How SBM Fraudulently Acquired Billions From Fallen Chase Bank, Doctored Figures


The State Bank of Mauritius (SBM) is on the spot for a possible fraudulent takeover of the fallen Chase Bank and doctored figures.

Just a month after acquisition, Chase Bank, now SBM Bank Kenya, the firm was able to lend Ksh4.7 billion to the parent company, SBM Holdings. In ordinary circumstances it is the parent company that lends money to a subsidiary, and not the other way round.

During the takeover, SBM Holdings was supposed to inject $60 million (Ksh6 billion) to SBM Kenya, taking its total investment to $86 million (Ksh8.6 billion) in Kenya.

How things turned is still a mystery.

However, to save its face, the bank could not lack an explanation to this.

SBM Bank Kenya deputy chief executive Jotham Mutoka says, “SBM Bank Kenya Limited, like any other financial institution invests in both the local and international inter-bank markets as part of liquidity management. The amount of Ksh4.7 billion was a short-term placement with SBM Bank Mauritius.”

However, his response lacks professional expertise. In their latest financial  results, the amount is placed under ‘balances due from banking institutions of the group’.

Read: KCB Set To Acquire Imperial Bank As Mauritius’ SBM Pulls Out

If this explanation is correct, and that the amount paid was an investment and not a loan, then the amount paid to SBM Mauritius would have been treated as a deposit and reflected under ‘deposits and balances due from banking institutions abroad’.

In another case, the Kenyan subsidiary indicated its income to be Ksh3,678,159,000 (almost Ksh3.7 billion). This is despite the bank reporting a Ksh330 million net loss in the financial year ended December 31. It is not clear what kind of activity generated this kind of income.

However, responding to a local daily, Muthoka says, “The acquisition qualified as a business combination and valuation of the business combination in line with the International Financial Reporting Standards (IFRS) 3, which gave rise to a non-cash accounting gain that is included under other income. This contributed to the profitability.”

This statement by the deputy CEO is an admission that the value of Ksh3.7 Billion was already intrinsic in Chase Bank, for which SBM Bank acquired without having to pay any consideration, now realised as “other income”. It is interesting to note that IFRS 3, which the deputy DEO quotes, includes “bargain purchases”.

A “bargain purchase” is a transaction that most commonly arises when a business must be sold due to a liquidity crisis. It is like a forced sale.

The bank indicated that as of September 30 2018, it made a profit of Ksh1.8 billion.

In this case, it is not possible for a bank which was in liquidity crisis to lend such a big amount of money to its parent company, at the same time making such profits.

Also, if “other income” of KSh3.7 is removed, the bank would have made an operating income of only Ksh400 million which would not have been enough to cover the other operating expenses of Ksh2.2 billion. This would have resulted in a loss of Ksh1.8 billion.

Total shareholders’ funds are indicated to be around Ksh8.1 billion. There is an increase of Ksh6.4 Billion in the one month period that SBM Kenya had taken over Chase Bank.

In the one month of takeover, funds paid out to parent company was Ksh4.7 billion while a profit of Ksh1.8 billion was ‘made’, resulting from a revaluation gain of KSh 3.7Billion.

These two amounts (Ksh4.7 billion and Ksh1.8 billion) add up to Ksh6.5 billion, which is comparable to the increase in shareholders’ funds in the period of KSh6.4 billion. This is the amount SBM Holdings had promised to inject to their new subsidiary.

 In short, SBM Bank used Chase Bank’s customer deposits and revaluation of assets to show they have injected capital into SBM Kenya.

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Written by Kahawa Tungu


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