Imperial Bank depositors face grim prospects in Sh50b chase

Imperial Bank head office, Westlands. [Beverlyne Musili, Standard]

Deep-pocketed depositors in Imperial Bank, now under liquidation, are combing through history for hope. But there is little of it.

Previous financial institutions that have gone into the liquidation stage have stayed there for years - the recent example being Fortune Finance Ltd, whose liquidation lasted 18 years. Others have been in the process for nearly 30 years.

Imperial Bank had stayed under receivership for more than six years and has now progressed to the liquidation phase, where loans have to be recovered and physical assets sold to recoup up to Sh49.59 billion for depositors.

But depositors getting their money back will not be as simple as it may have appeared on the morning of October 13, 2015, when Central Bank of Kenya (CBK) locked the lender over “unsafe and unsound business conditions”.

Fortune Finance collapsed on September 14, 2000 with Sh320 million depositors’ cash. It had Sh287 million deposits remaining by the time liquidation started that month, but only Sh188.81 million was recovered in 18 years.

Liquidation of Inter-Africa Credit Finance and Central Finance took 20 years each, while Nairobi Finance and Heritage Bank took 18 years each.

Other liquidations that took years include Diners Finance and Trade Finance that lasted 15 years and Allied Credit and International Finance for 14 years.

The eight lenders went into liquidation with combined Sh1.72 billion unprotected deposits. After those many years, Sh537.09 million or 31 per cent was recovered. This means Sh1.18 billion was lost.

Other 17 banks are under liquidation. Excluding Chase Bank, the remaining 16 started liquidation stuck with combined uninsured Sh20 billion deposits.

As at end of June 2018, KDIC had recovered and paid out Sh9.47 billion or 47.4 per cent of the money from these banks, which have been under liquidation for between six years (Dubai Bank) and 28 years (Postbank Credit, Trade Bank and Middle Africa Finance).

The recovery process has been slowed by poor documentation since inception, rural-based securities that are difficult to sell, undocumented irregular insider borrowing and court cases that take too long to determine.

Such grim statistics point to a long and bumpy road for Imperial Bank depositors. The same with customers of Chase Bank where liquidation started in April 2021.

Many of the Imperial depositors might not have known one another for the nearly 20 years the bank existed. But their tribulations have united them under the Imperial Bank Depositors Lobby Group, a forum they run on Facebook and Twitter to share their frustrations for actions taken, or not taken.

“End of the road?” was the question the administrator of the group posed to the members immediately CBK announced the liquidation process last Thursday.

“We have been played. Apart from a few thousands (of shillings), we will not receive anything. They have conveniently buried us all,” said Murtaza Dalal, a member of the lobby.

Other members of the group want CBK to make public the forensic report indicating the people who took part in looting the lender.

Liquidation is a process that Kenya Deposit Insurance Corporation (KDIC) chief executive Mohamud Mohamud terms the “last mile” towards winding up.

But this last mile is not a sprint, it is several marathons - at least going by history. Yet it is the only way to build funds to distribute to depositors and creditors.

“It is about trying to find out who had borrowed what and go after them. If they are unable (to pay), we realise the security,” Mr Mohamud told The Sunday Standard in an earlier interview.

“It is quite a long process and sometimes it runs into lawsuits.”

Imperial Bank, known for a prominent purple crown sitting proudly on the logo like one on a monarch, crashed in October 2015 with Sh79.1 billion belonging to 49,939 depositors.

Desperate customers, who tried to rescue their fortunes by withdrawing funds from the bank through mobile money transfer, received an error message. They watched in anguish and pain as branches were closed.

CBK data shows depositors have so far recovered 37.3 per cent, or Sh29.5 billion, meaning Sh49.59 billion is still stuck there.

While about 92 per cent-45,700 depositors have so far recovered their money in full, it is a case of hope for 4,239 depositors who will now depend on the liquidation process.

The outstanding amount is equivalent to an average of Sh11.7 million per customer; some have more, others less but all above Sh100,000.

The end of liquidation is followed by a winding-up process, which is a step that KDIC takes once it is convinced that good assets have been exhausted and dividends not received are unlikely to offer value to creditors.

KDIC makes a winding-up order when the cost of liquidating starts to show signs of surpassing the value of the assets left.

Liquidation is a painful process, according to KDIC, which is now keen to resolve banks while they are still open as opposed to when they are shut.  

Once a bank is placed under liquidation, depositors are paid up to Sh500,000, the maximum that is fully insured by KDIC. The rest is hinged on what is realised out of sale of assets.

KDIC will await the official gazetting of the Imperial Bank liquidation before it starts the process. That is a small problem to depositors compared to what awaits them after that.

Whether liquidation takes a month or over 28 years as is the case of the likes of Postbank Credit, the depositors may never want anything to do with a purple crown in their life.

Abdulamek Janmohamed, the principal shareholder of the bank he started and served as managing director, may have died six years ago, but books on how not to run a bank will surely not miss a chapter about him.