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Uganda puts Imperial Bank’s stake in Kampala unit on sale

Central Bank governor Patrick Njoroge. The
Central Bank governor Patrick Njoroge. The governor said that regulator wants to give the economy a soft landing by bringing interest rates down after months of rising. PHOTO | FILE 

Ugandan authorities have put troubled Imperial Bank’s 51 per cent stake in the lender’s Kampala subsidiary on sale in a move that signals a possible direction Kenyan regulators might take in resolving the crisis that led to the bank’s closure two weeks ago.

Central Bank of Kenya (CBK) governor Patrick Njoroge made the revelation even as he acknowledged that the regulator’s own supervision department officials are among the key players under investigation over the sudden fall of the mid-tier lender.

“In Uganda, they are trying to sell the 51 per cent shareholding of Imperial Bank Kenya to a particular investor and to resolve the bank’s problems that way,” said Dr Njoroge.

The list of those under investigation for massive fraud that led to the bank’s collapse includes directors of the bank, its management, and external auditors.

The full extent of the mid-tier lender’s troubles will be known by mid next week, Dr Njoroge said, adding that the forensic auditors had instructions to work within that deadline.

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The decision by the Ugandan authorities to force a sale of Imperial Bank Kenya’s stake signals that Kenya could also consider having a substantial shareholding of the bank sold to other lenders to deal with the confidence crisis that the receivership has caused among depositors.

Such a move should restore some degree of confidence among the savers and help stem the anticipated tide of massive withdrawals when the bank is reopened.

In Kenya, Dr Njoroge said, the forensic auditors are also investigating whether loans may have been issued irregularly or financial numbers fudged. He confirmed that a US firm FTI Consulting had been appointed to investigate alleged irregularities and malpractices in the bank that was closed early last week.

“What we have right now are allegations. Nothing has been verified and we cannot go into specifics about something we are not sure of until the forensic audit is completed,” Dr Njoroge said when journalists demanded details of the “malpractices” at the bank.

Force a sale

The Bank of Uganda’s decision to force a sale of the Kenyan bank’s stake in the Kampala unit is a solution that may come in handy given the damage that the receivership has done to the Imperial Bank brand.

Dr Njoroge said inviting a strategic investor into the bank is one of the options the CBK could use to resolve capitalisation difficulties should the audit reveal that it is a major issue.

“We have to find out whether there any shortfalls in capitalisation and whether the bank can be recapitalised and reopened. Getting a strategic investor is a possible solution,” said Dr Njoroge. The governor also signalled possible fraud at the institution.

Dr Njoroge said that whereas the preference of the CBK was to have Imperial back on its feet, liquidation remains on the cards if the institution’s challenges turn out to be impossible to deal with.

US authorities used forced mergers as part of the response to the global financial crisis that brought down many financial institutions in the country and Europe. Some of the banks have since come out of bankruptcy and even demerged (for those that had been forced to merge) following the regulators’ actions.

Dr Njoroge said that despite Uganda’s actions, there isn’t a clear formula to resolve issues relating to collapsed banks with cross-border operations.

“Even in Europe, they are still struggling with resolution of banks with cross-border operations. In Kenya it is a complete unknown. Experts in the field are still struggling with it,” Dr Njoroge said.

The CBK, he said, was in the process of creating supervisory colleges — units made of the separate regional regulators coming together to monitor a particular institution — for each bank with cross-broader operations.

Earlier, the Business Daily had reported that the CBK was receiving technical assistance from the International Monetary Fund (IMF) to improve monitoring of financial institutions with cross-border operations.

Dr Njoroge yesterday indicated that the CBK was not in a position to reveal the specifics of the information it had received from the directors of Imperial Bank.
“We have not verified the information so we cannot reveal the details. But it will be there for all to see once the forensic auditors establish the facts,” Dr Njoroge said.

He added that the bank’s ratios had remained the same at the end of September as had been reported for the end of June or the second quarter of the year. Deposits were Sh48 billion, excluding the Uganda subsidiary, and assets were worth Sh62 billion.

“As far as the numbers or the ratios are concerned, they remained the same at the end of September as in June,” the governor said even as he insisted that there is no systemic threat to Kenyan banks.

He disagreed with rating agency Moody’s assessment that the fall of Imperial had imperilled other small institutions to the extent of losing deposits.

“I beg to differ with Moody’s. The problem is not systemic. The list that has been in circulation in the social media showing banks that could be in danger is not justified at all. It is like shouting fire in a crowded theatre,” said Dr Njoroge even as he admitted that there was a rise in withdrawals in the first two days of Imperial’s closure.

The governor promised far-reaching changes in supervision of banks to make it more oriented towards better monitoring of the financial system.

“It is clear we need to strengthen supervision dramatically. There may be some blind spots. We will do our own in-house introspection,” he said.

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