The Kenya Deposit Insurance Corporation (KDIC), formerly Deposit Protection Fund Board, was on October 13, 2015, appointed by the Central Bank of Kenya (CBK) as receivers of Imperial Bank Limited (the Bank) for one year.
KDIC has effectively taken control of the assets, liabilities, business and affairs of the bank with Mr. Peter Gatere as Receiver Manager. He will carry out the business and manage the assets and liabilities of the Bank, says Aggrey Jonathan K. Bett, Acting Chief Executive Officer of Kenya Deposit Insurance Corporation.
The has sent chills among small banks that are believed to be next in line for not meeting certain thresholds, though CBK was quick to allay these fears. Central Bank says it placed Imperial Bank under receivership due to, amongst other reasons, irregularities and malpractices in the bank which exposed depositors, creditors and the banking sector to financial risk.
Directors blew the whistle
The sudden move has, however, raised eyebrows over the bank’s supervision role, but the CBK governor Dr Patrick Njoroge says the action taken was in accordance with the principle of “prompt corrective action” to address unsafe banking practice.
It has emerged that the board of directors of Imperial Bank blew the whistle on the management, and brought to the attention of the CBK inappropriate banking practices that warranted immediate remedial action to safeguard the interest of both depositors and creditors.
Central Bank officials raided the bank a day before closure and seized files and other key documents after an audit confirmed allegations by some of the board members, people familiar with the bank’s operations say.
No specific crimes are mentioned but observers point to insider lending, which involves huge loans to managers, board members or their relatives or friends without risk assessment, which often results in defaults. The other issue could be money laundering, which is a crime and can lead to a bank’s licence being withdrawn. Also, a bank could be in trouble if it fails to meet the minimum CBK thresholds relating to capital.
“CBK and the board of directors of Imperial Bank Limited are working closely on a feasible resolution mechanism for Imperial Bank Limited (In Receivership),” said a statement signed by CBK governor Patrick Njoroge and Capital Markets Authority (CMA) acting CEO Paul Muthaura. “The appointment of KDIC to take control of the management of the bank is intended to provide a platform for KDIC to execute its statutory mandate with the support of the board of directors of Imperial Bank Limited towards restoring the safety and soundness of the bank.”
CMA suspends bond listing
They said CMA will be working with the board of Imperial Bank and KDIC to ensure all material information is made available to investors to ensure the maintenance of the transparency and orderliness of the capital markets.
“As a result of this interventionary action by the CBK, the Capital Markets Authority (CMA) in accordance with the provisions of Section 22A of the Capital Markets Act, has directed the Nairobi Securities Exchange to suspend the introduction to listing and trading of the Corporate Bond issued by Imperial Bank which closed on September 17, 2015. This suspension has been imposed in the public interest and to protect the interests of investors,” the statement said.
WHAT RECEIVERSHIP MEANS FOR IMPERIAL BANK
1. All powers of the Bank and of its directors under the constituent documents exercisable by the Bank or its directors under any law are now vested on KDIC and the Receiver Manager.
2. KDIC has declared a moratorium to business that shall apply equally and without discrimination for all stakeholders of the Bank during the receivership period. Accordingly, normal operations of the Bank are suspended except for collection of loan re-payments or any other payments into the Bank. Debtors are therefore encouraged to continue servicing their obligations. For this reason, KDIC will in the meantime keep all the branches of the Bank open for such transactions. Any new arrangements in this regard will be communicated.
3. KDIC will undertake due diligence to ascertain the veracity of irregularities and malpractices and determine the most appropriate resolution mechanism in the shortest time possible.
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