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The East African : Oct 17th 2015
4 FORENSIC AUDIT BEEN CARRIED OUT Imperial Bank depositors hopeful of lender’s healthy financial position They’ve been assu≥ed of not losing thei≥ cash; p≥oblems to be ≥esolved quickly By ALLAN OLINGO The EastAfrican A s the team from the Kenya Depositors Insurance Company (KDIC) who were on Tuesday appointed receiver managers of Imperial Bank in Kenya, spent the remainder of the week combing through its books to determine the extent of fraud, industry analysts were exuding confidence that the bank’s financial position would be found to be healthy and that depositors would not lose their cash. In Uganda, where the bank’s subsidiary was placed under central bank management, authorities were confident that Kenya would quickly resolve the problems at Imperial Bank to calm the jitters in the region’s banking industry. The Central Bank of Kenya placed the bank under receivership following what it described as questionable dealings, and asked receiver managers KDIC to conduct a forensic audit on the financial books of the lender in order to determine the extent of the impropriety, its causes and who was responsible. The banking analysts said that only two months ago, when Imperial Bank issued a $20 million bond, all indicators pointed to a financially healthy institution. Its annualised net interest margin was at nine per cent, above the industry average of eight per cent, while its liquidity ratio was at 41 per cent, twice the 20 per cent regulatory minimum. Its loans-to-deposits ratio was also healthy at 72 per cent (80 per cent is considered high) while its non-performing loans ratio was comfortable at six per cent. While the fate of the bank — whose deposit profile has heavily exposed institutional depositors — depends on what the audit by KDIC will reveal, the analysts said they were hopeful liquidation would not be an option. Once the audit is complete, Imperial Bank could be sub- jected to a capital injection, restructuring and reopening, according to the analysts. George Bodo, the head of The blame lies squarely with the board, especially those running the dayto-day business of the bank.” Source from the bank banking research at EcoBank Capital, said, “The extent of the capital hole is still unclear but there are so many options. Can the shareholders inject more capital? Yes, they can. The bank got approvals for its unsecured bond after two competent regulators audited its books. “There was also no indica- tion that the bank was unable to meet its financial obligation. You only do liquidation when the bank isn’t liquid.” Should the receiver manag- ers recommend the reopening of the bank, it could face the risk of a run on deposits owing to the anxiety created by its placement under receivership. In Uganda, the bank’s sub- sidiary continues to operate normally without interruption after being taken over by Bank of Uganda. Bank of Uganda Deputy Gov- ernor Louis Kasekende said the bank had not witnessed any panic from depositors. “Our reading of the situation and the action we took The EastAfrican NEWS OCTOBER 17-23,2015 Stocks of NSE-listed banks post a decline By ALLAN OLINGO The EastAfrican BARELY HOURS after Imperial Bank was put under statutory management by Kenya’s Central Bank, stocks of listed banks started recording declines at the Nairobi Securities Exchange, sending the industry into a low as the market reacted to the surprise closure of the second-tier bank. The shock declines in the sector forced the Central Bank Governor Patrick Njoroge to reassure the market that the Imperial Bank case did not present a systemic concern for the sector. Save for I&M Bank, all the other RECEIVERSHIP PROCESS The company’s financial conditions and operations are reviewed by the Kenya Depositors Insurance Company (KDIC) to identify the problems that led to receivership. KDIC reorganises operations to address the problems that led to the firm being put under receivership.It can then call for a capital injection by shareholders or a liquidity injection by the Central Bank, provided an assurance to depositors. We have not seen any run on deposits so far. The bank is also currently compliant on its capital requirements and we are confident Kenya will sort out this issue amicably,” said Dr Kasekende. The EastAfrican has learnt that divisions within the Kenyan bank’s board management over financial improprieties pushed them to call in the Kenyan regulator. Informed sources at the bank said questionable book-keeping could have led to millions of dollars not being accounted for, a scenario that now threatens the bank’s capital. Ownership contest There were also claims that the death of the bank’s second major shareholder and then chief executive could have sparked off an ownership contest that threatened the bank’s operations. The death of the bank’s chief executive Abdulmalek Janmohammed on September 15, has left a lot of questions unanswered on the extent of financial malpractices at the financial institution. Mr Janmohamed had served as the chief executive of the should the need arise. In a case of restructuring, KDIC negotiates terms with creditors, creating a workable plan in case the bank had debts. This also involves management and board restructuring. In a case of liquidation, KDIC attempts to get as much money as possible for the firm’s assets to offset its debt obligations, which include clients’ deposits. bank since its inception in 1992. The bank’s board appointed Naeem Shah as interim managing director. Mr Shah previously worked at the institution as the head of credit and asset finance. It has also emerged that con- flicts of interest, which saw some of the shareholders get involved in the day-to-day running of the bank, could have contributed to the current situation. “The blame lies squarely with the board, especially the ones who were running the day-today business of the bank. When you have the majority shareholders overseeing the day-to-day running of the bank, it complicates the fiduciary duties, complicating the whole matter. Ideally you should not allow the owners of the bank to run it because the other shareholders will not be able to see what is going on. This is what happened,” said the source privy to the happenings at the bank. CBK said that it was Imperial Bank’s board that informed it of malpractices in its ranks. “The board of directors of Im- perial Bank Ltd brought to the attention of the CBK inappropriate banking practices that warranted immediate remedial ac- listed banks saw their stocks decline. Regional banks, led by Equity and Kenya Commercial Bank, headlined a second day of decline in the country’s banking stocks, with Diamond Trust Bank, Barclays, NIC, Housing Finance, Stanchart and Co-op Bank all recording dips in their share price. CBK placed Imperial Bank un- der receivership and appointed the Kenya Deposit Insurance Corporation (KDIC) as receiver for 12 months. This came barely three months after the bank issued a $20 million bond to shore up its capital reserves. The bond was due to be traded on the day it was closed. Kenya’s Capital Market Authority promptly suspended trading of the bond to safeguard investor’s interests. Unsound business “CBK has become aware of un- safe and unsound business conditions at Imperial Bank. The appointment of KDIC as a receiver for Imperial Bank Kenya Ltd has been carried out in the interest of its depositors, creditors and members of the public,” the bank said in statement. Francis Mwangi, head of equity research at Standard Investment Bank, said the market’s perception isn’t really good, coming barely two months after the closure of Dubai Bank. “Investors who have contributed to the net sale will be keenly watching the sector, mostly because it’s coming out that CBK has now become more vigilant and aggressive,” said Mr Mwangi. The Kenya Bankers Association (KBA) sought to calm the market by saying this was an isolated case. “It is our view that this issue is isolated to the bank, and is neither systemic nor an indication of instability in the banking sector,” said Nuru Mugambi, KBA director of communication.
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