Kenya Insights

Tag: First Community Bank

  • First Community Bank Sold Due To Missing Billion, Report Says

    First Community Bank Sold Due To Missing Billion, Report Says

    First Community Bank (FCB) has disclosed a shortfall of more than Sh1 billion in core capital, revealing the extent of the crisis that pushed its owners to sell a majority stake to a Mogadishu-based lender in a rescue deal.

    The small lender’s latest books of account show that the core capital dropped from Sh1.65 billion in September to negative Sh331 million in December, sending it into a breach of the capital strength ratios required by the Central Bank of Kenya (CBK).

    The unexplained fall in core capital within three months pushed its owners to resort to selling a 62.5 percent stake to Mogadishu’s Premier Bank Limited (Somalia) for Sh2.8 billion.

    Premier Bank was offered 10.8 million new shares to inject in Sh2.8 billion to boost the financial health of FCB, which as of December required more than Sh1 billion to comply with CBK rules. The deal was expected to have been completed by last week.

    FCB sunk into a net loss of Sh224.57 million in the year ended December, reversing a net profit of Sh416.6 million a year earlier.

    FCB, which last year suffered panic withdrawals, saw customer deposits drop by 36 percent to Sh13.74 billion from Sh21.48 billion a year earlier.

    More than half (Sh4.43 billion) of the Sh7.74 billion drop in deposits during the year came within the last three months of the year, coinciding with the period it suffered a small bank run.

    The panic withdrawals occurred in October last year on what the institution blamed on a system hitch that hit its operations.

    Customers who lined up to draw their cash claimed the bank was only permitting withdrawals of less than Sh10,000 a day and had placed limits on cheque transactions.

    The bank’s problems became public after it said it was experiencing system disruptions that affected most of its services, creating a backlog.

    This triggered panic withdrawals raising fears that it was headed for a full-blown bank run.

    FCB’s core capital to total risk-weighted assets ratio stood at zero percent compared to the required minimum of 10.5 percent.

    FCB commenced operations on June 1, 2008 as the first fully-fledged Shariah-compliant bank in Kenya but has been in breach of capital ratios for the past five years.

    The sale of the controlling stake in FCB to the Premier Bank is the latest rescue deal in the banking sector.

    Source

  • First Community Bank Hit With Panic Withdrawals

    First Community Bank Hit With Panic Withdrawals

    First Community Bank (FCB) one of the leading Islamic banks in Kenya 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 US that the feds were going after Sh30B stolen from the Covid funds and indicated to have been laundered into Kenya through banks and real estate agencies.

    The Bank immediately experienced unusual behavior as customers believed the rumors and rushed to withdraw their money out the fear of losing their savings.

    https://twitter.com/yussufmwinyi/status/1573230750329339910?s=46&t=RotPs10W3DjzOlYG4BnXVQ

     

    In a swift move, the bank confirmed the existence of the claims and immediately issued a press statement aimed at calming the distressed customers.

     

    Despite the assurances given, over two weeks into the crisis, customers continue to air their frustrations on social media pointing at a major problem with the bank. Many are complaining that the bank has capped their withdrawals in what can be read as a strategy to avoid a possible bank run.

    CBK the body responsible for streamlining the banking system and cushioning customers is yet to  issue a public statement on the matter perhaps playing safe to avoid further pushing the panic button. In the past, panic withdrawals led to ultimate fall of Chase Bank and with this in mind, many are not willing to second guess.

    First Community Bank has also been put on spot by its client for breach of contract and charging interest against Islamic Financing Agreement,(Musharaka).

    The Bank was also controversially mentioned in the  KEMSA millionaires scandal where one of its alleged shareholders Halakhe Waqo brokered a Sh350M deal.

    Faced with claims that the bank was facing liquidity crunch, they dismissed it. Most of inquiries on social media have gone unanswered as a check on their Twitter account shows they stopped tweeting on 22nd September.

    As the bank fights for its life, the biggest challenge will be how they’ll be able to regain customer’s confidence even after this crisis. Ultimately, the silence from governing body CBK is concerning.

