Questions that remain unanswered on troubled Imperial Bank a year on

A cloud of uncertainty hangs around the future of Imperial Bank as it goes into an additional six months under receivership this week.

The bank marks one year on Thursday under the management of the Kenya Deposit Insurance Corporation (KDIC), but its future still remains in question as the relationship between its shareholders and the Central Bank of Kenya (CBK) deteriorates.

One of the grey areas that have remained around the bank is just how much money is actually missing – the preliminary figure was Sh38 billion.

CBK has kept secret the final findings of an audit it signed off on, choosing not to file the final report in court as part of its evidence against the lender’s directors.

Another unknown is how much CBK traced within Imperial Bank’s system after it took over on October 13 last year.

Also unanswered is what the lender’s restructuring strategy is, and if its doors will ever reopen.

It is also not yet clear if the bank was insolvent at the time it was placed under receivership.

The collapse of Imperial Bank is shaping up to be one of the biggest nightmares for CBK Governor Patrick Njoroge. He has likened the theft at the bank – which was masterminded by its group managing director Abdulmalek Janmohamed who died in September last year – to the Goldenberg scandal.

The other elephant in the room is why CBK has yet to take action against its employees who found to have been involved in covering up the fraud at the bank.

The regulator’s role at Imperial Bank got complicated when it emerged in court that Janmohamed had paid for a six-day retreat to Bangkok for former CBK Governor Njuguna Ndung’u and his wife.

Legal fees

The Central Bank has also not disclosed how much it is spending on legal fees as court cases from shareholders and depositors pile up. It is also not yet clear what the receiver manager’s legal strategy is.

Also unanswered is how much the forensic audit, whose final results are yet to be made public, has cost the bank.

And while CBK has maintained that it is keen on resolving the issues at the bank, it has missed some of its own deadlines, partly blaming this on a lack of co-operation from Imperial’s main shareholders.

At his latest briefing on the lender, Dr Njoroge said CBK had reached a “delicate point in its investigation and prosecution”.

“We want to ensure we recover the assets and hold the parties responsible accountable,” he said.

He added that the regulator has to navigate the legal minefield that it has found itself in, even as it pushes to recover assets.

“The forensic audit is largely complete and they are working to ensure that we traverse this rather delicate point, working with relevant investigative and prosecution agencies safely and quickly,” Njoroge said.

The regulator has also blamed the slow process in fixing the bank on several court cases that have been filed from various parties, among them depositors.

Shareholders have also kept the legal team at CBK busy, filing case after case to challenge almost every action Njoroge and his team have taken since the mid-tier lender was placed under receivership.

“We have been sued on various issues related to Imperial Bank and we have defended our own. We also have a suit we have initiated on WE Tilley and its associates, including some of its directors,” the governor said.

Unlike with Chase Bank, which was able to reopen in three weeks after being placed under receivership on April 7, Njoroge continues to run into hurdles as he tries to engineer a possible turnaround strategy.

Most recently, lawyer Ahmednasir Abdullahi said he is preparing to file a fresh case against CBK on the grounds that it is wasting depositors’ money on legal fees.

Mr Ahmednasir claims that CBK has filed claims for Sh110 billion from Imperial Bank. He added that the regulator faces lawyers’ liability fees of more than Sh20 billion.

“CBK is wasting depositors’ money in Imperial Bank in paying four sets of lawyers for the same money four times. In three weeks’ time, my law firm will file a class action against CBK for abuse of office for every penny deposited with Dubai and Imperial banks,” he said on social media platform Twitter.

CBK supports a plan where the bank’s shareholders will be required to pump in Sh20 billion in new capital. But shareholders have refused to deposit this money with CBK on the grounds that a due diligence has now been completed.

The regulator further wants securitising of the WE Tilley fraud using shareholders’ assets, and recovery of Sh5 billion from Tilley. Large depositors will also be required to convert Sh5 billion of their deposits into equity.

Fish business

Imperial Bank was placed under receivership after it emerged that its top executives had ran a scheme for 13 years that siphoned Sh38 billion from the lender.

An audit revealed how just eight members of one family that largely deals in the fish business conspired with the bank’s top managers to siphon Sh34 billion from the bank in one of the biggest such thefts to strike the financial sector.

The audit by US firm FTI Consulting LLP found that the bank’s senior management, led by Janmohamed, ran the long-running and systemic fraud by running a hidden ‘parallel’ bank.

The ‘parallel’ books and financial statements were never disclosed to the board or reported, concealing the bank’s true position.

The audit identified 73 accounts connected to WE Tilley, which has been named in court as having received billions of shillings from the bank irregularly.

Masterminds of the theft had snapped up millions of shares at the Nairobi Securities Exchange (NSE), bought high-end property in Kenya and abroad, including beach plots and apartments, and put billions of shillings in fixed deposit accounts by the time Imperial Bank’s doors were being shut.

One of the most significant developments for the lender has been the selling of shares in its subsidiary in Uganda. The Central Bank of Uganda sold the stock held by Imperial Bank Kenya for Sh670 million to Exim Bank (Uganda) Ltd. This marked the end of Imperial Bank’s operations in Uganda.

Imperial Bank had invested Sh858 million in the Ugandan subsidiary as at 2014, when the unit had gross assets of Sh7.9 billion.