Category Archives: Imperial Bank

Top 5 Kenya Bank Stories of 2015

  1. Imperial Bank collapse: The shock of the year, and probably the decade. Owaahh shows in Part 1,  2, and 3, of “The Sack of Imperial Bank”, that it was actually a 13-year saga that unravelled in 2015.
  2. The new Governor at the Central Bank of Kenya, Dr. Patrick Njoroge, had an immediate impact, not just with Imperial, but also Dubai. He also cracked down on banks that were apparently lax on large payments, legit and illicit ones.
  3. Bank profit drop or flat growth: Whether it was the local economy, bad debts (Stanchart, Bank of Africa), or East African impact (events in South Sudan, Burundi or Mauritius [for Britam], this year tested banks after years of ‘easy money’ and double digit growth in the industry.
  4. Barclays exit from Africa (really, a 2016 story)
  5. Agency banking. Even Family, I&M and Barclays, took this route. While a few branches are still opening in new malls, they are not the main channel for small transactions, as ATM’s phones, social media, and now bank agents handle lost of customer interaction.

What other stories merit ranking?

  • The law on unclaimed financial assets, and the Unclaimed Financial Assets Authority (UFAA) became active

Imperial Bank Uganda Buyout

While the fate of Imperial Bank in Kenya is yet to be known, it seems to have been concluded in Uganda, where Imperial Bank had a Ugandan subsidiary  with 5 branches, in which the Kenyan bank held 59% of the shares.

Today, in a series of tweets, the Bank of Uganda ‏(@BOU_Official), announced that a new majority shareholder, Exim Bank of Tanzania had bought out the shares, and renamed the bank as Exim Bank Uganda, and with a new board of directors.

They were thus lifting the statutory  management and expect the bank operations  to ‘continue normally.’  No word yet on how much was paid, or who the payment was made to, and if there’s any reaction by the  former majority owners of the bank (Imperial Kenya).

The Business Daily story notes that :

The Central Bank of Kenya (CBK) on Tuesday disclosed that Imperial Bank Kenya’s 58.6% stake in its Ugandan subsidiary was sold to Exim Bank for $6.8 million (692.4 million).

The Sh316.5 million balance between the sale price and the amount to be remitted to the Kenyan unit will be used to cover transaction costs and liabilities of the Ugandan operation. The Kenya Deposit Insurance Corporation (KDIC), the receiver manager of the collapsed Imperial Bank Kenya, will receive the amount.

Why Imperial Bank May Not Reopen – Part II

Now’s it’s out in the open. That is the story of the non-executive directors and shareholders at Imperial bank.At a press briefing today they broke free of a media blackout that was requested by the Central Bank (CBK)  and the Kenya Deposit Insurance Corporation (KDIC) (the receiver manager of the bank), but  which they now feel has been used to leak only one side of the story on the collapse of the bank.

Imperial Bank non-executive directors

  • Discovery:  Governance rules exclude non executive directors from running the bank, so they are blindsided by the 13-year long fraud at Imperial.
  •  CBK & PKF failed in their audit duties; PKF in their tests, and CBK in supervision and not responding to whistleblowers
  • (The late Managing Director) Janmohamed was friend & none could imagine the betrayal; that a disturbed man with weak managers destroyed the lives of Imperial Bank depositors
  • Reaction: From when they discovered fraud, the non-exec directors & shareholders have tried to protect Imperial bank depositors & bondholders
  • CBK & KDIC asked them not to speak, but we should have been more proactive in communicating with depositors and bondholders.
  • Recovery Plan:  After discovery of the fraud, Imperial Bank directors took CBK a plan that called for recapitalization of the bank, recovery from wrongdoers, a payment of Kshs 1 million to all depositors and attracting a strategic investor within 12-18 months of reopening
  • When they presented the recovery to CBK/KDIC, Imperial Bank had good liquidity – ~Kshs 20 billion cash.
  • Way Forward:  They, as shareholders (& associates) are ready to capitalize Imperial Bank, but only after a due diligence is done.
  • While directors have joined the bank suit against Janmohamed’s estate, they say KDIC is not pursuing all people involved in the fraud at the bank.
  • The CBK Governor is a principled man but his institution is being let down by dishonest people, a similar situation to what happened to them at Imperial.
  •  They are unaware of what KDIC / CBK plan for the bank, and are concerned that Imperial Bank customer data has been shared with KCB and Diamond Trust banks.

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My take, is still the same as in Part I

The only way for Imperial Bank to survive is if it is bought out by a large, multi-national, or regional bank. That bank will have deep pockets and will have done its due diligence on the true value and exposure that Imperial Bank carries, and received a waiver of obligations above an agreed threshold and from additional liabilities, prior to their agreeing to buy the bank. And if such a deal happened, the new bank will want to take on the Imperial customers and business but erase all traces of the Imperial Bank name, forever.

