Treasury Cabinet Secretary John Mbadi has ousted the board and CEO of Consolidated Bank of Kenya in changes that have caught the attention of the regulator and triggered a court battle.
The boardroom coup followed Mr Mbadi’s rejection of the directors’ decision to offer the bank’s chief executive officer, Sam Muturi, a second term from October 11.
Before tapping Mr Muturi’s replacement on October 8, the Treasury CS fired three directors on October 3 after they insisted on Mr Muturi’s second term and rejected the push for recruitment of a new CEO.
Mr Mbadi advised the remaining two of the seven directors to hire Dr Murage Njeru, a lecturer at the University of Nairobi, as acting CEO, prompting Mr Muturi to petition court for his reinstatement or a compensation of Sh76 million.
Dr Njeru’s appointment came days after he stepped down in the race for the Mbeere North parliamentary by-election, which set for November 27, in favour of the candidate of President William Ruto’s United Democratic Alliance (UDA).
But his appointment has landed Consolidated Bank in trouble after the Central Bank of Kenya (CBK) said the lender had breached its rules that demand executives pass a fit and proper test before of their appointment.
Dr Njeru’s appointment came as his brother and another contestant for the Mbeere North seat, Charles Njagagua, was removed as chair of Consolidated Bank.
The by-election is seen as a litmus test for the President’s popularity in the Mt Kenya region following his fallout with former Deputy President Rigathi Gachagua.
“In light of the absence of a substantive board of directors, I hereby appoint Dr Dominic Murage Njeru, who is being seconded from the University of Nairobi as the acting chief executive officer to ensure effective succession management pending his certification by the Central Bank of Kenya,” said Mr Mbadi in an October 8 letter to the Treasury’s representative on the Consolidated Bank board, Jane Njogu.
Ms Njogu later sent a memo to staff announcing the appointment of Dr Njeru as the acting CEO, prompting protests from the CBK.
The CBK reckoned that that Dr Njeru was yet to be vetted by the banking regulator, who earlier questioned Ms Njogu’s role, arguing it has not approved her second board term that started in September.
“We bring to your attention provisions of Section Section 9A of the Banking Act which stipulate that institutions are required to ensure that no person is appointed or elected as a director or appointed as a senior officer unless the central bank has certified the person as a fit and proper person to manage or control the institution,” CBK’s deputy director of bank supervision, Timothy Kimutai, told Consolidated Bank.
“In addition, CBK Prudential Guideline on corporate governance stipulates that no senior officer shall take up his position prior to being cleared by the central bank,” he added in the October 23 letter.
Consolidated Bank’s board in a letter to Mr Mbadi in March pushed for Mr Muturi to be offered a second term on grounds that he had delivered the bank’s first profit in 15 years.
But the Treasury CS in September rejected the bid to renew Mr Muturi’s term, urging the board to start the process of hiring a new CEO. In a meeting held in September, four of the six directors opted to challenge the CS’s decision and insisted on Mr Muturi.
The former chairman, Mr Njagagua, and Ms Njogu sided with the Treasury CS.
“In view of the foregoing, it was resolved that a letter be written to the Cabinet Secretary seeking further consultation and a reconsideration of the decision by the CS recommending the commencement of the recruitment of a new CEO in view of the fact that the board had instead recommended the renewal of the CEO’s contract for a further three years,” say minutes of the board on September 12 seen by the Business Daily.
However, on the same date, Mr Njagagua terminated the contract of Mr Muturi, before the board’s resolution was communicated to the CS.
In a letter dated September 17, the CS acknowledged receiving a letter signed by four directors requesting extension of the CEO’s contract but insisted on ending Mr Muturi’s term.
On October 3, Mr Mbadi revoked the appointment of three of the four directors who had signed the letter save for Florence Oluoch, who had been appointed in November last year.
President Ruto revoked Mr Njagagua’s chairmanship on the same day, leaving the bank without a substantive board.
Mr Muturi on October 16 petitioned the court to have him reinstated, arguing that Mr Mbadi had no powers to overrule the board in the appointment of CEOs.
Consolidated Bank has been struggling with leadership gaps with more than half of its top management – six of 11 – serving in acting capacity, denying them full authority to execute their roles.
Albert Anjichi is acting as the bank’s head of legal and company secretary since 2023.
Fred Ronoh, head of finance and administration, and Harrison Muthoka, head of risk and compliance, are also temporal.
Others serving in acting capacity are head of human resources Rose Mukoba, head of retail and SME Josephine Mutunga, who however holds the docket of corporate banking substantively and head of credit Jullie Odadi.
Mr Muturi had banked on a fresh term after the bank posted a profit of Sh12 million for the six months ended June from a Sh84 million loss.
The bank, whose capital levels remained below statutory requirements, cut its operating expenses by four percent to Sh812 million from Sh848 million.
It reduced its staff costs in the six-month period by Sh5 million to Sh349 million, with management forced to look at cost cutting to spur growth as the government continued withholding its support despite persistent calls for cash injection.
Consolidated Bank has been in the red for the last nine years with losses wiping out its core capital to negative Sh731 million.
Its accumulated losses stood at Sh4.4 billion, putting it in breach of all CBK’s capital parameters.
The bank’s core capital to total deposit liabilities ratio is at negative 5.8 percent against a mandatory eight percent while its total capital to total risk weighted assets is at negative 6.1 percent against the statutory 14.5 percent.
The Treasury, which owns 93.5 percent of the bank, has failed to heed pleas to inject cash in the lender for the last 12 years.
