CBK was sleeping, admits Governor Patrick Njoroge

Central Bank of Kenya Governor Patrick Njoroge.

The Central Bank of Kenya (CBK) has admitted that it should have stepped in sooner to halt the collapse of three lenders in the past nine months.

According to current CBK Governor Patrick Njoroge, the regulator’s culture of leniency contributed to a build-up of misconduct in the industry.

“The watchdog should have barked sooner and louder. We have been asleep at the switches in terms of us failing to detect this,” Dr Njoroge told a Senate committee last week.

Banking supervision

The country has seen 27 lenders collapse or put under receivership, with three of them since Njoroge took over in June last year.

His strict style of work has led to tightened banking supervision since he took over from his predecessor, Njuguna Ndung’u.

The most recent lender to be placed under receivership, Chase Bank Kenya, had just presented its end of 2015 financial results, only to restate them less than a week later. However, it has since re-opened and Sh8.7 billion of irregular loans recovered.

The lender had received a qualified opinion from Deloitte auditors after, among other anomalies, its failure to properly account for insider lending.

In an update on Dubai Bank Kenya, which was the first lender to be put under statutory management under Njoroge’s watch, the governor said it would remain closed as the purchase offers were insufficient.

The second collapsed lender, Imperial Bank Ltd (IBL), requires Sh40 billion to reopen, but shareholders remained unco-operative about reviving it, Njoroge said. The regulator is seeking to freeze the assets of those behind its “looting”.

“Shareholders are not interested in reopening the bank. IBL needs something in the order of Sh40 billion to reopen. But without shareholders’ support, nothing can go forward,” Njoroge told the Senate Finance, Commerce and Budget Committee.

In its latest update, CBK said a forensic audit is still ongoing to unearth the rot that led to the collapse of Imperial.

“Forensic auditors and relevant investigation agencies continue to investigate the fraudulent activities in Imperial Bank Limited and unsound business practices,” read part of the statement from the regulator.

The findings of these investigations, the regulator added, would allow an informed determination on the bank, and prove critical in court proceedings.

The lender’s shareholders are among those who have filed lawsuits against CBK, as well as the Kenya Deposit Insurance Corporation. They are seeking orders to stop the receivership process and have their revival proposals implemented.

Imperial Bank was placed under receivership in October, a month after its managing director, Abdulmalek Janmohamed, died. The bank held Sh87 billion in deposits and Sh62 billion in assets at the end of September, according to CBK.

Forensic audit

According to Njoroge, CBK expects to complete a forensic audit on Imperial by the end of June, and the authorities are preparing cases against bank officials who stole money from all three lenders.

“Those that stole, let the courts hold them accountable,” he said.

“Let the courts see that there is protection for depositors.”

The regulator is recruiting new audit and IT staff to strengthen its supervision, Njoroge added.

In March, he said CBK had resolved to improve the way it was conducting on-site and off-site inspections.

“We are going for stringent auditing of bank books, including IT audits,” he said.

Against this tightened noose on criminality in the industry, Njoroge said that he feared for the safety of his employees and hinted at powerful cartels in some of the three banks under scrutiny.

“There have been threats to [CBK staff] lives. We understand what we are dealing with, and at the end of the day we must do it for our country,” said Njoroge.

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