NAIROBI: Ahmed Zubedi, the disgraced chairman of collapsed Dubai Bank, has fronted a new investor whom he claims will inject the funds needed to save his bank from liquidation. In an interesting twist of events that may have come too late, Mr Zubedi says an ‘investor’ is ready to take up 95 per cent stake - technically locking out all the existing shareholders.
Shocking details have emerged from the court battle pitting the Central Bank of Kenya (CBK) and Dubai Bank which is under liquidation, relating to secrecy in its operations and profitability of the already sunk institution.
“The new strategic investor will constitute a new board. They will also appoint a new management as their investment in Dubai Bank will constitute 95 percent of the bank’s ownership,” Zubedi said in a letter presented in court.
He claims that the proposed investor had actually made the takeover application last year, and that the request had been presented to the CBK, before his bank was declared insolvent and subsequently placed under receivership.
Zubedi’s revelation about the new suitor might however have come too late in that day as Dubai Bank’s assets have already been sold and some of the depositors already paid.
Kenya Deposit Insurance Corporation, an arm of the CBK in charge of settling and compensating depositors, has already moved to attach personal assets of Zubedi, to be disposed off to settle depositors claims.
An exchange of letters, court documents and a report by KDIC reveal anomalies and at the same time sparking questions as to why the regulator never took action on the bank, when the red signs started flickering and why the financial institution should be liquidated. Dubai Bank was incorporated in April 2000, taking over the operations of Mashreq Bank, which was divesting from the country. According to the status report on the bank, the main shareholding included two men and two entities. Abdul Hassan Ahmed owned 25 percent, World of Marble and Granite 18.8 percent, Hassan Bin Hassan Trading Company 17 percent while Ahmed Zubedi, the current chairman owned 16 per cent.
The report stated that for the last five years, the growth of the bank had stagnated due to weak management structure, poor corporate governance and lack of strategic directions. CBK had already revealed in court documents that Mr Zubedi was acting as both a non-executive and an executive director of the bank. Ali Bashir and Hassan Nadwa completed the directorship of the bank, though it was running without two directors as required by the Banking Act. The chairman of the troubled bank lamented that the application of one Mr Sharma to join the board of directors had been lying at the CBK desks since 2014. He noted that other two names submitted were either rejected or were awaiting approval.
BOOKS OF ACCOUNTS
In court, CBK told Justice Eric Ogola that the operations of that bank was suspect and without proper management as required by law. The court heard that its books of accounts had been manipulated, in which the actual balances in the different bank accounts were inaccurately stated.
According to CBK, Dubai Bank’s cash balances were also overstated and its liabilities, running over Sh3 billion, had not been indicated in its records.
The bank also had Sh4.16 billion non-performing portfolio and there were incidences of parallel banking transactions that were not in the official records of the bank. “This is not a bank and we will disclose to this court why it is being liquidated,” lawyer Ochieng Oduor, for CBK and Kenya Deposit Insurance Corporation (KDIC) told the court.Back to the report, the regulator indicated that the bank’s management had failed to address high level of non-performing loans and turning the institution around to profitability.
Though depositors have moved to the court, stating that they want to feed in capital by turning their deposits to equity, the bank is said to be insolvent to a tune of Sh 1.307 billion against the required Sh2.307 billion.
“Several insider lending transactions were noted comprising overdrafts, guarantees and loans advanced without securities to the defendants and to companies associated with the first defendant (Zubedi) who had not been approved by the bank’s shareholders,” the court was told.
The Dr Patrick Njoroge-led institution also stated that Dubai bank’s liquidity ratio, as of August 14 was at 0.5 percent, which is 19.5 percent below, the required mark. It was said to have been unable to repay Sh48 million owed to Bank of Africa and Sh2.3 million debt to KDIC. The financial institution also faces a suit by Universal Metal Coating Company Limited, which is demanding SAR 42,000 (Sh420 million).
Its woes did not start to unravel with the liquidation process. Dubai Bank’s former Managing Director Binay Dutta fled the country after he faced yet another suit for not honoring a contract. He fled the country after Sevket Tunc, a Turkish businessman moved to court in June this year seeking to wind up the bank.
The lender was holding Sh1.7 billion in customer savings at the end of last year as per CBK data, but the amount had dropped to about Sh1.4 billion as at the time of collapse. However, CBK revealed that the bank had failed to honor instructions on remittances to a tune of Sh41 million despite receiving the funds. “Most of these funds were noted to be tax remittances,” the report noted. “In view of the magnitude of the weakness highlighted, in particular the high level of non-performing advance (98 per cent) and low level of liquidity (0.5 per cent), irregular insider dealings, consistent violation of CBK prudential regulations and weak corporate governance structures, revival of Dubai Bank Kenya Limited is considered not a feasible option,” KDIC recommended to CBK.
It continued: “ Given the technical insolvency of Sh 1.307 billion and KDIC exposure of Sh123 million under the lesser cost rule provided in the Kenya Deposit Insurance Act, the bank cannot be resolved using any other method other than liquidation.”
The data by the regulator also indicated that the bank’s core capital was at negative Sh1.118 billion and an addition Sh2.1 billion meant for bad debts was below Sh1 billion minimum capital threshold.
CBK also revealed that the heads of the institution were allegedly not vetted. Zubedi however disputed this in a letter received by the Treasury Cabinet Secretary Henry Rotich on September 30.
TITLES IN QUESTION
KDIC on the other hand is after the Zubedi’s assets, in which it wants the court to freeze them in a bid to secure monies owed to depositors. The titles in question had not been charged in favour of Dubai Bank though they had been submitted to be held as security for loans to various individuals who had ties with board members.
“The bank held unsecured securities in respect of the defendants for credits running into hundreds of millions of shillings,” the court heard.
“The depositors and the creditors of the bank under liquidation stand to suffer irreparable losses and damage if the orders sought herein are not issued,” the judge was told.
Dubai Bank had about 6,400 customers. The regulator said recently that only 400 customers of the collapsed Dubai Bank have been compensated since the receiver manager took over operations of the lender last month. That number represents just about seven per cent of insured depositors in the bank that has since been shut for gross violation of industry guidelines. The regulator begun refunding the collapsed lender’s depositors on September 7 this year.
