Treasury nominee Ndung'u attacks CBK governor’s leadership

Prof Njuguna Ndung'u, Cabinet Secretary for National treasury and planning on October 18, 2022. PHOTO | DENNIS ONSONGO | NMG

The Cabinet secretary nominee for Treasury Njuguna Ndung’u Thursday voiced his concern about recent bank collapses, in comments seen as a veiled rebuke of Central Bank of Kenya (CBK) Governor Patrick Njoroge’s leadership.

Prof Ndung’u, who was replaced at central bank by Dr Njoroge in 2016, criticised his successor for letting three banks collapse in quick succession six years ago and using scare tactics to control the banking sector.

He did not mention Dr Njoroge by name but made comparisons of their tenures, arguing that no bank collapsed during his time despite having similar challenges within the sector.

Bank CEOs say Dr Njoroge, a US-educated economist and a former adviser at the International Monetary Fund (IMF), oversees the sector with a heavy hand, and many of the executives tend to avoid commenting on industry issues like the exchange rate for fear of reprisals.

He was first appointed to his post in June 2015 for a four-year term, which was renewed in 2019 to June next year.

Depositors and investors in Kenya were rattled during his first term when the CBK took control of three mid-sized banks — Dubai Bank, Chase Bank and Imperial Bank— after they failed to meet their statutory obligations.

Dubai Bank is facing liquidation while Chase Bank and Imperial Bank had their good loans and deposits transferred to State Bank of Mauritius (SBM) and KCB respectively.

Prof Ndung’u reckons that the role of a CBK governor is not to bully the market with an ‘axe’ but to protect the industry.

“No bank collapsed during my time, but that does not mean there were no problems. There were problems but we had to develop interventions to save the market. There were several mergers but those mergers were actually geared towards preventing any collapse,” Prof Ndung’u told Parliament during his confirmation hearings.

“Market situations change, and the regulator must know what to do. A regulator is not someone who is waving an axe in the market, he is a person who is trying to understand, help develop, regulate and protect the market.”

Dr Njoroge has faced criticism for his decision to shut Dubai Bank, Imperial Bank and Chase Bank within nine months of each other, forcing the central banker to change his policy to arranged mergers in a bid to prevent further collapses.

Dubai Bank was placed under receivership in August 2015, followed by Imperial Bank in October the same year and Chase Bank in April 2016.

Prof Ndung’u served as the CBK governor from March 2007 to March 2015.

In announcing the collapse of Dubai Bank, the CBK cited the same malpractices that had long been pointed out by the whistleblowers, revealing the divergent regulatory approach between the current and former regulators.

The shock collapses locked billions of shillings in depositors’ cash in the failed lenders and triggered panic withdrawals from smaller banks and a shift of cash to the larger lenders that were considered stable in what was dubbed “flight to quality”.

After the collapse of Chase Bank, the CBK was forced to introduce liquidity support for ailing banks while midwifing deals between weak lenders and stronger peers to avoid a repeat of the crash.

Equity Bank recently signed a deal to take over bank accounts of Spire Bank while Co-operative Bank bought struggling Jamii Bora Bank and converted it to Kingdom Bank.

KCB Group bought the troubled National Bank of Kenya (NBK) and has since turned it around.

In December 2020, Stanbic Bank Kenya, a unit of South Africa’s Standard Bank, faced the wrath of the CBK governor over a research note issued by its parent that said a parallel exchange rate was emerging in Kenya.

The bank was forced to distance itself from a research note. “The contents of the report do not reflect the position of Stanbic Bank Kenya Limited,” Stanbic said in a statement, distancing itself from its parent’s note.

Dr Njoroge has previously said his focus was “instilling discipline” in the currency market, and maintains that Kenya has a flexible rate policy and only intervenes to smooth volatility.

On Tuesday, Prof Ndung’u denied allegations that his wife received gifts from Imperial Bank’s former managing director, Abdulmalek Janmohamed, in what was alleged to be part of a calculated scheme to co-opt the banking sector regulator into abetting a massive fraud that crippled the lender.

Court filings indicated that Mrs Nancy Ndung’u at one time billed Mr Janmohamed for her stay with a companion at a luxury resort in Thailand in what petitioners used to illustrate the toxic relationship the regulator had with the bank.

Prof Ndung’u told MPs that he paid for his wife’s trip.

He said he had a stellar career at the central bank where he was instrumental in revolutionising the monetary policy and fought off banks to facilitate the launch of M-Pesa.

“I reformulated the monetary policy framework in Kenya. What I found there was obsolete. I also defended M-Pesa when it was being fought by banks,” Prof Ndung’u said.

Prof Ndung’u, 62, is a key architect of President William Ruto’s so-called bottom-up economic model, which seeks to channel government resources to sectors that can create the most jobs such as farming.

He will oversee Ruto’s key economic pledges, including a plan to invest at least Sh500 billion in agriculture and small businesses over five years.

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