Kenya Railways Corporation (KRC) had put in a Sh800 million deposit in Chase Bank just three weeks before the mid-sized lender was placed under statutory management, it has emerged.
Out of the amount, Sh500 million was put in a three-month fixed deposit account earning a return of 13 per cent per annum while Sh300 million would have been paid back at an 18 per cent return over six months.
KRC managing director Atanas Maina on Wednesday told the National Assembly’s Public Investments Committee that the corporation also has short-term fixed deposits at KCB and Stanbic banks.
“We had other previous deposits at Chase Bank and this was not the first one,” Mr Maina told the committee.
Eldas MP Adan Keynan, who chairs the PIC, said it was suspicious that the Chase Bank deposits were done three weeks before the lender was put under receivership.
Documents presented before the committee indicate that a deposit of Sh500 million was made in the Chase account on March 19 this year.
The Central Bank of Kenya took over Chase Bank on April 7 after a run on deposits and the stepping aside of two of its directors raised fears that it would be unable to repay customers.
Mr Maina said in 2010, the Treasury approved a request by the KRC to put short term deposits in commercial banks.
“Subsequent to that in 2013, we sought approval to expand our panel of banks that could undertake investment of short term funds,” he said.
He said the decision to increase the panel of banks was made following low rates that were being offered by its banker, KCB.
The KRC’s panel of bankers that was initially limited to KCB and Stanbic, expanded to include Chase Bank and, United Bank of Africa and Consolidated Bank.
The Treasury expressed concern over the selected three banks, noting the additional banks were relatively small in terms of market share and asset base.
In her letter to the KRC, former Treasury investment secretary Esther Koimett advised that due diligence be conducted on the selected banks to ascertain their financial viability.
“Ensure that the security of the short term deposits takes precedent over rates offered. Ultimately, the board of management of KRC are responsible to government for the security of these funds,” read the November 18 2010 letter.
The MPs said it was improper that Mr Maina should make reference to a letter drafted in 2010 on a matter that is critical and current.
The KRC adds to the list of institutions whose funds are stuck at Chase Bank. Others include the Kenya Tea Development Agency (Sh1.9 billion) and the United Nations Savings and Credit Society (Sh1 billion).
Eight counties had also deposited Sh835 million in the bank before it was put under receivership. They include Nairobi, Kisii, Machakos, Narok, Trans Nzoia, Kilifi, Uasin Gishu and Kericho.
CBK governor Patrick Njoroge said plans to sell the troubled lender are expected to be finalised by end of March next year.
At least eight investors including local and foreign ones have expressed interest in buying the bank. Among the interested investors are the current shareholders at the bank.