Kenya has faced several banking scandals over the years, impacting its financial sector’s stability and shaking public confidence in banks. From fraudulent schemes to corporate governance failures, these scandals have revealed deep-seated issues within the banking industry.
Banking scandals in Kenya have consistently revealed systemic flaws in governance, regulatory oversight, and the ethical conduct of banking executives. Despite reforms, these scandals have shown that the financial sector remains vulnerable to fraud, insider lending, and poor corporate governance.
Below is an overview of some of the most notorious banking scandals in the country.
1. Goldenberg Scandal (1990s)
The Goldenberg Scandal is perhaps the most infamous in Kenya’s history. Although not limited to banking, financial institutions played a key role in facilitating the scheme. The scandal involved the government compensating Goldenberg International, a company owned by Kamlesh Pattni, for fictitious gold and diamond exports. The firm received subsidies of up to 35% more than the actual value of the exports. To move money through the financial system, various banks were used, with the Central Bank of Kenya itself getting implicated.
The total estimated loss to the Kenyan economy was over Ksh 100 billion. The scandal had a profound impact on the economy, triggering inflation and contributing to a weakening currency, all while implicating top government officials and financial institutions.
2. Charterhouse Bank Scandal (2006)
In 2006, Charterhouse Bank was placed under statutory management by the Central Bank of Kenya (CBK) amid accusations of massive money laundering, tax evasion, and fraud. The bank was alleged to have channeled illicit funds and facilitated tax evasion schemes involving billions of Kenyan shillings. The scandal exposed the weaknesses in regulatory oversight at the time, as Charterhouse continued its activities unchecked for years.
A report by a parliamentary committee suggested that powerful individuals and businesses were using the bank for dubious activities. Although Charterhouse Bank was never officially liquidated, it remains closed, and its saga revealed the deep challenges in Kenya’s regulatory framework for banking.
3. Imperial Bank Scandal (2015)
Imperial Bank’s collapse in 2015 was another blow to the Kenyan banking sector. The bank was placed under receivership after revelations that its management had orchestrated a fraud scheme involving the siphoning of Ksh 34 billion over a period of 13 years. The scandal implicated senior executives, including the late managing director, Abdulmalek Janmohamed, in the systematic theft of depositor funds.
The Central Bank of Kenya stepped in to investigate the fraudulent activities, but thousands of depositors were left stranded, with their savings locked in the defunct bank. This scandal exposed the internal lapses in corporate governance and oversight within Kenyan banks.
4. Dubai Bank Scandal (2015)
In 2015, Dubai Bank was also placed under receivership after it was found to be insolvent and unable to meet its financial obligations. Investigations revealed that the bank had engaged in fraudulent activities, including mismanagement of funds and insider lending practices. The Central Bank of Kenya cited gross violations of banking regulations, which had put depositor funds at risk.
Dubai Bank’s collapse highlighted the vulnerabilities of smaller banks in Kenya, with many questioning the ability of regulators to detect and prevent such failures early.
5. Chase Bank Scandal (2016)
Chase Bank’s collapse in 2016 sent shockwaves through Kenya’s banking industry. The bank was placed under receivership following the revelation of accounting irregularities and insider loans amounting to Ksh 16 billion. The bank’s financial reports had concealed the true state of its financial health, misleading investors and depositors.
The scandal pointed to weaknesses in audit processes and regulatory oversight. Chase Bank was later revived under new management, but the scandal damaged confidence in Kenya’s mid-tier banking institutions.
6. National Bank of Kenya Scandal (2016)
The National Bank of Kenya (NBK) was rocked by a major scandal in 2016 when it was revealed that top managers had engaged in a series of fraudulent practices. The bank reported a significant loss of Ksh 1.15 billion, and investigations revealed that insider lending, fraudulent transactions, and poor management were at the heart of the problem.
Several senior executives were fired, and the scandal raised concerns about corporate governance and internal controls in state-owned financial institutions. The CBK intervened, and NBK was eventually acquired by KCB Group in 2019.
7. Family Bank Money Laundering Scandal (2017)
Family Bank found itself at the center of controversy in 2017 when it was implicated in the National Youth Service (NYS) scandal, one of the largest corruption scandals in Kenya’s history. It was alleged that Family Bank was used to launder over Ksh 1.6 billion stolen from the NYS.
The bank was fined Ksh 64.5 million for failing to report suspicious transactions as required under anti-money laundering laws. This scandal underscored the role of banks in facilitating corrupt activities and money laundering schemes.
8. Spire Bank Scandal (2021)
Spire Bank, formerly Equatorial Commercial Bank, faced financial difficulties in 2021, primarily due to mismanagement and insider lending practices. The bank reported massive losses over consecutive years and struggled to meet regulatory capital requirements. It was owned by the Mwalimu National Sacco, the largest teachers’ savings and credit cooperative, which had invested heavily in the institution.
The bank’s misfortunes led to a loss of trust from teachers and raised questions about the governance of both Spire Bank and the Sacco. Eventually, Spire Bank was sold to Equity Group in 2023, but the damage to its reputation had already been done.