By Hannigtone Ilamenya
Former Central Bank of Kenya (CBK) governor Prof Njuguna Ndung’u could be twirling in discomfort in retirement as the banking industry he left barely nine months ago continues to experience a shake-up under new management.
Prof. Ndung’u who is accused of turning his eyes away when the regulatory whip caught up with the fallen Dubai Bank Kenya, whose winding up is ongoing, is yet again on spot following the putting under receivership of Imperial Bank of Kenya Limited.
On October 15, shockwaves were sent down the spine of Kenya’s banking sector when the mid-tier lender was placed under statutory management by CBK following what the regulator termed ‘unsound and unsafe practices’ at the bank.
The move coming less than two months following the retirement of Prof Ndung’u is a serious indictment of his eight-year reign at the helm of the banking sector regulator.
It does not help matters considering that this is the second bank to be literally shut by the regulator, less than five months since CBK got a new governor.
In August, barely two months into office, Dr. Patrick Njoroge oversaw the placement of Dubai Bank under statutory management in a fashion that equally raised questions as to how Prof. Ndung’u oversaw the regulator that was supposed to crack the whip on Dubai Bank in 2012, when claims of mismanagement and money laundering at the bank first emerged.
Dubai Bank had accumulated more than Sh5.3 million in penalties, failed to meet cash ratio requirements for a month and defaulted on paying Sh48 million owed to Bank of Africa.
While analysts hold the view that Dubai Banks fate was a matter of when, focus shifts on how the lender survived throughout Prof Ndung’u’s eight-year tenure at the helm of CBK.
Even worrying is the fact the CBK had on several occasions flagged the Bank for ‘cooking’ its books to paint a picture of a healthy business.
In essence, Dubai Bank was a candidate for CBK’s drastic action but it somehow survived until Dr. Njoroge took over and placed it under statutory management less than two months after assuming leadership at the regulator.
In Imperial Bank’s case, CBK said it took the decision to put it under receivership after suspicion of practices, which placed the interest of depositors at risk.
“The bank was placed under receivership due to, amongst other reasons, irregularities and malpractices in the bank which exposed depositors, creditors and the banking sector to risk,” Said receiver manager, Kenya Deposit Insurance Corporation in a press statement.
CBK, sensing the panic that the move had caused in the sector, moved with speed reassure industry players by stating that the action followed self-disclosure by directors of the privately-owned lender.
The lack of clarity from CBK on what malpractices at Imperial Bank were is now a matter of concern from analysts and the banking industry at large.
CBK and the Kenya Bankers Association had to re-assure Kenyans of stability in the sector as fears spread through social media with a list of other financial institutions lined up to go under receivership.
“The list of banks expected to go under receivership that is doing rounds on social media is not true,” said Kenya Bankers Association through its social media platforms.
The events of the past two months in the banking industry rekindled the memories of August 1993 when CBK liquidated two banks in a span of three days.
While Dubai Bank was put under statutory management after a lengthy time of operating on the wrong side of regulations and procedure, its counterpart has been put under receivership after revelations of unspecified malpractices. Analysts believe that the knee-jerk reaction against Imperial Bank’s case would have been handled better by CBK to avoid sending panic in the sensitive banking sector.
“From the sharp poor performance of listed banks at the Nairobi Securities Exchange to discussions on social media, it’s clear there is panic in the market yet even CBK seems unaware what really ailed Imperial Bank,” said a senior research analyst at ABC capital who asked not to be named.
According to the analyst, Prof Njuguna Ndung’u proved to be the type of governor who preferred slow action to solving problems in the banking sector while his successor is quick in reining in lenders that appear to flout regulations.
Unconfirmed reports though suggest that there was massive fraud by officials at the lender hence the move by directors to report the matter to Central Bank.
This equally puts to questions the regulations guiding the country’s banking sector and whether they are strong enough to detect danger before it is too late.
It is also claimed that the death of Imperial Bank’s long-serving Managing Director Abdulamalek Jan Mohammed in September this year served to expose the weaknesses in the bank.
The receiver managers will thus be tasked with establishing the extent of malpractices at the lender and for how long it has existed, and if depositors have anything left for them.
“The decision is surprising given the size of the bank and the reputation of the founding members who still hold key board position in the bank,” reads Kenya Banks not imperial anymore, a report by Exotix, London based research firm released last month. The bank is ranked 17 in the country with a 1.76% share of the banking sector. It had 52,398 deposit accounts as at the end of December 2014.
The poor performance by banks listed on the securities exchange has also been blamed on the actions by CBK, underlining the sensitivity of the sector.
“The banking sector has continued being stalked by sharp decline in investor confidence emanating from the various actions the regulator has been taking upon them,” says a market report by Genghis Capital.
CBK has thus placed itself on the spot as to whether the actions against the two banks were necessitated or not and whether the previous regime under Prof Ndung’u was doing enough to protect the confidence in the banking sector.
According to last audited financial statement for both Dubai Bank and Imperial Bank, up to Sh59.7 billion of customer deposits have now been locked.
While Imperial Bank held Sh58 billion due to its sheer size, Dubai Bank held Sh1.7 billion. Depositors now have to wait the verdict of Kenya Deposit Insurance Corporation to know if they will access their money anytime soon.
