Former Dubai Bank MD Binay Dutta (right) and chairman Hassan Zubeidi before a House committee in Nairobi on July 30, 2013. PHOTO | FILE
What you need to know:
Sh1.7bn - Amount of money that Dubai Bank was holding in customer savings at the end of last year, according to CBK data.
The Central Bank of Kenya’s (CBK) decision on Friday to put Dubai Bank under administration has left in its wake questions as to how the bank survived years of multiple breaches of banking guidelines without regulatory action.
The regulator put the lender under statutory management citing serious liquidity and capital deficiencies just over two months after the managing director fled the country.
Dubai Bank had accumulated more than Sh5.3 million in penalties, failed to meet cash ratio requirements for a month and defaulted on paying Sh48 million owed to Bank of Africa.
“Owing to the consistently deteriorating cash reserve ratio position of Dubai Bank and its failure to honour financial obligations, including Sh48.18 million due to Bank of Africa Kenya Limited, the CBK is of the considered opinion that the bank will most likely fail to meet its financial obligations in the normal course of business,” said the regulator.
The Kenya Deposit Insurance Corporation put the bank under temporary closure as it examines the books. This means customers with deposits in the bank will not be able to access cash till the receiver gives directions.
Dubai Bank was holding Sh1.7 billion in customer savings at the end of last year as per CBK data. The bank becomes the first lender in a decade to be put under statutory management in a move that may dent public confidence in the sensitive sector.
The CBK’s supervision department staff have quietly been protesting its continued operation after penning several adverse reports.
Dubai Bank has been accused of cooking its books twice in the last three years. In June this year CBK said the bank had lied that its liquidity ratios stood at 27.1 per cent at the end of last year and 21.4 per cent in March while investigations showed the actual figure was 9.6 per cent.
Under Kenyan laws, banks must maintain a liquidity ratio of not less than 20 per cent. The bank has been accused in court filings of under-providing for its bad loans resulting in its declaration of false profits. Last year it posted Sh7 million in pretax profits.
Managing director, Binay Dutta fled the country in June this year in the middle of a court battle in which a Turkish businessman, Sevket Tunc, was seeking court orders to wind up the bank for breach of contract.
Chairman and majority shareholder Hussein Zubeidi has also been in court after former managing director Nereah Said accused him of dismissing her unlawfully.
Ms Said, in the court proceedings, opened a can of worms concerning operations at the bank including parallel banking. Mr Zubeidi’s identity also came into focus with questions raised over his nationality — whether he was Yemeni or Kenyan.
In 2013 CBK had ordered the bank to stop issuing new loans as it grappled with a low cash position with depositors keeping away and other banks denying it credit. The bank, previously Mashreq Bank, has been operating for 15 years having been given a licence in April 2000.
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Note: The results are not exact but very close to the actual.
