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Central Bank of Kenya given green light for liquidation of Dubai Bank Kenya

By Otiato Guguyu | December 19th 2017
Dubai Bank Kenya Limited. [PHOTO BY EDWARD KIPLIMO]

The Central Bank of Kenya has been given the green light for the liquidation of Dubai Bank Kenya, which has been in receivership since August 2015.

The Court of Appeal last week threw out a High Court ruling that had stopped the regulator from shutting down the bank.

The three-judge bench said CBK had the sole mandate over the decision to liquidate a lender and that the High Court had overstepped its mandate.

“It is clear from reading of section 5(1) of Kenya Deposit Insurance Act that the power to receive, liquidate, and wind up an institution is vested in KDIC (Kenya Deposit Insurance Corporation) alone,” said the judges in their judgement delivered on Friday last week.

The High Court’s ruling stopping CBK from shutting down the troubled lender came after a depositor claimed that the regulator had not given the bank a chance to be salvaged.

Richardson and David Ltd claimed that Sovereign Financial Holdings had offered to make a capital injection of Sh2.2 billion to save the lender.

Big win

Dubai Bank was placed in receivership after it flouted recommended cash reserve ratios.

It was also unable to meet its financial obligations, including the repayment of Sh48.1 million owed to Bank of Africa Kenya.

During the receivership, CBK found out that the bank had a massive hole due to non-performing loans, including one by failed presidential hopeful Cyrus Jirongo, who owed the lender Sh495 million.

CBK put the bank in receivership for a year, then decided to liquidate it.

The decision to allow the failed lender’s liquidation is a big win for the apex bank that has been bogged down by a barrage of court cases whenever it seeks to shut down a troubled bank.

Imperial Bank, another lender that was shut down in 2015, is also tied up in litigation with the regulator over its status while most of its assets have been handed over to rival lenders.

CBK has also struggled to conclude the matter of Chase Bank, which collapsed in 2016 after a run on it following the restatement of its books.

The regulator wants the State Bank of Mauritius (SBM) to cherry-pick Chase Bank’s most promising accounts, leaving almost half of its assets in a shell that is likely to be liquidated.

CBK Governor Patrick Njoroge’s peers at the Bank of Uganda (BoU) have managed to resolve two bank collapses even as the three Kenyan lenders remain in limbo.

BoU sold Crane Bank to DFCU, the landlocked country’s most profitable bank, after the former hit headwinds due to fraud and mismanagement by its owner, disgraced tycoon Sudhir Ruparelia.

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