We Were Sleeping, Says Kenya Central Banker After Lenders Fail

NAIROBI, Kenya, Capital Markets in Africa: Kenya’s central bank said that it should have stepped in sooner to halt the collapse of three lenders in the past nine months and that a culture of leniency by the regulator contributed to a build-up of misconduct in the industry.

“The watchdog should have barked sooner and louder,” Njoroge told lawmakers in Nairobi, the Kenyan capital. “We have been asleep at the switches in terms of us failing to detect this.”

Kenya has had 27 lenders collapse or puts under receivership, three of them since Njoroge begun tightening banking supervision after being appointed the head of the regulatory body in June.

The most recent lender to be placed into receivership, Chase Bank Kenya Ltd., has since reopened and 8.7 billion shillings ($86 million) of irregular loans recovered as Kenyan police ordered the arrest of its Chairman Zafrullah Khan and Group Managing Director Duncan Kabui. 

Dubai Bank Kenya Ltd., the first lender to be put under statutory management under Njoroge’s watch, is still shuttered as purchase offers were insufficient, the governor said. The third collapsed company, Imperial Bank Ltd., requires 40 billion shillings to reopen, but shareholders remained uncooperative about reviving it. The regulator is seeking to freeze the assets of those behind its “looting,” including on properties outside Kenya.

The bank seized in October — a month after its former Managing Director Abdulmalek Janmohamed died — held 87 billion shillings of deposits and 62 billion shillings of assets at the end of September, according to the central bank.

“Shareholders are not interested in reopening the bank,” Njoroge said. “IBL needs something in the order of 40 billion to reopen. But without shareholders’ support, nothing can go forward.”

Tightening Noose
The central bank expects to complete a forensic audit on Imperial by the end of June and authorities are preparing cases against bank officials who stole money from all three lenders, Njoroge said.

“Those that stole, let the courts hold them accountable,” he said. “Let the courts see that there is protection for depositors.”

In April, police sought six directors from state-owned National Bank of Kenya Ltd., pending an internal auditor after the company posted a 1.15 billion-shilling loss. Its former chief executive, Munir Ahmed, has since left the company.

The central bank is recruiting new audit and IT staff to strengthen its supervision, Njoroge told the lawmakers, adding that he feared for the safety of his employees as the regulator tightens the noose on criminality in the industry.

“One thing that worries me most is my staff, the need to protect them,” Njoroge said.

Source: Bloomberg Business News