Bottom-tier lender Dubai Bank has won critical support in its fight with a Turkish businessman, Sevket Tunc, who has filed a winding up petition against the institution for breach of contract.
Mr Tunc has filed the petition seeking to wind up the bank for failing to honour a guarantee that the lender issued his business partner, Abdullwalli Shariff, for a share sale.
But the Central Bank of Kenya (CBK) says in an affidavit it has filed in court that it has taken sufficient administrative action against Dubai Bank, making the winding up petition unnecessary.
“In view of the administrative actions being undertaken by CBK, the issuance of the winding up notice and publicity of the debt owing to Mr Tunc will send a wrong signal to the industry and will be equally prejudicial to depositors, shareholders and other creditors of the bank,” the CBK says.
Dubai Bank has refused to honour the guarantee arguing that documents do not bear the company’s seal nor its chairman’s signature, making them void. The bank reckons that the said guarantee was a scheme by its former chief executive, Binay Dutta, Mr Shariff and Mr Tunc to defraud it of funds.
The CBK filed the affidavit in support of a suit Dubai Bank has filed challenging Mr Tunc’s petition that seeks to wind up the lender over its failure to honour the $544,900 (Sh52.8 million) guarantee.
But even as it supported Dubai Bank, the CBK is equally hard on the lender, warning that it could be put under statutory management and legal action taken against top officials who falsified information on its liquid assets.
The CBK says it has consequently given Dubai Bank, whose operations have been under scrutiny in the past couple of years, a chance to remedy its activities or go into statutory management as part of the measures to protect depositors’ funds.
“The CBK has issued Dubai Bank with various remedial measures it has been directed to take. If these measures do not yield the expected results, the bank will be placed under statutory management,” the CBK, says in court filings.
Dubai Bank has according to CBK been overstating its liquidity ratio, which is the balance between a bank’s saleable assets and its liabilities.
The lender declared a liquidity ratio of 27.1 per cent at the end of last year and 21.4 per cent in March, which the regulator flagged as inaccurate, prompting investigations that revealed the true figure as 9.6 per cent.
Under Kenyan laws, banks must maintain a liquidity ratio of not less than 20 per cent.
The CBK warns in court papers that it will place the lender under statutory management if it does not correct the operational inconsistencies.
The CBK has also flagged Dubai Bank for not making adequate provisions for loans and advances before declaring its profits and losses at the end of the financial year.
A letter sent to the lender last Thursday shows that the bank’s violation of the provision was discovered through a May 8 inspection and that the bank has been asked to correct the irregularity or face closure.
“The bank is required to ensure that these provisions are passed immediately and the same is reflected in its financial statements. Further, the CBK notes with concern that Dubai Bank has been penalised for failure to maintain the minimum cash ratio requirements on several days in the month of April.”
Mr Tunc has, in his response to the suit, backed Mr Dutta, whom the lender said is on the run following investigations into the issuance of the share sale guarantee.
The Turkish businessman says Mr Dutta neither signed the guarantee, nor was he a party to the transaction, a position that is directly in conflict with Dubai Bank’s position that Mr Dutta signed the papers.
Mr Tunc says the deal was to see him sell his shares to Mr Shariff who is his business partner. but that the bank has now refused to make good on the guarantee it issued.
“Attempts to pass the buck to Mr Dutta have no basis at all and are an attempt to hoodwink this court,” the Turkish businessman says.
Mr Dutta, who is an Indian national, had indicated in his request for leave that he was going back to India to prepare for his daughter’s wedding but Dubai Bank now says there was no justification to leave before the request was approved.