How Imperial Bank brand will fade away

John Gachora, NIC Group Managing Director. Last week the CBK Governor appointed NIC bank as consultants to take over some assets of Imperial including staff and branches. (PHOTO: COURTESY)

Imperial Bank collapse is shaping out to be one of the biggest nightmares for Central Bank of Kenya (CBK). Nothing makes CBK Governor Dr Patrick Njoroge, who has likened the theft at Imperial Bank to the Goldenberg scandal, more agitated than a question challenging any of his decisions surrounding the bank.

Furious shareholders have kept the legal team at the CBK busy, filing one case after the other to challenge almost every action Njoroge and his men have taken since the mid-tier lender was placed under receivership.

Unlike Chase Bank which was able to reopen in three weeks, Dr Njoroge continues to fly from one hurdle to the other as he engineers a possible turnaround strategy without the blessings of its owners.

Ironically, despite the theft of billions of shillings that were unearthed at the bank, shareholders of the bank have chosen to fight every action taken by CBK in court even as thousands of depositors continue to suffer in the cold.

Last week the CBK Governor appointed NIC bank as consultants to take over some assets of Imperial including staff and branches. As with the previous decisions, some of the bank’s shareholders ran to court to stop this process as well.

Impatient depositors continue to wonder why it would take the regulator, with all its resources, more than nine months, to conclude the investigations and recover their money before it is all shipped out of the country.

As the regulator keeps its cards close to its chest, Business Beat’s Paul Wafula put questions to the NIC Group Managing Director, Mr John Gachora and Imperial Bank’s major shareholders to get their perspective on the latest action by the Central Bank of Kenya.

John Gachora, NIC Group Managing Director

What is NIC Bank’s role as a consultant for Imperial Bank? What does it do and not do?

NIC Bank will, on behalf of KDIC undertake an assessment of the quality of Imperial Bank’s assets and liabilities, support the recovery of the lender’s loans and provide guidance on other assets and staff. Essentially, NIC will advise KDIC in its efforts to ensure borrowers of Imperial Bank are repaying their loans and where necessary these borrowers are assisted to renew loan facilities. NIC Bank will also disburse on behalf of KDIC Sh1.5 million each to Imperial Bank depositors as soon as the High Court’s suspension of payments to depositors is lifted and subject to account and identity verifications that were conducted previously.

How is your role different from what DTB and KCB were doing?

Our role differs from KCB and DTB in that NIC Bank will, on behalf of the KDIC, undertake an assessment of the quality of Imperial Bank’s assets and liabilities, support the recovery of loans and provide guidance on other assets and staff. This was not part of either KCB or DTB’s mandate. In addition, NIC Bank has taken over KCB and DTB’s mandates to disburse funds to depositors on behalf of the KDIC going forward.

Was there a sort of bidding for the job? Did NIC put in an application or was it handpicked by CBK?

The CBK and the KDIC reviewed several options available to them and decided to appoint NIC Bank. NIC Bank was selected based on its sound governance, strong IT systems and its financial muscle. Timing was also a consideration, as the assets of IBL depreciate value each day it stays closed.

Is NIC buying the deposits?

No, NIC is not buying the deposits. However, following due diligence and contract review, NIC Bank and the KDIC will enter into negotiations that may lead to the disposal by the KDIC and the assumption by NIC Bank of certain assets and liabilities, as well as the majority of the staff and branches of the bank.

What does NIC get in return?

The closure of any bank impacts not just staff, depositors and immediate stakeholders, but the entire Banking Sector and Kenyan economy. We view this appointment as an opportunity to contribute to CBK’s ongoing efforts to strengthen the banking sector. We will be working closely with CBK and KDIC to ensure this process is a success and to the benefit of staff, depositors and other stakeholders. Should the process be concluded after due diligence, contract and judicial process, NIC will benefit from an expanded branch network and staff.

How will the arrangement to take over staff and branches work?

