In 2015, Kenya was treated to the biggest banking heist in the country’s history when Imperial Bank’s impeccable façade fell apart after 56-year old Abdulmalek Janmohamed dropped dead.
More than Sh34 billion had been lost to a web of well-connected individuals (WE Tilley -Muthaiga, Primecatch, Mara Fish Packers and Victoria Fish packers) whose conspiracy pierced the whole banking sector.
And tentacles could be traced to previous banking crises like the fall of Charterhouse Bank.
What was expected then was a series of high profile arrests and quick litigation akin to the recent crackdown but the Central Bank of Kenya decided to take it slow. It opted to avoid an omnibus suit and instead trap each mouse when cornered, something that is left to be seen.
CBK Governor Patrick Njoroge recently said his most watertight case was mentioned on July 23 with a second mention having been heard on Tuesday, setting the stage for the unfurling of the country’s biggest corporate fraud.
“The case against Imperial Bank former shareholders, directors and managers will then be heard October 2 and 3 before a ruling is given,” Dr Njoroge said.
As this happens, so will the expected sale of the Bank, which should be concluded after High Court gave CBK and Kenya Deposit Insurance Corporation (KDIC) 70 days to firm up the deal with KCB Group.
At present, the deal remains under wraps but details of the latest trace of the bank’s books as at March 2017 show that it is leaning more on a rescue plan rather than a strategic acquisition.
At the time of its fall, the Bank had deposits worth Sh84 billion which would have boosted KCB’s books and customer base. This has, however, been whittled down to Sh66 billion after KDIC sold Treasury bills, Ugandan subsidiary and recovered loans of up to Sh5.8 billion.
The bulk of Imperial Bank customers were initially allowed to withdraw up to Sh1 million when the lender first opened under the management of KCB and DTB.
Then in June 2016, the Kenya Deposit Insurance Corporation (KDIC) appointed NIC Bank as the assets and liabilities consultant for Imperial Bank.
Help restructure loans
NIC Bank made two disbursements totalling Sh10.78 billion to over 5,500 depositors on behalf of KDIC. It also helped collect more than Sh5 billion from borrowers, restructure loans, resolve several outstanding depositor and custody account issues and put in place a process to resolve items in transit.
Another liability that crept up during the receivership was a Sh2.4 billion in letters of credit issued before receivership that have now been bundled on the lender. The books also carry the Sh2 billion bond that Imperial Bank floated before its collapse as a liability that may be assumed by its next owner.
The assets side is also depleted with loan repayment deteriorating according to documents seen by Weekend Business. While the bank under receivership has been able to collect Sh5.8 billion, interest has piled up to Sh13.6 billion.
During receivership, KDIC was forced to make an additional Sh6.3 billion provision for bad loans after customers went rogue.
This was, however, not enough to meet Central Bank of Kenya guidelines and the new owners may be forced to write off more loans or set aside money in case they are never recovered.
“An acquiring bank will have to comply with CBK provisioning guidelines. We estimate that the additional provisioning required to meet CBK provisioning guidelines could be as much as Sh17 billion,” a letter by CBK read.
This will mean that out of the Sh36 billion loans that KCB can acquire in assets, only Sh19.7 billion may be actualised.
A market analyst who did not want to be named said with such a financial position as at March 2017, the depositors are not likely to get more than 25 per cent of their money if the deal is to make business sense in the least.
“Depositors will get 25 per cent of their money in the best case scenario. It is unlikely that they will get 40 per cent or KCB will have to top up the rest of the money,” the source said.
The deal has left the market puzzled with analysts keen on combing through the finer details to understand why the lender, where the State holds a stake would want to carry the baggage.
Some market players speculate that KCB may well be confident the CBK will win its war against those who brought the lender down and as a result recover the frozen assets belonging to some of the beneficiaries.
This includes WE Tilley (Muthaiga), Primecatch, Mara Fish Packers, J Fish Kenya, Victorian Delight, Ruby Red, Value Pak Foods, From Eden, Aqualite, Marmo E Granito Mines (T), Marmo Marble (U) and Fishways Uganda.
CBK is seeking to recover land charged by some of these firms to Fidelity Bank, Prime Bank and Diamond Trust Bank.
It is also targeting the assets of the estate of Abdul Janmohammed and the Abdulsultan Rehemtulla Janmohamed Trust and Janco Investments.
Speculation surrounds the whole mystery especially fueled by the parties discontent about the deal with details of the FTI report remaining under wraps and may hopefully be made public during the expected litigation.
It has not helped that the target Bank, KCB hired Simeon Rono as a director even after a suit filled by Imperial Bank shareholders linked the former CBK supervision department staff to cover-up.
He is said to have written an email on June 21, 2012, detailing how Mzee (in reference to the late managing director Abdulmalek Janmohammed) assured him his children will never lack school fees.
“We agreed with Mzee sometime in 2004 that my children will never lack school fees as long as his bank was in operation. We also agreed that I shall endeavour to pay my loans to the best of my ability. Each has kept his word to date...,” Mr Rono wrote to Naeem Shah, the bank’s head of credit then.
KCB has emerged as the sole contender after apparently, only three other bidders tried to buy the bank that went under receivership in October 2015.
Shareholders were left smarting at the deal after they alleged that they did not have to put in an expression of interest and were still waiting for CBK to engage them in a parallel process.
In a long exchange with the regulator, the shareholders led by Imperial former chair Alnashir Popat had been wary that they may be sidelined because the regulator had made reference of their involvement in collapsing the lender.
“We trust that your objectivity in considering our requests and proposals will not be clouded by any pre-conceived notions of culpability especially given the litigation ensuing from the purported ‘inappropriate transactions’ will take time to be resolved upon full hearing on merit,” Mr Popat wrote.