Thousands of Kenyans have over the last two decades or so endured unimaginable misery with the collapse of banking institutions, painted by the national regulatory authorities, independent auditors and even the banking insider community as sound and flourishing.
Memories of the collapse of Kenya Finance Corporation, Trade Bank, Trust Bank, Euro Bank, Reliance Bank and Charter House and many others still remain. In the era of former Central Bank of Kenya (CBK) Governor Prof Njuguna Ndungu from 2007 to 2015 not a single bank was put under liquidation.
The placing of Dubai Bank and Imperial Bank under statutory management by the new CBK Governor Patrick Ngugi Njoroge is an indicator that the new broom is going to sweep drastically, cleaning up the banking industry.
The two banks are said to have been operating under unsafe or unsound conditions, capital deficiencies and in-house shareholder disputes amongst other problems.
International banks found operating under such conditions are routinely punished through massive penalties, the most recent fine being imposed by the Federal Reserve for $1.6 billion against Citicorp, JPMorgan Chase, Barclays, UBS Group and Royal Bank of Scotland for unsafe and unsound practices within the US banking industry.
Though fines were imposed, amazingly the directors of these banks were never held to account for their misdeeds and in any event, very few directors of companies are ever exposed to criminal responsibility, giving a distinct impression that the executives of big corporations are exempt from criminal responsibility. All this when, it is said that corporate bodies are more profligate and corrupt because they have more power to do mischief and are less amenable to disgrace or punishment. Corporations neither feel shame, remorse, gratitude nor care for goodwill.
This time round the playing field for the law enforcement agencies, the directors, shareholders and the banks employees is going to be different.
The legal set up in the country has changed immensely. There is the new Constitution, vast new legislation and structural changes in the legal system which are likely to favour innocent customers.
Kenyans have a right to information under the Constitution whereby customers will be able to obtain information (and, more importantly, evidence) to enforce their rights. The Banking Fraud Unit under the reconstituted National Police Service and an oversight body, the Director of Public Prosecutions cannot and should not be mere spectators. If criminality is discovered, there is also the Victim Protection Act which gives additional rights.
Also, the fallen banks are limited liability companies and with the enactment of the new Companies Act and Insolvency Act , 2015, more legal muscle and remedies appear to be available on the horizon.
That being said, Section 4A of the Central Bank Act vests the legal responsibility to licence and supervise banks on CBK. The Banking Act then goes on to spell out the process of licensing of banks and other financial institutions as well as their overall supervision by CBK.
In addition, the Kenya Deposit Insurance Act of 2012 provides for a deposit insurance scheme for customers of banks as well as creating the Kenya Deposit Insurance Corporation tasked to receive, liquidate or wind up any institution on CBK's recommendation.
Interestingly enough, the Corporation and/or CBK may conduct an inspection of a financial institution and exchange the results of the inspection between themselves in an effort to determine that institution's condition.
Where there are concerns, the Corporation then recommends to CBK enforcement action to be taken against the financial institution and if CBK fails to take action within 30 days of receiving the report, then the Corporation can serve on the CBK and the affected institution, a notice of its intention to terminate the membership of that institution.
Both the Corporation and CBK are required by law to take prompt corrective action to resolve an institution's problems in order to safeguard the interest of the institution's depositors as well as the banking sector.
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The weighty questions that must then be asked are; do the Corporation and/or CBK have a statutory duty to regulate and supervise the banking sector in order to protect the interests of the depositors? Have they failed? Have these regulatory authorities also failed the banking community? Should auditors of these banks also be held responsible?
It is contradictory that the internal and external quarterly reports for the banking sector paint a rosy picture when the reality is founded on deceit and fraud.
Customers and all affected must become proactive and seek redress and it would help the cause, if class actions and test cases, hitherto not heard of much, are filed invoking the new laws to get justice. Criminal conduct of bankers must be punished and civil cases expedited and thankfully, the commercial courts are geared now to have enough muscle and goodwill to dispense timely justice.