  • First Community Bank On The Spot For Breach Of Contract Charging Interest Against Islamic Banking Contract

    First Community Bank On The Spot For Breach Of Contract Charging Interest Against Islamic Banking Contract

    First Community Bank(FCB) has been put on spot by one of its client for breach of contract and charging interest against Islamic Financing Agreement,(Musharaka).

    In regard to this, a Nairobi court has suspended its decision to sell the remaining 15 disputed apartments developed by Isaac’s Investment Company.

    High court Judge Ngenye Macharia has referred the dispute between the company and the bank to an arbitrator.

    “On account that the bank has already sold the greater chunk of the Investors’ property speaks volume that the bank may have substantively recovered its debt, the court should preserve the remaining property pending the resolution of the dispute by the tribunal, “ruled Lady Justice Ngenye.

    She added that the dispute revolves around the amount owed to the bank or whether the investor has overpaid. Ngenye ruled that if the court does not preserve the property, it implies that the bank will sell the remaining units at risk of recovering more than it is entitled.

    “It is also notable that the bank failed from the outset to demonstrate what amount of debt is owed by the investor by way of bank statements, it is only fair to allow parties to solve the dispute in a manner agreed upon and in the meantime, the remaining units are preserved, “ruled Ngenye.

    The matter was filed by Isaac’s Investment Company at Milimani Commercial and Tax Division on December 10,2020.

    Through lawyer Benson Nzakyo, it was seeking orders stopping the bank from selling a security property located in Dagoretti/Riruta, Nairobi until further orders of an Arbitration tribunal or court.

    “My client is seeking direction that the arbitrator to be appointed by both parties which should be competent with sharia laws in view of the unique nature of the finance agreement signed between parties, “added Nzakyo in court document.

    The motion was supported by an affidavit from the director of the investment company Ali Isaac who is the owner of that property which is developed and containing 90 apartments.

    Ali says that the main objective for which FCB bank is established is to carry out strict compliance with the principles of Islamic Sharia Laws and should not charge any interest on the principal amount lent, deposited or borrowed by customers.

    “On November 7,2011, Ali and FCB signed a letter and he was advanced Sh 36 Million as finance to construct phase 1 of the project, “added Nzakyo.

    The letter indicated that if any dispute would arise, it shall be referred to arbitration by a single arbitrator to be appointed mutually by both parties.

    Ali says that by December 23,2012 the banking facilities granted to him were increased to Sh 210 Million and a further charge document dated January 28,2013 was executed between both parties.

    He added that later his shares were reduced from 20 percent to 14 percent.

    The aggrieved businessman says that, the bank advertised the suit property for sale via public auction. Ali moved to court to stop the sale of the remaining 19 apartments within the security property and the suit was withdrawn on November 30,2021.

    Ali filed another suit after realizing that the bank was actively marketing the remaining 19 apartments

    “My client stands to suffer substantial loss not only because the bank has contravened various provisions of the agreement but has also recovered Sh 380Million out of advancement of Sh245 Million and Ali believes that he has fully paid the advanced loan together with share profits that the bank was entitled to under Musharaka Finance Agreement, “added Nzakyo.

    The bank in response through an affidavit filed by its lawyer Claris Ogombo said that an application by Ali is not based on facts and is an abuse of court process.

    “The applicant defaulted in its obligation prompting the bank to institute recovery proceedings through  a letter dated September 12,2017 where he committed to pay Sh 120 Million which was to be paid from yet another project of Sh 500 Million proposed for the construction of 560 units which was to be constructed on another land that he will purchase but the bank rejected that proposal, “she added.

    She added that the bank sold 15 units and the application before court is improper because it has been dealt with to conclusion.

    Ogombo wanted the court to dismiss Ali’s application saying that it was meant to delay the sale of the remaining units.

    “The applicant was to avail 15 apartments but did not which means that the bank sold them without a consent of the two parties, it is therefore improper for the bank to impute terms that were never agreed upon in consent, this dispute remains unresolved as it was not addressed in consent, “ruled Ngenye.

    Ali says that the bank recovered in excess of what is under agreement. The bank does not dispute that it wants to recover its money without other reason than to say that it has statutory reasons to do so.

    He says he is concerned of how many Muslims fall victim to this so called Islamic Banking which is not anything but dangerous Shylock.