Relief for Imperial Bank Depositors

Finally a breakthrough for depositors has been reached at Imperial Bank after 1.5 months of anguish:

  •  Kenya Commercial Bank and Diamond Trust Bank will pay depositors of Imperial Bank  their deposits, up to Kshs 1 million ($,9800) each. This means that 44,300 or 89% of the banks’ depositors will get their money within a few weeks at branches of KCB or DTB.
  • This comes as Imperial Bank shareholders have not accepted the government proposal that will allow reopening of the bank.
  • The support of the (DTB’s largest shareholder) Aga Khan Fund for Economic Development (AKFED) has been instrumental in reaching this agreement.

Imperial Bank Unlikely to Reopen

Last week, I watched some very moving clips of customers of Imperial Bank who lost their investments and life savings when the bank was closed on October 13, 2015. The Jeff Koinange Live TV show (part 1, 2, 3), featured  three different depositors who spoke of their shock on getting the news and the impact that the last month has had on their families, businesses, and plans for the future.

#CountingtheLosses

#CountingtheLosses

The program featured Aleya Kassam who’s blogged about her lost money at Imperial Bank and two others, a businesswoman who runs a children’s home and a Nigerian businessman who lives and invests in Kenya. They also narrated tales of other people they know who lost colossal amounts  (Kshs 30 million, Kshs 65 million, and even Kshs 500 million (~$4.9 million), some of who were retirees who had had all their life savings at Imperial bank

Jeff and the business lady had a light moment when they realized they had both been customers of Diners Bank which collapsed in the mid-1990’s and in which she lost Kshs 200,000 (a large amount then)  that she never recovered. How cruel was it then that she was going to lose money in another collapsed bank that offered good rates and good services twenty years later, but which also collapsed?

You could see the depositors frustration with the process over the last month since the closure. They were at times angry with the Central Bank of Kenya Governor, the shareholders of Imperial Bank, the directors of Imperial Bank, the companies that took illegal loans from the bank, and the auditors of the bank. They kept asking how did Kshs 34 billion ($333 million) vanish in fifteen years and none of  these regulators and guardians at the bank not realize something was amiss? How could they allow a bank to operate that even took in their money the day before it closed?

They were doubly frustrated on hearing of plans being formulated over the last month for the bank, with little involvement, or communication, to them as depositors. Why is the bank not open when the Governor said it would resume in a month? Why can’t the government allow controlled withdrawals by the ‘legitimate’ deposits and customers? Why has the (new) bank CEO not made a statement, and Is he even in the country or has he fled to Canada like the CEO of another large collapsed bank? Why has the Central bank not involved depositors in their talks with the shareholders and directors of the bank? Etc.

What’s been in the news seems to have taken the bank further back from reopening including revelations of “off the books” loans, some of which the takers have offered to partially return. The Kenya Deposit Insurance Corporation [KDIC], who insure all depositors up to Kshs 100,000 [$980], have asked customers to ignore fraudulent emails asking them to convert their deposits into shares at the bank in their desperation to get the bank reopened. There have also been stories of there being a Kshs 40 billion hole at the bank, and shareholders only offering a quarter of the amount, while insisting that they want immunity before they place the money in.

Imperial Bank was an award-winning Kenyan bank

Imperial Bank was an award-winning Kenyan bank

In addition the family of the former CEO,  who’s widely blamed for the bank fraud,  are now denying that he stole money, and shareholders of the bank also blaming the Central Bank for failing in its regulatory and oversight role at Imperial which won numerous awards for growth, finances, customer service and marketing. Shareholders of the bank want to sue the companies who had borrowed off the books, and depositors want to be included in cases as they also accused the government of being slow in reopening the bank and for being lax in oversight.

The outlook for Imperial Bank is not good. Even if the estimated Kshs 43 billion in ‘official’ loans, along with the Kshs 17 billion of government securities Imperial Bank had, and whatever amount is in ‘unofficial’ loans, are recalled and paid, the official amount owed to depositors is Kshs 60 billion. But the day the bank doors reopen, you can expect all the depositors to run to the bank to draw their funds in full. They will not be banking at Imperial in a week’s time and are unlikely to ever entrust their funds to the management or shareholders of the bank ever again. The same goes for other banks, and financial intermediaries, who rely on trust and confidence as a basis for banking relationships.

Kenyan bank depositors being administered by KDIC

Kenyan bank depositors being administered by KDIC

The current issue of the East African compares the situation at Imperial to Trust Bank which was placed in receivership in 1998. It briefly reopened after depositors converted their funds into shares at the bank, then again shut down, this time permanently, in 2001 after finding it hard to win new business.

The only way for Imperial Bank to survive is if it is bought out by a large, multi-national, or regional bank. That bank will have deep pockets and will have done its due diligence on the true value and exposure that Imperial Bank carries, and received a waiver of obligations above an agreed threshold and from additional liabilities, prior to their agreeing to buy the bank. And if such a deal happened, the new bank will want to take on the Imperial customers and business but erase all traces of the Imperial Bank name, forever.

Correction: There has been no demand by shareholders for any immunity