The assumption of any staff or branches is subject to both due diligence and contract. The modalities of the arrangement will only be finalised post due diligence and contract.

Will there still be an Imperial Bank brand on the streets when the branches open or will they be rebranded as NIC?

As of now, Imperial Bank (in receivership) is still operating under the receivership of the KDIC. However, should NIC assume them, they would convert to NIC branches. Such an outcome is subject to due diligence, contract and the judicial process.

How much in assets/deposits will NIC be assuming?

The assumption of any assets or liabilities is subject to to both due diligence and contract. The amount and modalities of the arrangement will only be finalised post due diligence and contract.

Is NIC interested in buying out Imperial Bank in the long run?

No, NIC Bank is not buying out Imperial Bank (in receivership). However, following due diligence and contract review, NIC Bank and the KDIC will enter into negotiations that may lead to the disposal by the KDIC and the assumption by NIC Bank of certain assets and liabilities, as well as the majority of the staff and branches of Imperial Bank. Imperial will continue with the assets and liabilities that NIC will not be assuming.

Do you hope to turn around the bank or is it just paying depositors?

We believe that our appointment as the Asset and Liability Consultant is the most efficient manner to accelerate the process of Imperial Bank receivership to the benefit of its staff, depositors and other stakeholders. As a first step, we shall be advising KDIC on the steps to make assets start performing.
Following due diligence and contract review, NIC Bank and the KDIC will enter into negotiations that may lead to the disposal by the KDIC and the assumption by NIC Bank of certain assets and liabilities, as well as the majority of the staff and branches of Imperial Bank.

With the latest development in court, what is the way forward?

The court order only stopped CBK and KDIC from disposing of assets of Imperial Bank pending the hearing. We await further direction from the court. In the meantime, we believe other roles as a consultant to KDIC will continue.

Vishnu Dhutia, Imperial Bank Shareholder

Why do shareholders think CBK will be liquidating the bank with the latest action of appointing NIC Bank as consultants?

It is stated that assets would be ‘acquired’ by NIC. This is a ‘transfer and exclusion’, which will result in the liquidation of the remainder bank/shell/bad bank.

The CBK says shareholders have withdrawn the offer to pump Sh10 billion. What led to this change of heart?

There is no change of heart. And this is a misconstruction of what has been stated. Our restructuring proposals which are publicly available always stated that Sh10 billion would be raised from existing shareholders and other investors, and there were numerous retail banks as well as Private equity funds which were willing to invest. However, like in any normal business deal, they would only finalise their investment intent after having seen what is on offer or what they would buy. So this means the final terms of the investment would be subject to due diligence. If the CBK does not grant access to the books, then no firm or final purchase offer can be made. Neither NIC, nor DTB and KCB, or KCB in the case of Chase were asked to put up money upfront to see what is on offer. I don’t think anyone would commit to purchasing a car, nor pay upfront for the car without having seen the car.

How else do the shareholders propose that CBK handles the payments of depositors?

The CBK is exposing itself to a risk, that larger depositors will sue them, if they continue to pay out money to depositors without having a solution in place. Insolvency and business law around the world, including Kenya, requires that depositors would have to be paid pro rata to their deposits. Hence Ashok Doshi sued the CBK for the last payout mechanism and more depositors will sue CBK in the next weeks over this payout. In order to gain a quick or easy win, the CBK actually jeopardises the long-term solution for all depositors.

Do the shareholders have any other proposal to revive the bank other than what was rejected by the CBK?

We presented more than four proposals, all developed with leading investment bankers, restructuring specialist, accountants and lawyers who have worked in banking restructuring for decades. The plan proposed by the shareholders were rebuffed not for its content, but on prima facie, because the CBK never intended to give the shareholders’ proposals a fair chance.

Why else would you refuse to give them access to the review the bank’s books, but offer it to other interested parties?

It should also be noted in this context, that independent from the shareholders proposals, other reputable banking institutions from Kenya and abroad showed interest in the bank, but their inquiries were rejected by the CBK without any reasons.