End of the road for Dubai Bank as winding up process kicks off

A view of Dubai Bank along Nkurumah road in Mombasa. The bank will now be liquidated as recommended by the regulator.

NAIROBI: It is end of the road for Dubai Bank after the Central Bank of Kenya (CBK) approved its liquidation.

The regulator said yesterday that the decision to order the bank’s assets liquidated, follows recommendations from the Kenya Deposit Insurance Corporation (KDIC), which was appointed receiver manager mid this month.

The bank was recommended for liquidation by its receiver managers, Kenya Deposit Insurance Corporation (KDIC), setting the stage for its dissolution.

A fortnight ago, CBK placed Dubai Bank under receivership after it breached the cash reserve ratio for the last one month and failed to honour its financial obligations.

“On August 24, 2015, KDIC submitted a report to CBK recommending that Dubai Bank Kenya Limited be liquidated,” the CBK statement released on Monday reads in part. The winding up process means that the bank cannot be rescued.

“The recommendation was based on a review of Dubai Bank Kenya Limited by KDIC. The KDIC report indicates that considering the magnitude of weaknesses at Dubai Bank, liquidation is the only feasible option,” the CBK said.

Liquidation is the process where assets of a collapsed company are sold and the proceeds paid to creditors. What is left is then shared among shareholders.

The winding up is set to put a dark spot on the banking industry and raise questions on why the CBK did not see this coming and take corrective steps to protect investors before things got worse.

The liquidation now marks the end of an era of a lender that has in the past three years been in the news on allegations of failing to pay its debtors and crediting the accounts of its clients for payments made. While placing the bank in receivership, CBK said that it has considered Dubai Bank’s violations of banking laws and regulations, including failure to maintain adequate capital and liquidity ratios, as well as provisions for non-performing loans and weak corporate governance structures, which were detrimental to the interests of its customers.

Trouble in the bank became public when the lender’s Chairman and principal shareholder, Mr Hassan Zubeidi, fired the banks managing director, Ms Nereah Said. She later hit back and accused him of abetting fraud and theft of clients’ funds at the bank.

It was not until August 14, that CBK decided to take  decisive action on the bank when it appointed the KDIC as receiver manager.

CBK says this was done in the interest of the bank’s depositors, creditors and members of the public.

KDIC is expected to release information on the liquidation process of Dubai Bank Kenya and when it expects to release payments to the bank’s depositors.

Mr Aggrey Bett, acting Chief Executive Officer of the KDIC said yesterday, that all insured deposits shall be paid by KDIC up to a maximum of Sh100,000 per depositor.

“Any balances above this amount shall equitably be paid as and when the liquidator accumulates enough funds from sale of assets of the collapsed bank and recoveries from outstanding loans and debts,” Mr Bett said in a statement.

KDIC is in control of the assets, liabilities, business and affairs of Dubai Bank.

“All powers of Dubai Bank and of its directors under the constituent documents exercisable by the bank or its directors under any law are now vested on KDIC and the receiver manager,” the corporation said. KDIC says it has declared a moratorium on business that shall apply equally and without discrimination to all stakeholders of Dubai Bank during the receivership period.

Normal operations of the bank have also been suspended except for collection of loan re-payments and any other payments made to the bank. Debtors are therefore encouraged to continue servicing their obligations.

The corporation said it is keeping all the bank’s four branches open for such transactions for two weeks. KDIC expects to finalise the assessment of Dubai Bank and take a decision by end month.