Merali accused of governance flaws at Equatorial bank
Posted Sunday, June 16 2013 at 16:04
- Former CEO claims Naushad Merali is running the bank with little regard to the board.
- Mr. Merali, who is a majority shareholder at the bank, allegedly runs it from his Riverside office with the board having little say in its operations, contrary to CBK rules.
- Details of the Equatorial bank boardroom operations emerged on Thursday in court where Mr Harris is fighting to lift a freeze on his property by the bank.
Businessman Naushad Merali has been accused of breaking Central Bank of Kenya (CBK) governance rules on boardroom independence at Equatorial Commercial Bank that led to the resignation of its CEO in November.
Mr. Merali, who is a majority shareholder at the bank, allegedly runs it from his Riverside office with the board having little say in its operations, contrary to CBK rules.
Peter Harris, a former CEO, says he quit the bank for fear of being punished by the regulator, which stresses that a bank’s board must be the top decision making organ and the one that polices its management.
Details of the Equatorial bank boardroom operations emerged on Thursday in court where Mr Harris is fighting to lift a freeze on his property by the bank for advancing a loan to a business associate without the directors’ approval.
“Given the dominance of Mr Merali’s shareholding and the manner of his engagement, the board surely knows that it does not enjoy the independence in a manner envisaged in the Banking Act,” said Mr Harris in his resignation letter attached to court documents.
“In time, there will be consequences as the authorities seek to enforce the relevant rules. As matters stand now, however, the situation is detrimental to the interest of the bank’s depositors and minority shareholders,” he states.
The former CEO cited the collapse of a sale of a significant stake to strategic investors last year that was approved by the board, only for Mr Merali to overturn the deal. The bank was looking for investors to inject cash and boost the lender’s capital base and finance its expansion plans.
“Because of his absolute majority, the management cannot move without his agreement,” Mr Harris states.
The court documents show that Mr Merali’s interest in Equatorial bank stands at 85 per cent while CBK bars individuals and non-banking institutions from owning more than 25 per cent of a bank.
Board members are Dan Ameyo, who is the chairman, Martin Ernest, Akif Butt, Ablali Kurji , Thomas Mutugu. Sammy Itemere, the managing director, and Robert Sibutse.
Mr Ernest and Mr Butt are also close associates of Mr Merali and are listed as managers of his investment vehicle, the Sameer Group.
Mr Merali’s dominance of Equatorial bank’s executive suite and boardroom is out of step with CBK rules aimed at reducing the influence of principal shareholders as well as safeguarding the interests of minority investors.
The falling out between Mr Merali and Mr Harris is underlined by the legal battle where the bank has accused him of lending Sh66 million to a foreigner, Michael Connolly, without collateral.
According to the documents, Mr Connolly passed away on March 24 and is said to have been a business associate of Mr Harris, who the bank says needed board approval for loans above Sh20 million.