Is Credit Bank Facing A Chase, Imperial Bank Moment? Auditors Raise Alarm As Bank Goes Silent

Investigation: Credit Bank’s catastrophic 60% non-performing loan ratio sparks fears of insider fraud as auditors cast doubt on bank’s ability to survive

Credit Bank finds itself teetering on the precipice of collapse, with auditors raising serious questions about the institution’s viability as a going concern.

The mid-tier lender’s silence amid mounting regulatory pressure has sparked uncomfortable parallels with Kenya’s most notorious banking failures – Chase Bank and Imperial Bank – both of which collapsed under the weight of insider fraud and questionable lending practices.

The Numbers Don’t Lie

The bank’s latest auditor’s report paints a picture of an institution in terminal decline.

With non-performing loans hitting an unprecedented 60% of its loan book, Credit Bank has achieved the dubious distinction of posting the worst loan portfolio performance in Kenya’s banking sector.

To put this in perspective, the industry average for non-performing loans stands at 16.4% – already the highest level recorded in the past decade according to Central Bank of Kenya data.

Credit Bank’s performance is nearly four times worse than this already concerning national benchmark, raising fundamental questions about whether the bank’s lending decisions were driven by sound banking principles or something far more sinister.

Capital Crunch Intensifies Crisis

The loan crisis is compounded by severe capital adequacy challenges.

Credit Bank’s core capital stands at just KSh 1.3 billion, falling dangerously short of current Central Bank of Kenya requirements and catastrophically below the KSh 3 billion threshold that becomes mandatory by December 2025.

The bank’s liquidity ratio of 15.1% also breaches the statutory minimum of 20%, indicating the institution is struggling to meet its short-term obligations.

Industry analysis reveals that 12 banks had core capital below KSh 3 billion by September 2024, but Credit Bank’s combination of capital shortfalls and catastrophic loan performance creates a unique crisis that experts say demands immediate regulatory intervention.

Echoes of Past Failures

The parallels with Kenya’s banking sector disasters are impossible to ignore.

Chase Bank’s 2016 collapse was partly attributed to questionable insider lending practices, with investigations revealing that substantial loans were advanced to connected parties without adequate security.

Imperial Bank’s closure followed the discovery of massive insider fraud involving fictitious loans that existed only on paper but had real money flowing to questionable beneficiaries.

More recently, Equity Bank was forced to terminate several employees over internal fraud targeting its mobile lending systems, demonstrating that the threat of insider misconduct remains a clear and present danger to Kenya’s banking sector.

Credit Bank’s extreme loan default rate suggests problems that transcend normal business risks or macroeconomic challenges.

When three out of every five loans fail to perform, it indicates that basic risk assessment protocols may have been systematically bypassed or deliberately compromised.

The Silence Speaks Volumes

Betty Korir, CEO Credit Bank.

Perhaps most telling is Credit Bank’s response to the mounting crisis.

While other banks facing challenges have engaged proactively with regulators and stakeholders, Credit Bank has adopted a strategy of relative silence, offering only vague promises of “aggressive” collateral sales and negotiated settlements with defaulters.

The bank’s announcement that it will pursue negotiated settlements is particularly revealing, as it essentially acknowledges that full loan recovery is unlikely.

This raises critical questions about the original terms under which these loans were approved and whether proper due diligence was conducted before disbursement.

The decision to aggressively liquidate assets may provide short-term liquidity relief, but it also risks further eroding customer confidence at a time when the bank desperately needs to rebuild credibility.

Regulatory Pressure Mounts

The Kenyan banking sector is currently facing a significant challenge due to a sharp increase in non-performing loans (NPLs), but Credit Bank’s situation appears to be in a category of its own.

While the Central Bank of Kenya has been implementing various measures to strengthen the sector, including enhanced prudential guidelines and closer supervision, Credit Bank’s extreme metrics suggest these measures may have come too late for the troubled lender.

The bank now faces a race against time to address its capital adequacy requirements while managing a loan book that appears fundamentally compromised.

Without a thorough forensic investigation into its largest defaulters and a comprehensive audit of its lending practices, any recovery efforts may prove insufficient.

Questions That Demand Answers

Several critical questions emerge from Credit Bank’s crisis:

1. Due Diligence Breakdown: How did a licensed commercial bank approve loans that resulted in a 60% default rate? What risk assessment procedures, if any, were followed?

2. Connected Lending: What proportion of the defaulted loans were advanced to parties connected to the bank’s management, directors, or shareholders?

3. Collateral Verification: Were the collateral and security arrangements for these loans properly verified and valued before disbursement?

4. Regulatory Oversight: How did the bank’s condition deteriorate to this extent without earlier regulatory intervention?

5. Recovery Prospects: Given the bank’s acknowledgment that negotiated settlements may be necessary, what is the realistic recovery rate on these defaulted facilities?

The Road Ahead

For Credit Bank to survive as a going concern, it must move beyond damage control to address the root causes of its crisis.

This includes answering difficult questions about whether internal actors may have deliberately compromised the institution’s lending standards for personal gain.

The bank’s ultimate fate may depend on how quickly and thoroughly it can address the systemic failures that led to this unprecedented level of loan defaults. Without transparency about what went wrong and who was responsible, any recovery efforts may appear more like desperate measures than strategic solutions.

The Credit Bank crisis serves as a stark reminder of the importance of robust internal controls and independent oversight in banking operations.

As Kenya’s banking sector continues to grapple with rising non-performing loans, the Credit Bank case study will likely influence regulatory approaches and stakeholder expectations for years to come.

The unfolding drama at Credit Bank is more than just the potential failure of another financial institution – it’s a test of Kenya’s banking supervision framework and a reminder that the ghosts of Chase Bank and Imperial Bank continue to haunt the sector.

As the institution fights for survival, industry observers will be watching closely to see whether Credit Bank can overcome its challenges or whether it will join the ranks of Kenya’s failed banks, taking with it valuable lessons about the critical importance of sound lending practices and effective governance in the banking sector.

The Central Bank of Kenya has not responded to requests for comment on Credit Bank’s situation. Credit Bank’s management was not available for comment despite multiple attempts to reach them.

About This Investigation
This story is based on publicly available financial reports, regulatory documents, and industry analysis.