Imperial Bank receivership saga puts spotlight on CBK and CMA

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The placing of Imperial Bank under receivership on Monday this week sent shock waves in the financial sector. This was due to the fact that no one expected it to occur so soon after they floated a very successful Ksh. 2 billion bond. The question in everyone’s mind is why the bank was allowed to float a bond yet there were malpractices or in the Central Bank’s (CBK) words unsafe and unsound business practices. According to CBK it was the bank’s board which went to them to report and seek their intervention. This is the second bank to be put under receivership only a few months after the CBK governor Patrick Njoroge took office. In the case of Dubai Bank the malpractices had reportedly occurred over a period of time which begs the question of why CBK is only acting now after a change of guard yet they had this information all along. Given the governor’s track record so far, I foresee a situation whereby CBK will actively crack the whip on more non-compliant banks.

The news has had a ripple effect on the banking sector more so after a message went viral online indicating a list of banks which were supposedly under imminent threat of closure by CBK for not meeting the minimum capital thresholds. This led to panic withdrawals by account holders in the banks mentioned in the list. CBK was faulted in this case for their vague communication on the reasons why the Imperial bank was put under receivership, however they later issued a statement terming the list as fake.

The decision to put the bank under receivership on the day their bond was to start trading on the stock exchange has cast aspersions on the quality of supervision on the Kenya banking sector and capital markets. The institutions that were meant to supervise are the Capital Markets Authority and CBK. The two institutions have been put on spotlight due to the fact that the closure has happened just a few months after they gave approval for the bond offering. CBK gave approval on June 9 while CMA did so on August 12. Normally if an institution wants to issue a bond it has to undergo through rigorous fitness assessment before being allowed to mobilize funds from the general public. The investment bankers for the bond Dyer and Blair also caught some flack due to the fact that they are also supposed to do due diligence for the investors.

As soon as news got out that Imperial Bank Kenya had been put under receivership, the Central Bank of Uganda also did the same for the Uganda subsidiary of the bank. Kenya Deposit Insurance Corporation (KDIC) were appointed as the receiver managers and are meant to take control of the bank for a period of 12 months. KDIC formerly Deposit Protection Fund Board is a corporation established under section 36 of the Banking Act, chapter 488 as a deposit insurance scheme to provide cover for depositors and act as a liquidator of failed member institutions. A member institution in this case can be a commercial bank, non-bank financial institution, building society or a deposit taking micro finance institution. In a situation where a bank fails the depositor is guaranteed payment to a maximum of Kshs.100,000.00. In the event that a depositor has funds in excess of Kshs.100,000.00, they will be paid a liquidation dividend after the liquidator (KDIC) has fetched sufficient funds from the sale of an institution’s assets and recovery of debts owed. If a depositor happens to have multiple accounts in the institution, they are consolidated and paid up to the maximum sum of Kshs.100, 000.00. However liquidation only occurs in situations where the receiver managers find that the business is unsustainable.

At the moment all withdrawals have been stopped at Imperial bank with a view to prevent a run. This is whereby account holders rush to withdraw their funds from a financial institution. Only loan repayments are being processed by the bank.

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