Spotlight on ex-CBK chief as Dubai Bank assets set for sale

Dubai Bank is set to be liquidated a little over a week after it was placed under receivership, turning the focus on former Central Bank of Kenya (CBK) governor Njuguna Ndung’u on whose watch the lender operated for years despite blatant breaches of banking laws.

The CBK on August 14 authorised the Kenya Deposit Insurance Corporation (KDIC) to take over the operations of the bank whose malpractices had led to a serious liquidity crisis.

The regulator now says selling Dubai Bank’s assets is the only way to address its failure, with the KDIC having found the bank in an irredeemable financial standing.

“The KDIC report indicates that considering the magnitude of weaknesses of Dubai Bank, liquidation is the only feasible option,” the CBK said in a statement Monday announcing KDIC’s new role as liquidator.

“The CBK will work closely with KDIC to facilitate the expeditious liquidation of Dubai Bank.”

The KDIC had previously said that it would announce its decision on the resolution of Dubai Bank on September 1, meaning that it was weighing the options of liquidating the bank or turning it around.

The earlier-than-expected announcement that selling the lender’s assets is the best means of protecting the interests of depositors and other creditors underlines the depths to which the bank had sunk.

Dubai Bank’s quick failure stands in sharp contrast to the many years it continued to operate despite its breaches of banking laws, turning the spotlight on Prof Ndung’u whose term ended in March.

Prof Ndung’u was replaced in July by Patrick Njoroge on whose watch the CBK finally acted on reports of Dubai Bank’s problems by the regulator’s bank supervision staff and whistleblowers.

READ: How Central Bank ignored Dubai Bank whistleblowers for years

Dubai Bank’s former managing director Nerea Said provided the most exhaustive accounts of the lender’s problems in a legal battle pitting her against her former employer whom she sued for alleged wrongful dismissal in 2012.

Ms Said documented theft of customer funds, insider lending, low provisioning for losses, parallel banking and default on facilities such as letters of credit. 

She said in court papers that her attempts to restore good corporate governance in the bank met hostility from Hassan Zubeidi, the chairman, who allegedly boasted that he had the protection of the CBK governor and senior Criminal Investigations Department (CID) officers.

“We are advised that Mr Zubeidi in a desperate attempt to disguise his criminal activities and to dissuade our client from pursuing her legal rights has invoked the names of high-ranking government officials and his purported connections,” Ms Said’s lawyers Ochieng, Onyango, Kibet & Ohaga submitted.

“Some of these officials include Mr (Gabriel) Mbuvi, Banking Fraud Investigations Department, Prof Njuguna Ndung’u, Governor CBK, Mr Jackson Kitili, Financial Reporting Centre, and Mr (Mohamed) Amin, Head of Investigations, CID.”

The fact that Dubai Bank continued to operate despite the unprecedented breaches of banking laws appears to lend credence to the allegations that it was enjoying some protection from the regulator.

Mr Zubeidi, a major shareholder of the bank, is said to have stolen $348,000 (Sh35 million) from the institution in one instance, wiring the amount to his account in a Dubai bank.

The money was taken from the accounts of Packline Systems Limited, a customer of Dubai Bank. This caused the bank a loss of $350,000 (Sh36 million) that was recovered from an IT upgrading project.

In a hallmark of risky lending, the chairman allegedly influenced the authorisation of loans to Kuza Farms worth Sh428 million, equivalent to 44.6 per cent of the bank’s reported core capital of Sh959 million as of October.

This is in breach of banking rules that cap lending to a single borrower at 25 per cent of the core capital.

Mr Zubeidi also allegedly advanced himself and his associates loans worth over Sh1.2 billion that were not booked in the bank’s accounts.

These transaction, among others, were not recorded in the bank’s core operating system but were traced in its SWIFT server by an on-site CBK inspection team that visited the lender.

“The unresolved claims that are not reflected in the records of the bank remain a serious threat to the institution unless it is urgently addressed,” says the CBK inspection report that was filed as evidence.

Despite being Dubai Bank’s non-executive chairman, Mr Zubeidi was actively involved in the management of the bank where he had an office.

He has fought the damning allegations, saying they are false and driven by malice on the part of Ms Said after she was fired for irregular transactions herself.

When contacted by Business Daily at the time, Prof Ndung’u declined to comment on the alleged scandals, saying that the bank and its former employee should be allowed to settle the matter through available channels.

Ms Said’s replacement, Binay Dutta, fled the country in May this year, having fallen out with Mr Zubeidi after a deal Mr Dutta helped strike went south and the CBK began investigating.

Several high-net-worth individuals and local and foreign companies have in the past three years taken Dubai Bank to court seeking settlement of transactions running into hundreds of millions of shillings.