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Ex-Chase Bank chair accuses Deloitte of insider loans error

People walk past a Chase Bank branch along Mama Ngina Street in Nairobi on April 6, 2016. FILE PHOTO | SALATON NJAU | NMG
People walk past a Chase Bank branch along Mama Ngina Street in Nairobi on April 6, 2016. FILE PHOTO | SALATON NJAU | NMG 

Former Chase Bank chairman Zafrullah Khan has claimed that the collapsed lender’s auditors — Deloitte — wrongly reported Islamic banking investments as insider loans, which stood at Sh13.63 billion as per a published financial report when the industry regulator placed the lender under statutory management.

Mr Khan, in fresh court filings, says the auditors changed the reporting of Islamic banking investments from “other assets” as per Central Bank of Kenya (CBK) requirements, to insider loans.

The CBK placed Chase Bank under receivership on April 7 last year after the lender restated its financial results, which pushed insider lending up by Sh8 billion from the initially published report.

Chase Bank’s receiver manager, the Kenya Deposit Insurance Corporation (KDIC) in April this year filed a suit seeking to recover Sh14 billion from Mr Khan and other top brass managers at the lender.

The KDIC says Mr Khan and three of his former executives—Duncan Kabui (managing director), Makarios Agumbi (general manager, finance) and James Mwaura (general manager, corporate assets)—approved and accessed irregular insider loans.

Mr Khan now says that after unsuccessfully requesting the CBK to let it report its Islamic banking investments separately, it retained their classification as “other assets” until 2015, when its auditors irregularly listed them under insider loans.

“This change was made unilaterally and unprocedurally as the auditor is not mandated to alter reports. Further, the auditor also changed the 2014 financial report and moved the Islamic banking investments from “other assets” to “insider loans” without noting that the 2014 reports had been restated,” Mr Khan claims.

Sh1.05-billion bonus

The KDIC has also accused Mr Khan of ensuring that a Sh1.05 billion bonus he was to receive over five years starting 2015, was paid to him in under two months.

But Mr Khan now says that the bonus payment was intended to help him boost the collapsed lender’s capital after a sudden jump in bank deposits.

“Due to a rapid growth of bank deposits in 2015, it was apparent that the bank required an increase in capital from shareholders to the tune of Sh1.6 billion.

"As a result of this urgent requirement I decided to inject from my bonus entitlement as rights into the bank so as to ensure it attained the capital requirement with the agreement that it would be repaid to me later.”

“For accounting purposes and for this arrangement to work, I had to access the funds first then put them back into the bank,” Mr Khan adds.

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