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Politics and graft: The toxic mixture that sunk Euro Bank

By Wainaina Wambu | May 25th 2021
Euro Bank, Nairobi [Courtesy]

“Behind the vulnerable and delicate persona lies a hardened operative who will go to any length to make a financial kill.”

This was how The Sunday Standard for March 9, 2003 described Solomon Muthamia, the key architect behind the banking disaster that was Euro Bank shortly after its dramatic collapse.

Euro Bank went under with Sh1.8 billion of taxpayers’ money deposited by State corporations and also claimed the career of Nahashon Nyagah, the then Central Bank of Kenya (CBK) Governor. It was one of the so-called “political banks” and one of its directors was a Kenya Revenue Authority (KRA) Commissioner-General the late John Munge.

Parastatals accounted for 67 per cent of the bank’s deposits, while 83 per cent of the gross loans and advances by the bank were non-performing.

Euro Bank offices might have been mistaken for a political club teeming with politicians.

The soft-spoken Muthamia was well connected, shrewd and knew the right buttons to press to make parastatals deposit their “excess millions.”  

“Using an elaborate network of contacts in high places, he knew which State corporations had the money, who to approach to get them open their safe wide open and how to keep the monies flowing one way – into the bottomless pit that Euro Bank has been certified to be,” wrote The Sunday Standard.

At its crash, parastatals that lost their money included the National Social Security Fund (NSSF; Sh256 million), National Hospital Insurance Fund (Sh493 million), Kenya National Hospital (Sh492 million), Kenya Pyrethrum Board (Sh159 million).

Despite being listed as a non-executive chairman, Muthamia was in the office on a daily basis, running the lender as a chief executive. The lender had been ailing for a long time but owing to its political connections, it enjoyed protection and even CBK turned a blind eye.

“Muthamia went to bed with anyone who could provide cover and a handy umbrella on stormy days. Easy and soft loans were extended to top civil servants, senior cops and key politicians who could provide cover for the bank,” wrote The Sunday Standard.  “But loans from Euro Bank came with very high risk to the borrower when the high flying borrower suddenly found themselves out of political favour, his or her loans would suddenly start increasing, making them impossible to clear,” added the newspaper. Protectors included a Commissioner of Police, former heads of public service and senior Kanu politicians from the Rift Valley.

It was revealed that the Banking Fraud Unit (BFID) had been compromised, with members being given financial favours.

“Given the fact, his (Muthamia’s) bank often engaged in some not so above the counter banking practices, it was paramount for Euro Bank to have some members of the BFID converted into protectors,” reported The Sunday Standard.

“Little wonder then that although almost everyone in town knew that the Euro Bank was insolvent, the CBK turned a blind eye.” 

Before going under, the lender’s managers are said to have smashed the hard disk of the bank’s main server with a hammer to smithereens.

Muthamia is said to have set up Euro Bank in early 1993. He had a stellar career in banking having previously worked in the collapsed Trade Bank, Indo Suez and Standard Chartered. His “training ground” is said to have been his dealings with the financing of the controversial multi-billion-shilling Turkwel Gorge Hydro Project.

Soon Muthamia was dealing with high-level government operatives in the 1980s.

“After being given orders by senior government officials to bank part of the project funds in foreign accounts, he discovered that the top government officials (who included powerful ministers and permanent secretaries of the time) were in fact using him to skim project money and have it banked in their foreign accounts under the pretext that this was a legitimate project financial manoeuvre,” reported the paper.  

Controversially, one of the bank’s directors was a KRA Commissioner.

It was reported that high-level personalities listed as co-shareholders and directors but in reality, the majority were “paper directors” inserted in the board to dupe CBK to circumvent banking regulations.

Muthamia was identified as the sole owner, although records at CBK indicated otherwise.

According to CBK records, shareholders included Bancshare Ltd with a 25 per cent stake (Sh18.7 million), which was owned by former KRA chief John Munge; Abbey investments owned by Muthamia also with 25 per cent stake and Penmain Ltd with 20 per cent shareholding (Sh15 million) owned by Ephraim Maina of Kirinyaga Construction Company and the current Nyeri Senator.

Others were AATIFA Investments owned by lawyer Firdosh Jamal -15 per cent listed separately, with a further 10 per cent representing Sh7.5 million of the Sh75 million capitalisation. Harry Kathurima, a former Permanent Secretary also had a five per cent stake, according to the records.

Directors were listed as Muthamia (chairman), Zachary Kamondo (managing director) and Jamal and Munge as ordinary directors.

When things went haywire, Muthamia is said to have sent one of his closest associates abroad to reorganise shareholding of his offshore assets. 

It is said that sometime in the 1990s, Muthamia and Munge travelled to the UK to recruit an expatriate.

They interviewed and hired a man named Peter Barnes who, barely two years in, resigned, protesting that “he could not comprehend the transactions of the bank’s chairman.”

The Euro Bank scandal died down after the deaths of key suspects, while other players such as Munge, former KNH director Julius Meme and Muthamia have since been acquitted.


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