Imperial Bank receiver-manager has found “fraudulent activities of substantial magnitude” but the bank is still viable in what signals that the bank could be reopened.
In fact, shareholders are considering a proposal to inject capital in it. Central Bank of Kenya early this month put Imperial Bank under the management and control of the Kenya Deposit Insurance Corporation (KDIC) for a period of 12 months after the board alerted the central bank to malpractices at the mid-sized lender.
“KDIC is working closely with the Board of Directors of Imperial Bank Limited for a resolution mechanism,” read the statement in part.
Imperial Bank Limited was founded in 1992 and has operations in Kenya and Uganda. It is the second bank in Kenya to be put under management since August, when Dubai Bank Kenya Ltd, a small lender, was put under receivership after facing liquidity problems.
Imperial Bank, which appointed a new managing director in September after his predecessor died, was ranked 19 out of Kenya’s 45 lenders at the end of 2014. On June 30 this year, it reported assets of Sh70.3 billion ($683.85 million).
Given the size of Imperial Bank, I don’t think it will have a knock-on effect on the entire industry,” said Francis Mwangi, head of equity research at Standard Investment Bank, noting the case had followed swiftly after the Dubai Bank Kenya incident.
“It raises the question of whether CBK has now become more vigilant and aggressive and whether we will see CBK raise more questions which could lead to more banks being put under the spotlight,” he added.
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Here is what CBK said in its statement
CBK has reviewed the report, which confirms fraudulent activities of substantial magnitude, and the misrepresentation of IBL’s financial statements. These activities relate largely to irregular granting of loans by IBL’s management, contrary to the legal and regulatory requirements, and the internal policies of IBL. In particular, these irregular loans were a violation of the statutory limit of lending to a single borrower, and inadequate loan loss provisions, thereby overstating IBL’s capital adequacy position.
The fraudulent activities have resulted in a significant shortfall in IBL’s capital position. Nevertheless, CBK and KDIC consider IBL to be viable and have examined options that will lead to the prompt reopening of the bank. These options require the shareholders to inject new capital to meet the identified capital shortfall. The ultimate objective is to ensure that the reopened bank will remain viable.
CBK and KDIC met today with the bank’s shareholders and presented a proposal that will enable reopening of the bank and a resumption of operations. The proposal will require the injection of new capital, conversion of some of the large deposits to equity, recovery and collateralization of the fraudulent loans, as well as a change of Board of directors and senior management. The proposal envisages full access to small deposits, and a structured schedule of repayment to large depositors. CBK expressed its expectation that an agreement with shareholders should be reached enabling the bank to reopen in a month’s time.
Shareholders appreciated the proposal and expressed their strong commitment to reopen the bank quickly. Shareholders requested to consider the proposal over the next few days and to come back with an implementation plan for the way forward. In parallel, CBK and KDIC will on Wednesday, October 28, 2015, meet some representatives from a cross-section of IBL’s depositors to brief them on these developments.
In the meantime, steps are being taken to facilitate the recovery of the funds that were obtained irregularly from IBL. A forensic audit and other investigations are also ongoing on the culpability of these fraudulent activities.…
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