Imperial Bank owners lose out as NIC prepares to acquire assets

The Central Bank of Kenya (CBK) Tuesday announced that it had allowed NIC Bank to take over some of collapsed Imperial Bank’s assets and liabilities, putting the mid-tier lender in the pole position to acquire the troubled bank.

Patrick Njoroge, the CBK governor, said the proposed deal would see NIC Bank take control of a fraction of Imperial Bank’s loan book and deposits as well as resume disbursements to depositors up to a maximum of Sh1.5 million.

The deal is subject to the High Court lifting the freeze on payments early next month and if successful would effectively neutralise any hopes to revive Imperial Bank.

The deal is backed by Kenya Deposit Insurance Corporation — Imperial Bank’s receiver managers.

NIC Bank’s immediate task is to ease the pain of distraught depositors with a long-term objective of acquiring the lender after an audit of its viability, group managing director John Gachora said in an exclusive interview with the Business Daily.

“Part of this is due diligence. We’re creating a good bank from the bank. The end game is assuming the good bank,” Mr Gachora said.

“KDIC will decide what portion they want to dispose of,” he said, adding that NIC Bank will not be acting as statutory managers and will therefore not earn any management fees.

NIC Bank is a public listed lender that is controlled by the family of former CBK governor Philip Ndegwa, which has vast interests in financial services, including ICEA Lion Life Assurance Company.

The mid-sized bank has operations in Uganda and Tanzania and runs related subsidiaries, including NIC Capital, NIC Insurance Agents, NIC Properties and NIC Leasing LLP.

Dr Njoroge further revealed that NIC Bank will in the meantime be preparing to re-open Imperial Bank’s 28 branches and take over the lender’s staff, estimated at 470 employees.

“Certain portion of assets and liabilities will be carved out and disposed of. NIC assumes them and manages them,” the governor said at a press briefing yesterday.

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“It is like your loan moving from one bank to another.”

Dr Njoroge said the deal was informed by the failure of Imperial Bank’s shareholders to provide “adequate assurances to implement a proposal that would enable prompt reopening” of the lender.

The governor said Imperial Bank had other suitors but declined to name them, saying NIC Bank was picked on the basis of strong corporate governance, good IT system and financial muscle.

The banking sector regulator and the deposits protection fund are pegging the NIC Bank-Imperial Bank deal of separating the ‘good bank’ from the ‘bad bank’ on a legal arrangement technically referred to as “exclusion and transfer process.”

Section 2(a) of the Kenya Deposit Insurance Act, which was amended in the year 2013, provides for the “exclusion and transfer of part or total deposits and liabilities from a problem institution to a solvent and well-managed institution”.

The law mandates the KDIC, as the receiver manager, to carry out “exclusion and transfer of part or total assets to the institution receiving the liabilities and liquidation of the residual assets and liabilities” as stipulated in Section 2(b) and (c).

But Dr Njoroge was quick to allay fears of Imperial Bank undergoing liquidation.
“We haven’t moved to liquidate,” he said in response to queries.

NIC Bank appears to be eying Imperial Bank’s corporate banking clients — a prized catch for the listed lender, which is strong in trade and corporate banking as well as asset finance.

Timelines

Mr Gachora did not offer any timelines for the deal, but hinted that it is likely to happen within the KDIC’s 12-month receivership mandate which ends on October 13, 2016 — exactly a year since the collapse of Imperial Bank.

“We view this as an opportunity to assist in addressing the plight of depositors, add to the stability of the banking system and restore confidence in the system,” he said.

A High Court ruling on the freezing of payments to Imperial Bank depositors is expected on July 4, 2016.

NIC Bank has been tasked to assess the quality of Imperial Bank’s assets and liabilities, support the recovery of loans, and provide guidance on other assets and on staffing, the CBK said.

“We’re bankers. We know how to run a bank,” said Mr Gachora.

“We will look at the loans and advances and make evaluations and help in collecting, restricting and re-negotiating them.”
Dr Njoroge further announced the end of KCB and DTB mandate in paying Imperial Bank depositors a maximum of Sh1 million each. The two bank’s had paid out a total of Sh6.9 billion before the High Court stopped the payments on April 19, 2016.

Imperial Bank had a total of 49,942 deposit accounts, out of which 5,578 were considered large accountholders and had so far only received a maximum of Sh1 million, Dr Njoroge said.

If the courts allow a re-start of payments capped at Sh1.5 million to the big depositors, the KDIC expects to pay an additional Sh9 billion to the savers.

This is expected to bring the cumulative total payouts to Sh15.9 billion, in what the CBK termed “a cumulative pay-out ratio of approximately 59 per cent” of all “verified deposits” — meaning 92 per cent of all depositors will have accessed all their cash.

FTI Consulting, the American firm conducting a forensic audit on Imperial Bank, has isolated 700 suspicious accounts and 22,520 doubtful transactions at the distressed lender.

Imperial Bank had Sh87 billion in deposits at the time of collapse, but its managers had suppressed Sh39 billion in the bank’s balance sheet, reflecting only Sh48 billion in the books.

Deposits that have so far been verified as belonging to actual owners amount to Sh27 billion, according to CBK data, deepening the mystery surrounding the authenticity of Imperial Bank’s books.

At the time of collapse, Imperial Bank’s liquid position was estimated at about Sh20 billion.
Dr Njoroge said further payments to depositors will be hinged on repayment of loans due and recovery of assets from those who looted Imperial Bank.