Retired Central Bank of Kenya (CBK) governor Professor Njuguna Ndung’u could be turning around in discomfort in his retirement as the banking industry that he left barely nine months ago experiences shake-ups that could haunt his legacy.
Under new management of Dr. Patrick Njoroge, the banking industry has, in a span of two months, seen two banks put under receivership, with one Dubai Bank Kenya being wound up. Its peer, Imperial Bank of Kenya Limited is under receivership and it remains to be seen how many more lenders will join these over the next one year.
In August 2015, barely two months after Dr. Njoroge assumed office, he placed Dubai Bank Kenya under statutory management in a manner that quickly raised questions on the manner in which Prof. Ndung’u oversaw the regulator that was supposed to crack a whip on Dubai Bank in 2012, when claims of mismanagement and money laundering at the bank first emerged.
Dubai Bank had accumulated more than KSh5.3 million in penalties, and failed to meet its monthly cash reserve ratio requirements besides failing to pay KSh48 million in debt owed to Bank of Africa. While analyst hold the view that Dubai Bank’s fate was sealed, it is unlikely any drastic regulatory action could have been taken during Prof. Ndung’u’s tenure. This is despite many red flags having been raised on numerous occasions on the mismanagement that is said to have been going on at the small lender, whose principal shareholder had many unanswered questions regarding his nationality. But, why Dubai Bank, a perfect candidate for CBK’s whip, continued to operate under Prof. Ndung’u’s watch, seemingly paints a bad picture of his eight-year legacy at the helm of the banking sector regulator.
It is however, comforting that Imperial Bank blew the whistle on itself over the management wrangles that could not augur well for the lender’s future survival, prompting the CBK to put it under receivership. CBK and the Kenya Bankers Association (KBA) moved to reassure the public that Imperial Bank was a stable and sound business and that there was no cause for worry. Panic had partly spread over social media that the list of banks that had been lined up for receivership would grow in a matter of time, sentiments the CBK and the KBA dismissed.
“The list of banks expected to go under receivership that is doing the rounds on social media is not true,” KBA said through its social media handles. Some analysts believe that the quick reaction the CBK took against Imperial Bank is what could have sent the wrong signal in a very sensitive industry where trust is key.
“From the poor performance of listed banks on the Nairobi Securities Exchange to the discussions on social media, it is clear there is panic in the market yet even CBK seems unaware of what really ailed Imperial Bank,” a senior research analyst at ABC Capital who declined to be named said.
A report by London-based research firm Exotix released just about the same time Imperial Bank was placed under receivership indicated that Kenya’s banking industry was literally caught by surprise given that the bank has hitherto appeared healthy and sound. “The decision is surprising given the size of the bank and the reputation of the founding members who still hold key positions in the bank,” the report titled Kenya Banks not imperial anymore indicated.
It is however, hoped that Imperial Bank will bounce back in business in less than the 12 months in which it is to be under receivership and demystify sentiments that the banking sector in Kenya is headed towards rough waters. At the time of its receivership, Imperial Bank commanded a market share of 1.76 per cent and was ranked at position 17 in Kenya. It has eight branches in Kenya and five in Uganda, all of which are now under the receivership of the respective authorities in the two countries. It remains to be seen when the bank will bounce back under its own team.
Written by Joshua Masinde