Kenya to Jail Bankers Guilty of Wrongdoing After Failures

NAIROBI, Kenya, Capital Markets in Africa: Kenya’s central bank wants bankers found guilty of any wrongdoing jailed, after three lenders in East Africa’s biggest economy collapsed in the past nine months.

“If people did the wrong things they should be held accountable,” Governor Patrick Njoroge said Thursday in an interview at the World Economic Forum in Kigali, the Rwandan capital. “We are going to take them to a court of law. Put them behind bars.”

Kenyan regulators have been forced to put three banks in receivership since August, when Dubai Bank Kenya Limited, a closely held lender, breached daily cash-reserve-ratio requirements. Two months later, Imperial Bank Ltd. was closed down amid claims of fraud that company executives deny. In April, Chase Bank Kenya Ltd. was shut down following a run on deposits. It reopened less than three weeks later after KCB Group, the country’s biggest bank by assets, agreed to buy a controlling stake.

Kenyan police last month ordered the arrest of Chase Bank Chairman Zafrullah Khan and Group Managing Director Duncan Kabui. It’s also asked for the detention of six other directors from state-owned National Bank Ltd., who were placed on forced leave in March pending an internal audit after the company posted a 1.15 billion-shilling ($11.4 million) loss.

 “It’s essential for people to understand that banking is not shop-keeping,” Njoroge said. “It’s not like a fruit seller on a corner. You get deposits from the population in trust. You have a fiduciary responsibility to discharge.”

The problems that faced each of the three banks were unique, and didn’t represent a systemic risk, Njoroge said. Their collapse has led the central bank to intensify supervision of the banking industry, such as ensuring that audits are done correctly, while enforcing greater transparency and stronger governance.

“There was a reset in thinking of how the sector is organized and how it delivers value,” he said. “Kenya has just gone through that reset. It’s done, because we are now in the new normal.”

The stability of the banking sector is one of the key pillars the government wants to build upon for the country to become an international financial center, Njoroge said.

“Our aspiration is to become better than Dubai without the tower,” he said, referring to the Burj Khalifa, the world’s tallest building. “We are thinking Singapore, we are thinking any other financial center in the world.”

The $61 billion economy is over-banked, with 42 banks serving more than 40 million people, compared with 22 banks in Nigeria, which has a population of 180 million and gross domestic product that is nine times bigger, according to Cytonn Investments Management Ltd., a Nairobi-based money manager.

Source: Bloomberg Business News