the Sh28.5 billion in savings and current accounts on day one of reopening.
“SBM Group has committed an additional capital infusion of $60 million (Sh6 billion) for this portfolio purchase, taking the total investment to $86 million (Sh8.6 billion) on its Kenya entry strategy,” SBM said in a recent press statement.
However, this revelation puts to question the Sh2.6 billion that the lender spent to transition a much smaller lender, Fidelity Commercial Bank which it bought for Sh100.
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SBM, which has only published one set of results since it acquired Fidelity Bank, used the money to rescue the lender from a negative liquidity position in 2016 to 32.1 per cent last year.
This would imply that the lender will need deeper pockets in the case of Chase Bank which has been in receivership since 2016.
According to sources, the bank has the full backing of the CBK which would provide an interest-free liquidity support should it get burdened.
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“The question is not so much about liquidity but that of confidence. We will continue to support the bank just as we support any lender in the market,” CBK Governor Dr Patrick Njoroge said last week.
However, to keep deposits, the lender will need to hack Chase Bank’s business model which was customer-centric and SME and youth-focused.
The transition is already suffering from a blackout of mobile banking which has been off since mid-June, causing a lot of inconvenience for the millennials.
“I joined this bank because of its convenience and having to go to a banking hall to the queue is really giving me a tough time,” a depositor told Financial Standard.
Chase Bank had a good portfolio, including reputable Savings and Credit Cooperative Organisations and chamas (investment groups) based on its ability to offer above market average returns on deposits.
Firms, including South Africa’s hotel group City Lodge, betting firm SportPesa, investment company Centum, the Kenya Tea Development Agency and United Nations Sacco, will be key in retention of the lender’s portfolio.
To keep them locked, the lender says it intends to keep Chase Bank’s relationship managers to lock in the on-boarded clients.
“The existing relationship touchpoints in the bank will be retained and will continue to be a strong relationship bank,” SBM said.
Financial Standard has established that Chase Bank relationship managers were some of the best paid in the market.
Financial Standard has also received information that over 30 per cent of the job offers given to Chase Bank had not been accepted by the date of returning the acceptance letters which may signal the exit of some of their crucial links.
SBM says that its retail business will ride on the bank’s versatile digital platform and the branch network while the SME business will be driven by relationship teams in the bank’s strategically located branches.
The corporate business will be driven by a special team at the centre, with unique competencies for the sectors the bank chooses to operate in.
But perhaps the biggest obstacle to this deal could come from a small notice that appeared on the local dailies recently.
Incidentally, it plans for a meeting with the noteholders on August 14 just three days before the SBM deal closes which poses a possible resolution that may result in litigation.
This is an indication that the investors who had given Chase Bank money are not willing to roll over and let SBM walk away with all the deposits, leaving them with nothing.
“In view of the occurrence of an event of a default under the trust deed dated April 22, 2015, the note trustee be hereby directed, authorised and or instructed to take an pursue all necessary action in form of enforcement, including demand and legal and recovery proceedings against any relevant persons,” the notice read.
The CBK boss said their attempts at resolutions have been like a boat which approaches the shore only to be swept back into the deep end by unforeseen currents.
“What is important is that we have done everything by the law,” Dr Njoroge said.
Kenyan law does not protect bondholders against the collapse of a lender.
It does not also specify their rights when a resolution is reached such as the carve-out arrangement between the CBK and SBM.
The bondholders are staring at a lacuna that may determine the rights of securitised lenders which in other jurisdictions comes before depositors.
Even the Capital Markets Authority seems to back ring-fencing of bond investors to mitigate the systemic risks implications of any failure in the finality of a payment or transfer of title to securities in payment systems and securities settlement systems.
This is not the first time Chase Bank creditors have sought to get money from the lender by seeking to freeze its resolution.
United Bank Ltd of Dubai and its London-registered subsidiary United National Bank Ltd who are owed 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, unsuccessfully sued to stop the SBM Chase Bank deal in order to ensure they get paid.
Inside sources say SBM has already ruffled feathers back home in Mauritius over the Sh19.5 billion ($195.15 million) fraudulent loan to a Kenyan consortium after it emerged that the security offered for half the amount of the loan was not registered and that in fact, the title could have been a forgery.
The bank’s regulator and the Government are also not happy at having pumped in more money into Fidelity Bank’s black hole over and above the initial Sh1.45 billion of fresh capital committed for acquiring its licence.
The Bank of Mauritius, which is said to have insisted on the resignation of a senior player in the deal, will not want any further complications in the Kenyan matrix that could scuttle the deal.