Prime Bank chairman Rasik Kantaria has found himself in the eye of a storm after Ugandan authorities placed Crane Bank in receivership over irregular lending practices.
Mr Kantaria – a significant shareholder at Prime Bank – is a long-serving director and the second largest shareholder in Crane Bank with a 47.32 per cent stake.
Ugandan authorities placed Crane Bank in receivership on October 20, 2016 and immediately suspended the nine-member board of directors, as well as the bank’s executives, saying the bank had failed to meet the legal requirements of its operating licence.
The Bank of Uganda (BoU) said in a statement that Crane Bank was “significantly undercapitalised”, adding that the lender posed a systemic risk to the stability of the financial system.
“The continuation of Crane Bank’s activities in its current form is detrimental to the interests of its depositors,” the BoU said.
Crane Bank’s total capital to total risk-weighted assets ratio was at 12 per cent at the time of the takeover, short of the statutory 18 per cent for significant banks, according to the BoU.
Ranked the fourth largest lender by assets, Crane Bank has been designated by the industry regulator as a “domestic systemically important bank”, making Mr Kantaria’s stake in the lender significant in Uganda’s financial system.
Other significant banks with systemic importance in Uganda are Stanbic and Standard Chartered.
Mr Kantaria owns his Crane Bank stake through an investment vehicle dubbed White Sapphire Ltd, and has served on the Ugandan lender’s board for more than a decade.
Crane Bank is controlled by Ugandan tycoon Sudhir Ruparelia, who has a 48.67 per cent stake, held directly and through his wife Jyotsna, daughter Sheena and son Rajiv.
Resigned from board
Mr Kantaria last week told the Business Daily that he had resigned from Crane Bank’s board ahead of the takeover, but declined to disclose the date he quit or the reasons behind his exit.
Mr Kantaria’s Crane Bank links makes it the second time a Kenyan investor has found himself at the centre of a banking storm in neighbouring Uganda after the collapse of Imperial Bank in October last year.
Crane Bank’s volume of non-performing loans and advances stood at USh142.358 billion (KSh4.15 billion) as at December 2015, accounting for a quarter of Uganda’s banking sector bad loans that stood at USh573.4 billion (KSh16.72 billion), according to BoU data.
Crane Bank has a network of 46 branches in Uganda, owns a stock brokerage arm - Crane Financial Services – and a subsidiary in Rwanda that currently operates two outlets.
Mr Kantaria has vast interests in property, tourism and financial services not only in Kenya but across the continent.
He chairs the boards of multiple firms, including Tausi Assurance and Leisure Lodge Beach and Golf Resort, and is a director in First Merchant Bank of Malawi, where Prime Bank directly controls 11.24 per cent and a further 11.24 per cent through Prime Capital Holdings Ltd, a wholly-owned subsidiary.
Mr Kantaria’s directorships in Malawi include The Leasing and Finance Company of Malawi Ltd, a deposit taking lender, and BNC Packaging Ltd, a logistics firm.
Prime Bank indirectly owns a minority stake in Capital Bank of Botswana, given that First Merchant Bank controls 38.6 per cent of the Gaborone-based lender.
Prime Bank, an affiliate of Crane Bank by virtue of common ownership and directorship, said it does not have any outstanding credit facilities with the Ugandan lender.
“Prime Bank does not have any outstanding facilities or exposure in Crane Bank,” Prime Bank said in response to our queries.
“Prime Bank is a professionally run financial Institution regulated by the CBK (Central Bank of Kenya). We are fully compliant and strictly follow the prudential guidelines laid down by the CBK.”
Prime Bank is ranked 15th in size out of Kenya’s 40 operational banks, with 24,000 deposit accounts and 4,000 loan accounts — giving it a cumulative market share of 1.82 per cent, according to latest CBK data. CBK governor Patrick Njoroge declined to comment on this story.
Cytonn investments manager Maurice Oduor said there was need for the CBK to take an interest in the Prime Bank- Crane Bank relationship given the precedent of Imperial Bank where the BoU immediately closed down the lender’s Uganda operations after Nairobi shut down the mid-tier bank.
“It is not unimaginable that there is some link between the two. I think the common directorship and possibly ownership offer strong grounds to watch out,” said Mr Oduor in an interview.
Mr Kantaria’s stake is likely to be diluted given that the Ugandan regulators have announced the search for deep-pocketed investors to rescue Crane Bank.
“We are seeking new investors who can boost the capital base of Crane,” said BoU governor Emmanuel Tumusiime-Mutebile in a statement.
Mr Kantaria, 73, founded Prime Bank in 1992 after starting Prime Capital & Credit Ltd, a non-bank institution, four years earlier.
He previously served as a director of Deposit Protection Fund – since renamed Kenya Deposit Insurance Corporation - for a four-year term and retired in January 2010, having been appointed by then Finance minister Amos Kimunya.
Prime Bank was named during the Goldenberg scandal hearings as one of the conduits used by Kamlesh Pattni to siphon taxpayer cash through one of his firms, Aebha Properties Ltd.