The Central Bank of Kenya (CBK) has blamed social media for the collapse of the third largest bank in the country after the institution failed to meet its financial obligations and was placed under receivership.
According to a statement by CBK, “inaccurate social media reports” led to the bank’s financial crisis forcing the regulator to appoint the Kenya Deposit Insurance Corporation (KDIC) as a receiver for Chase Bank Limited for a year.
“Chase Bank Limited experienced liquidity difficulties, following inaccurate social media reports and the stepping aside of two of its directors. Consequently, it was not able to meet its financial obligations on April 6, 2016,” the statement read in part.
For the next twelve months, KDIC will assume the management, control, and conduct of the affairs and business of Chase Bank. KDIC will also advise CBK of an appropriate resolution strategy.
The social media platforms in the country went viral when the bank released results that revealed it had understated its loans to staff at the bank. An earlier report indicated that the loans stood at Shs3.62 billion, compared to the Shs5.72 billion it reported at the end of March.
Last year, the bank which also owns another Kenyan lender, Rafiki Bank, reported a net loss of Shs792 million.
Kenyans posted on Twitter, Facebook and shared the messages on WhatsApp, informing people of the liquidity pressures which left the banks operations strained, according to the regulator.
The discussion of how social media has the power to drive people in good and bad directions is going on with some individuals and companies arguing that indeed the failure of Chase Bank was due to people spreading falsified information on social media.
Responding to the regulator’s allegation that bloggers were responsible for the crisis at Chase Bank, the Bloggers Association of Kenya (Bake) came out to counter the arguments saying that “nothing could be further from the truth”.
“Chase Bank was put under receivership on 7th April 2016 for liquidity challenges due to lack of integrity by the management. None of the top directors- the Chairman and the Chief Executive are bloggers. No blogger or social media user was the recipient of the huge loans the directors and staff of the bank gave themselves, against banking regulations,” read the letter signed by Bake Director James Wamathai.
Wamathai added that placing blame on bloggers and social media users only furthers the narrative that the government is out to fight the freedom of expression.
Bake director said in a statement that social media is only a conduit that provides a platform to share information that already exists. He went on to condemn those who wrongfully explore digital media platform to spread misleading rumors.
“No Kenyan online should take advantage of freedom of expression to disseminate information to either destabilize the banking sector, or any other individual or institution. We stand for responsible freedoms,” he wrote.
In March, the National Bank of Kenya wrote to the regulator, and officials from the ministry of information urging the government to intervene in what they termed as “unregulated blogging” and the spread of malicious information about its business.
Following the unethical conduct at National Bank of Kenya and Chase Bank, the Inspector General of Police Joseph Boinnet ordered the arrest of six senior officials and two directors at the two banks respectively.
In the same breath, Boinnet cautioned the public which is making unsubstantiated claims touching on the banking sector, which he said have created panic in the recent past.
He added that they have arrested David Mukunzi Zawadi for using social media to distribute fabricated information about the banking sector. "It's one thing to alert acquaintances about matters that are truthful and factual, but we shall not allow persons driven by malicious considerations to peddle falsehoods to mislead members of the public.”
Up to 26 Kenyan Banks have either collapsed or been placed under receivership by the central bank, leaving Kenyans wary of the banking industry in the country.
Looking at the non-performing loans which accounted for 6.8% of total loans in February compared to 5.7% in the same period last year, the financial industry in the country is facing bigger challenges. Moreover, lawmakers are pushing for a law aimed at capping commercial banks' lending rates at 4 percentage points above the central bank's benchmark rate, making it even harder for businesses and individuals to access cash.
Image Credit: Laban Walloga