Chase Bank chair blames CBK in Sh15bn fraud case

Former Chase Bank chairman Zafrullah Khan. FILE PHOTO | DIANA NGILA | NMG
Former Chase Bank chairman Zafrullah Khan. FILE PHOTO | DIANA NGILA | NMG  

Chase Bank founder and former chairman Zafrullah Khan is seeking to shift the blame for transactions that triggered the collapse of the lender to the Central Bank of Kenya (CBK).

He claims the (CBK) did not question its expenses and accounting methods for over five years.

Mr Khan, in freshly filed court documents, says that Chase Bank invested in various properties within Nairobi that were disclosed in its books, but the regulator never raised any questions only to later term them fraudulent transactions.

The order by the CBK for re-classification of the properties pushed Chase Bank into collapse, as it eroded the lender’s capital base and also caused a run on deposits after revealing hitherto unreported insider loans.

The CBK is pursuing Mr Khan and eight other former senior managers and directors at Chase Bank and its related companies to recover Sh14.9 billion the regulator says was lost through irregular insider loans and property acquisitions.


But the bank’s founder insists that the CBK has no evidence of any wrongdoing.

'No money lost'

Mr Khan now says no money was lost, as its auditors Deloitte wrongly listed its Islamic banking investments as insider loans, which stood at Sh13.63 billion when the troubled lender was placed under receivership.

He adds that the CBK has over the years prepared inspection reports which never raised any red flags, and that the regulator erred in shutting down the bank. He has asked the High Court to dismiss the recovery suit.

“It is worth noting that none of the management letters... had raised any single concern about the accounting of the expenses covered under the capital gains nor indeed the presentation of the investments in properties category in the bank’s balance sheet over the period.”

“If there are after-thoughts regarding the accounting treatment of these assets and the recording of their incomes, these should be treated as such, that is accounting amendments or corrections and not to blatantly terming them theft or fraud, simply because (after five years of dealing with issues) they now seem to have a different view of how they should have been recorded and treated in the financials,” Mr Khan holds.

Restated results

The CBK placed Chase Bank under receivership on April 7 last year after the lender restated its financial results, which pushed insider lending up by Sh8 billion from the initially published report.

The restated financial results published showed that insider loans — money advanced to directors, shareholders, associates and employees of the bank — stood at Sh13.62 billion last year against the Sh5.72 billion it reported on March 31.

Reports of the insider lending ignited a run on deposits which eventually forced the CBK to place Chase Bank under statutory management.

The bank was re-opened on April 27, last year, under the management of Kenya Commercial Bank and allowed to do all transactions, including foreign exchanges and issuing loans albeit with reduced limits.

The CBK in the suit has also questioned a Sh1 billion bonus that Mr Khan was to receive over a five-year period but was released less than two months after board approval.

But Mr Khan now says that the funds were released to him urgently so that he could plough them back into Chase Bank as capital, something the troubled lender’s founder holds the CBK has overlooked.

Amounts owed

He adds that the CBK has also ignored the amounts owed to him by Chase Bank.

Mr Khan says that despite the CBK’s attempt to paint Chase Bank as a failure, the lender was stable before being placed under receivership and that it has continued to perform well even while under statutory management.

“It is inaccurate and malicious to purport to highlight one side of entries relating to my personal expenses and avoid or ignore to also include the various commensurate dividend income credits that were due to me over the period,” he says.

The CBK and the Kenya Deposit Insurance Corporation have been seeking potential investors to buy Chase Bank, with Mauritian lender SBM Holdings having already made an offer.

Mr Khan has also held that the firms that received funds from Chase Bank and in which he, former managing director Duncan Kabui, former general manager (corporate assets( James Mwaura and former general manager (finance) Makarios Agumbi held shares in were special purpose vehicles.

He holds that the shares they held were on behalf of Chase Bank.