When will Imperial Bank resume operations? This question is now academic. The important thing is there is will on the part of the new governor of the Central Bank of Kenya, Dr Patrick Njoroge, to have the bank resume operations.
However, I predict tough resistance to the governor’s plans to reopen the bank from powerful groups with an interest in keeping the bank closed. Expect to see multiple legal suits from - for lack of a better word - ‘‘muhindi’’ banks.
You will see some parties coming to lodge suits ostensibly to protect their interests but –in reality- to prosecute interests of an oligarchy of big borrowers and defaulters with billions of credit facilities across all ‘‘muhindi’’ banks where they have pledged assets to multiple ‘‘muhindi’’ banks.
Does it surprise that the entity, W. Tilley, who according to court papers borrowed in excess of Sh30 billion - has emerged as a key player in the Imperial Bank saga.
I went back to my archives to dig up the report of an inter-ministerial task force on the collapsed Charterhouse Bank. W. Tilley featured prominently in the collapse of Charterhouse Bank on suspicion of engaging in money laundering.
When the CBK governor is finally through with reopening Imperial Bank, he must concentrate his mind on removing ‘‘muhindi’’ banks from the clutches of the powerful oligarchs.
If you look at the court papers filed by lawyer George Oraro, you will be surprised to see that the bank was basically brought down by a mere three oligarchs.
These are very well known ‘‘muhindi’’ businessmen who have mastered the game. The ordinary depositor is merely an unwitting pawn. There is an important aspect of these ‘‘muhindi’’ banks that Dr Njoroge needs to address.
I refer to the widespread existence of parallel banking in these banks. Will all ‘‘muhindi’’ banks that don’t practice parallel banking raise their hands?
It is an open secret that CEOs and top directors of banks in this segment operate parallel banking systems known in the Hindi language as Chopdi accounts.
What are Chopdi accounts? This is a parallel banking facility that offers you more interest than you get in the open market.
Its most attractive characteristic is that you are paid your interest in full, without having to pay withholding taxes. I refuse to believe that all those billions of borrowings were going to Mr Abdulmalik Janmohammed’s account.
If the investigators dig deeper, they will discover another book with names of individuals. And because of its secretive nature, a bank with these accounts will not report them to the Central Bank for either cash-ratio or liquidity-ratio compliance.
The problem comes when such a bank collapses. Because there are no records, the directors can easily run away with the money. The depositor cannot prove he was owed money by the bank.
Whenever the Kenya Deposit Insurance Corporation calls meetings of depositors, only a handful would turn up. The Chopdi depositor cannot shout too loudly about his predicament for fear of prosecution for tax evasion.
Will all holders of Chopdi accounts at Imperial Bank raise their hands up.
Another big agenda item for Dr Njoroge is reining in external auditors. Let’s amend the Banking Act to give the governor more clout, including powers to impose huge fines on external auditors and to bar partners from audit firms who blunder from auditing financial institutions for long periods.
The National Treasury where the Registration of Accountants Board sits, also needs enhanced powers.
We should be thinking of a US-style Financial Accountants Standards Board with powers to crack the whip on external auditors. Self- regulation is a big myth.
[email protected] @jkisero