FCB: Kenya’s biggest Sharia complaint bank on the verge of collapsing amidst panic withdrawal by customers

A First Community Bank branch in Nairobi. The bank's management said malicious rumours had led to panic by depositors. File | Dennis Okeyo | Nation Media Group

NAIROBI, Kenya - First Community Bank (FCB) one of Kenya’s leading Islamic banks has been battling the horror of banking, panic withdrawals from customers following malicious rumors from what we gather allegedly emanated from former employees.

The rumors were further accelerated by the news from the US that the Federal Bureau of Investigation was going after KSH 30 billion stolen from the Covid funds and indicated to have been laundered into Kenya through banks and real estate agencies.

Earlier this week the bank experienced unusual behavior as customers believed the rumors and rushed to withdraw their money out the fear of losing their savings.

This forced the country’s banking regulator Central Bank of Kenya (CBK) to step in and try to resolve challenges at the FCB after the Sharia-compliant lender run into headwinds.

On Tuesday the bank’s CEO Dr. Hussein Hassan that it had reached a deal with the CBK to limit some of its services as it works to restore normalcy in operations.

Dr. Hussein Hassan in a press statement to the public and media however played down the collapse narrative, terming it as false “Our attention is drawn to rumors that have been circulating in the social media on the position of the Bank, believed to have originated from malicious sources, causing concern and panic withdrawals that have affected operations in the past few weeks.

Be assured that the bank is strong as evidenced by its performance and financial position. We reassure all our customers and the general public that their deposits remain safe. Banks lend out deposits and if a bank run happens where many depositors come for their money at the same time, the bank can’t meet all those demands.”

FCB‘s limited services included the limiting of withdrawals to no more than Ksh.10,000 per day and a pause of the clearance of cheques and SWIFT Transfers.

Dr. Hassan “These unprecedented withdrawals have caused a strain on our daily operations, necessitating the bank under the guidance of the regulator to limit services. We are working very closely with the CBK to ensure that we continue to achieve our core mandate.”

According to banking experts within the banking sector who spoke to local media, First Community Bank must now be allowed unlimited access to CBK’s discount window for crucial re-capitalization to avoid what could be a potential bank failure.

They argued against the placing of FCB under statutory management saying that such a measure would be an excessive intervention by the banking sector regulator with the potential of causing profound shocks to the local banking system.

In banking, CBK plays the role of being the lender of last resort with its support seen as significant in managing crises in individual banks.
Last week on Friday, CBK Governor Patrick Njoroge indicated struggling lenders had multiple options in addressing liquidity challenges including borrowing from the inter-bank market and in bilateral lines with peers.

Governor Patrick “All banks we are working with have access to significant instruments both at the Central Bank and in other places in the case of liquidity challenges.”

FCB’s scenario reminds Kenyans of two other financial lenders whose trouble started off as panic withdrawals by depositors and later they collapsed.

The two were Imperial and Chase banks which were placed under statutory management in the aftermath of operational concerns.

The CBK report reveals that FCB has struggled to stay clear of the regulator’s prescribed capital and liquidity ratios over recent years.

By the end of 2021, the FCB had a core capital of Ksh.1.1 billion which stood slightly above the recommended lower limit of Ksh.1 billion.

In both 2020 and 2019, FCB failed to meet the obligation. FCB was however still in breach of other key ratios at the start of this year including core capital to total risk-weighted assets and total capital to total risk-weighted assets.

Previously, CBK has extended support to lenders including Spire Bank and SBM Bank Kenya.

FCB is Kenya’s first licensed Sharia-compliant bank by the CBK and has been in operation over the past 12 years.

As of December 31, 2021, FCB had a total asset base of Ksh.24.7 billion and Ksh.21.1 billion in customer deposits.

At the end of the period, FCB had Ksh.2.5 billion in shareholder funds and a 21 percent liquidity ratio.

GAROWE ONLINE