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NBK board reported management to regulator

The Central Bank of Kenya headquarters in Nairobi. PHOTO | FILE
The Central Bank of Kenya headquarters in Nairobi. PHOTO | FILE 

The suspension of top managers of the National Bank of Kenya (NBK) followed reporting of suspicious developments at the institution by its board to the Central Bank of Kenya (CBK).

Central Bank governor Patrick Njoroge said Wednesday the board members told the regulator of their concerns and the action they were proposing to take to ensure the bank was sound.

“The board came to us and told us of the concerns they had and proposed the actions they wanted to take. We told them to go ahead,” said Dr Njoroge in a Press conference held at the CBK on Wednesday.

The sequence of events is similar to what happened at Imperial Bank before CBK took over through Kenya Deposit Insurance Corporate (KDIC).
However, in relation to the NBK, the action taken was to suspend six top managers, including chief executive Munir Mohamed.

Questions were raised as to how the bank found out that some loans were not being serviced in just three months yet for a whole nine months the lender had not noticed anything amiss and actually reported a net profit exceeding Sh2.2 billion.

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At the end of 2015, the bank reported a Sh1.2 billion loss. It was not clear whether the board was also swayed by the scandalous rumours that kept appearing in the social media in taking the matter to the CBK.

Accusations of mismanagement were made but the bank kept denying anything was amiss at the institution.

Just a day before the managers were suspended, the lender had put out two statements to the press saying that everything was okay at the company and that people saying anything to the contrary were actually malicious and driven by ill motives.

However, Dr Njoroge says, the regulator cannot rely on rumours about banks in taking any line of action.

“It would be very dangerous to push on this and for us to rely on rumours. There are many malicious rumours going around but we simply cannot even respond to them. Imagine shouting ‘bomb’ in an aircraft or shouting fire in a crowded theatre,” he said.

On the question of whether Kenya was overbanked and on increasing minimum capital requirements, the governor said that the key thing the regulator is concerned with in relation to providing oversight to the banking industry is to ensure resilience and efficiency.

“The issue is not about the number of banks or even about increasing minimum capital. The number can be a dozen, 20 and so on.
“We want an industry that is resilient. Can the banks sustainably withstand shocks?” asked the governor.

Dr Njoroge said the banks need to be able to diversify the sectors they are lending to and also adopt stronger business models as a way to be resilient.

One of the major weaknesses identified in the business models of some of the Kenyan banks — but which Dr Njoroge did not mention — is the use of chopdi accounts or parallel banking where a lot of loans and deposits remain undisclosed in financial statements and accounts.

It was fingered as the key problem in relation to the collapse of Imperial Bank and Trust Bank.

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