Sh58bn deposits locked in Imperial Bank shutdown

The Central Bank of Kenya’s (CBK) decision to place Imperial Bank under statutory management effectively removed Sh58 billion from circulation, raising queries over its possible impact on liquidity in the money markets.

The bank, which is associated with the wealthy Popat family, Tuesday became the second to go into receivership since Patrick Njoroge took charge as CBK governor less than four months ago.
The action saw the immediate closure of Imperial’s branches countrywide and a freeze in all operations except servicing of debts.

“Normal operations of the bank are suspended except for collection of loan re-payments or any other payments into the bank,” the CBK said in a press statement that also appealed for patience among depositors as the Kenya Deposit Insurance Corporation (KDIC) — the receiver managers — worked with the Imperial Bank Limited board to resolve the matter in the interest of stakeholders.

Unlike Dubai Bank, put under statutory management in September, Imperial Bank enjoyed market confidence that was demonstrated only last month with the oversubscription of its Sh2 billion corporate bond.

The CBK’s action, which sent shockwaves across the banking system, came on the day the Imperial Bank bond was to list at the Nairobi Securities Exchange (NSE) forcing the Capital Markets Authority (CMA) to suspend its listing.

The CBK said it had been made aware of unsafe business conditions in the bank, culminating to the decision to take over its management.

Sources privy to the matter said Imperial Bank was brought down by massive fraud executed by its staff and plans were afoot to take the suspects to court.

The bank’s closure however cast a long shadow over the quality of supervision in Kenya’s banking and capital markets -- coming barely three months after its bond got the CBK’s approval on June 9 and the CMA’s nod on August 12.

Fitness assessment

Bond issuers are required to go through a rigorous fitness assessment before they are allowed to mobilise any funds from the public.

That the CBK and the CMA both approved an issuer, who has effectively collapsed three months later, suggests the assessment process was either flawed or that the calamity that has put investors' funds at risk was massive and happened in the past few weeks.

The CMA said it had granted the approval based on information made available at the time of consideration and “subject to the undertakings from the directors of the issuer and their professional advisers that the disclosures in the Information Memorandum were complete and not misleading”.

The decision to shut down the Imperial Bank was said to have sharply divided the CBK management, some of who were said to have insisted that the fraud did not offer enough grounds to put the bank in receivership given the shocks it would cause in the market.

Imperial Bank held Sh58 billion in customer deposits at the end of June, the bulk of which was from the business community that was its target market.

The depositors, who Tuesday were locked out of the banking halls, have to wait for the KDIC’s verdict on whether they will be able to get their money back.

Imperial Bank is classified as a mid-tier lender that ranked 17 in the industry and has operations in Kenya and Uganda. It controls 1.76 per cent of the Kenyan banking market, with 52,398 deposit accounts at the end of last year. Only one third of the accounts held more than Sh100,000.

The bank’s Ugandan subsidiaries were also put under statutory management, taking the shockwaves across the border.

Continue reporting to work

Imperial Bank’s staff, who spoke to the Business Daily, said the CBK officials sent to their branches had assured them that they would not be laid off and asked them to continue reporting to work with the exception of Saturdays.

The bank had 590 employees at the end of December 2014.

Analysts said they do not expect a direct systemic threat from the fallout but were worried of the confidence impact it posed in the market.
“It creates some jitters because Imperial wasn’t a small player,” said Francis Mwangi, head of research at Standard Investment Bank.

The CBK’s action also sent shivers down the spines of investors who last month lent the bank Sh2 billion in a bond issue meant to help Imperial comply with statutory capital requirements. The bond promised a 15 per cent fixed return.

“We are liaising with the Central Bank of Kenya and the Capital Markets Authority to determine the effect of the statutory management on the holders of the medium-term notes,” said Nairobi Securities Exchange chief executive Geoffrey Odundo.

Imperial Bank’s long-serving chief executive Abdulmalek Janmohamed died last month and was replaced by Naeem Shah. Mr Janmohamed owned five per cent of the bank.

Other directors have a 33.85 per cent stake in the bank with Alnashir Popat, the chairman, holding seven per cent.