Is there more than meets the eye in the recent suspension of National Bank of Kenya CEO Munir Ahmed and other top managers by the Board? In the past two years, there has been a sustained media run on the bank’s management, with allegations of ‘mismanagement’ and ‘plunder’ of resources amid allegations that certain individuals within the government and from the private sector intended to buy the bank.
The media was also awash with reports that the management had resisted efforts by the government to consolidate the bank with Development Bank of Kenya, and Consolidated Bank, or that the government planned to sell the bank to a leading Qatari bank, and that management had declined to provide relevant data to transaction advisors appointed by the Privatisation Commission.
The NSE listed bank is the eleventh largest bank in the country by assets, and is owned 70 per cent by the government. Mr Munir was brought on board in 2012 to turn around the bank on a transformation strategy developed by McKinsey. In the short time he was at the helm, the bank’s assets rose from Sh57 billion to Sh125 billion; its deposits grew by 100 per cent to Sh110 billion from Sh55 billion. Similarly, its loan portfolio increased more than three-fold to Sh80 billion, and so did its profitability. He rebranded and enhanced its visibility, and expanded its coverage significantly by an additional 30 branches, and launched the successful National Amanah division that provides Shariah compliant finance.
In order to finance this transformation, the shareholders, including government, sanctioned a capital injection of Sh13 billion in 2013. Then trouble starts brewing. Treasury turns around in 2014 and rejects the rights issue, effectively stalling the transformation strategy. Capital Markets Authority endorses Treasury’s action. In order to meet their liquidity and capital requirements, the management resorted to selling off non-core assets. CBK alerts the bank that it cannot continue to operate below the required minimum capital ratios, and delays its license renewal in 2015.
Then coordinated attacks start appearing in the media targeting the management and National Amanah, ostensibly to scare away key corporate clients and perhaps to lower the bank’s market share price. Key government entities that banked with the bank were urged to pull out their accounts. The Teachers Service Commission alone reportedly moved out Sh13 billion in August 2015. The Board discounted the media claims but Parliament also weighed in to enquire whether all was well. Then the bank’s auditors walked in with the noose!
The 2015 published accounts reveal a loss of Sh1.2 billion, down from a Sh 817 million profit in the previous year. The bank had posted a pre-tax profit of Sh2 billion in its published Q3 results which appears to have been diluted by the upward revision of non-performing loans (NPL) provisions from Sh525 million to Sh3.7 billion in the Q4 by the auditors.
It would appear that pretty stringent application of Prudential Guidelines on provisioning of NPLs was applied by the auditors. NPL provisions, like other doubtful debts provisions, are usually based on management’s judgment of recoverability of the respective accounts. CBK reportedly insisted on 100 per cent provisioning on loans not deemed doubtful by the management. But why does the Board hound out the MD on the basis of a potential provisioning loss? The Board was privy to management’s judgments and estimations all along, and has a greater oversight role according to CMA’s corporate governance guidelines, and CBK’s Prudential Guidelines. Has the CBK consciously exceeded its regulatory mandate and provided credibility to the Board to facilitate the exit of top management?
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