JAMES MULIRO
In less than two months, another Kenyan bank has fallen, following in the footsteps of collapsed Dubai Bank Kenya, whose winding process is on going.
Acting on what it termed as “unsafe or unsound business conditions at Imperial Bank Limited,” the Central Bank of Kenya (CBK) immediately put the mid-tier lender under receivership. This action was quickly followed through by the Bank of Uganda (BoU), which put the lender’s Uganda subsidiary under receivership as well to protect the interests of depositors and creditors at the bank.
In what has sent jitters in Kenya’s banking industry, the placement of the lender under management comes bares three months after another small bank, Dubai Bank followed the same route, with an assessment later on recommending its permanent closure as the only viable option of safeguarding interests of creditors, suppliers and depositors.
Industry insiders say that the trouble at Imperial Bank started in September 2015 following the demise of the bank’s founder and group managing director, Mr Abdul-Malek Jan Mohammed. By the time of his death, Mr Mohammed was the major shareholder in Imperial Securities, which holds the majority stake in the bank.
Upon his death, it is understood that, Naeem Shah who was the head of credit and finance was handpicked on provisional basis but it so happens that his selection did not go down well with a number of other top shareholders. There was an internal power struggle among the top shareholders on who should be appointed to the top seat at the bank following the death of its principal shareholder.
The power struggle is what is said to have led to some shareholders alerting the Central Bank of Kenya that all was not well at the bank following the demise of its founder following which the regulator assigned the Kenya Deposit Insurance Corporation (KDIC) as its receiver manager over the next twelve months.
It is understood this move was meant to allow the top shareholders to sort out their management problems that could otherwise have brought down a seemingly sound bank that appeared headed for a brighter future.
“The board of directors of Imperial Bank Limited brought to the attention of the CBK inappropriate banking practices that warranted immediate remedial action. CBK responded, also liaising with the Capital Markets Authority and the Bank of Uganda, and containing any adverse impact on the financial sector. CBK welcomed the self-disclosure by the board of Imperial Bank Limited which facilitated the prompt response,” the CBK governor Dr Patrick Njoroge said in a statement released early last month.
While the picture at Imperial Bank may not seem as grim as the one at its fallen peer, Dubai Bank, trust amongst its depositors may have been damaged for good. When Dubai Bank began experiencing problems in November 2012, depositors exited in droves, withdrawing nearly Sh2 billion they had placed in the bank. At the end of 2014, the deposits had shrunk to less than Sh4 million.
It is the collapse of Dubai Bank Kenya on August 24, 2015 that dealt a major blow to the otherwise stable and vibrant banking industry in Kenya. The incident evoked memories of the 1980s and early 1990s when several banks in the country collapsed after running bankrupt.
Despite events leading to the collapse of Dubai Bank Kenya having emerged at the end of 2012, operations seemed to have been going on as if nothing was amiss at the small lender. Some analysts said it was a case of a regulator who appeared to have looked the other way and deliberately avoided to crack the whip on the lender, which appeared headed to go under with over Sh2 billion in depositors’ funds.
Barely two months after taking office, CBK governor, Dr Njoroge put the lender under receivership for failing to pay its debts. The lender had also reneged on the payment of the mandatory cash reserve ratio of 5.25 per cent of its deposits to the Central Bank prompting the quick response by the regulator.
On the day that Imperial Bank was put under receivership, the entire banking sector recorded declines on the stock market except for I&M Bank, which did not trade that day.
“Investors appeared concerned about whether there was a systemic issue with the sector, a factor which the regulator sought to allay later by clarifying that the issues were brought to its attention by the board of directors of Imperial Bank,” analysts at Standard Investment Bank (SIB) noted.
A joint statement issued by CBK governor and Capital Markets Authority (CMA) acting chief executive officer Paul Muthaura indicated that the action taken by the banking sector regulator was in accordance with “the principle of Prompt Corrective Action to address unsafe banking practice”.
As a result of the CBK’s intervention, the Capital Markets Authority (CMA) directed the Nairobi Securities Exchange (NSE) to suspend the introduction to listing and trading of the corporate bond issued by Imperial Bank. The bank had just raised Sh2 billion from the public to fund its expansion plans as well as its loan book.
The CMA will also be working closely with the board of Imperial Bank and KDIC to ensure important information is made available to investors for the transparency and orderliness of the capital markets.
A mid-tier lender, Imperial Bank was established in 1992 and has operations in both Kenya and Uganda. The lender represents 1.8% of the banking sector with the CBK saying the incident does not present a systemic concern for the sector. KDIC is to issue progress reports on a timely basis on the progress of the bank in a bid to bring it back to full operation under the lender’s own management.
The bank holds deposits worth more than Sh50 billion from individual investors and major corporates. It has 28 branches in Kenya and five in Uganda where it expanded to in 2011.
“KDIC has declared a moratorium to business that shall apply equally and without discrimination for all stakeholders of the bank during the receivership period. Accordingly, normal operations of the Bank are suspended except for collection of loan re-payments or any other payments into the Bank. Debtors are therefore encouraged to continue servicing their obligations. For this reason, KDIC will in the meantime keep all the branches of the Bank open for such transactions,” KDIC’s acting chief executive officer Aggrey Bett said in a statement.
He further said KDIC has begun to undertake due diligence to ascertain the veracity of irregularities and malpractices and determine the most appropriate resolution mechanism in the shortest time possible.
