Imperial Bank directors have reduced data from the bank’s computers into 10 pages exposing how five officials in the banking supervision department at Central Bank of Kenya (CBK) manipulated their inspection reports.
With the help of data consulting firm GPW & Company, the directors looked at emails, bank monthly filings to CBK, inspection reports, and letters and found evidence showing collusion between the banking regulator’s officials, former Imperial Bank Managing Director Abdulmalek Janmohammed and other senior staff at the bank in the Sh38.5 billion fraud.
The findings by the directors raise questions on how CBK is conducting its own investigation into the saga. CBK through its subsidiary Kenya Deposit Insurance Corporation (KDIC) has used Sh1.5 billion of Imperial Bank depositors’ funds to pay for forensic auditing of the bank by FTI Consulting.
But for the last 14 months, the forensic auditing firm has not unearthed anything fresh apart from what it found out when it was first contracted to audit the bank by the directors.
CBK Governor Patrick Njoroge has sought to portray the task of cracking the data for evidence as a task too hard to accomplish, and has pleaded for patience when confronted with the question of why his officials have not been prosecuted.
1.2 terabyte data
In March this year, Central Bank’s statement on the issue said the magnitude of what still needs to be done is substantial.
“While initial expectations were that there would be a few dozen accounts-of-interest; some 22,520 high-priority transactions need to be investigated; and about 1.2 Terabytes (TB) of electronic data needs to be interrogated (if printed on regular paper it would stack 7,200 kilometers tall). It is expected that the current team will make significant progress on this work in the next three months,” said Njoroge in the CBK statement.
Last month, he told Parliament that there was no evidence to prove that his officers connived with former Imperial Bank managing director Abulmalek Janmohammed to rob Sh38.5 billion from the bank.
But the evidence unearthed by the directors and which they have filed in court shows how the CBK Five tweaked their inspection reports giving the bank’s senior managers a pat on the back where they should have been punished severely for breaking the regulator’s prudential guidelines.
The CBK 5
Somehow, it was always the team of five, Matu Mugo, Reuben Cheres, Medline Kihara, Simon Gichuki and one Milgo L.K who handled Imperial Bank inspection for three years before the bank was finally put under receivership.
In what could be the biggest indictment on Central Bank of Kenya, documents filed in court by Imperial Bank shareholders and non executive directors show a big gulf between what the CBK officials found during their annual inspection of the bank and what they put in their inspection reports.
Among documents the directors have filed are CBK inspection reports from 2012-2014 where the problems of the bank are thoroughly downplayed.
In fact, looking at the reports, one gets a sense of a bank whose problems are commonplace in the banking sector such as a few overdraft accounts overdrawn above their set limits or misclassifying a few accounts as performing.
But that picture quickly dissipates when one looks at the inspectors Exit Discussion Documents.
Exit Documents in banking supervision are observations, conclusions and recommendations that inspectors make after looking at a bank’s accounts and structure which should ordinary form the body of an inspection report.
However, in the case of Imperial Bank, it is as though the inspection reports were done by one set of inspectors while the exit reports were done by another.
In the June 2012 exit discussion document, the inspectors noted Imperial Bank had reclassified 147 accounts. In other words, loan accounts that should have been classified as non-performing were classified as performing.
The inspectors said that 92 accounts with an outstanding balance of Sh898 million were downgraded from performing to nonperforming category. They also recommended an loan loss provisions to be increased by Sh79.8 million.
Whitewash
Yet the supervision report which CBK presented to the bank directors was a complete different story.
Accounts that had been reclassified had now dropped from 147 to 94 accounts while the downgraded accounts was reduced from 92 to 46 with an outstanding balance of Sh265 million, down from Sh898 million.
The exit document also noted that out of 2009 overdraft accounts, 1528 with an account balance of 2.49 billion had no marked limit or the limit had been marked zero.
They also listed examples of accounts that had been allowed to burst their limit such Athi Stores whose limit was Sh15 million but had a balance of Sh143 million. Sparetech trading had a limit of Sh20 million but accumulated a balance of Sh95 million.
In the inspection report, the number of accounts that had no limit or were operating above the limit was expunged.
It was replaced by a general statement indicating some accounts were in breach of CBK guidelines.
“Overdraft listing provided to CBK inspectors indicated that some customers with overdraft accounts had no marked limits in the core banking system. It was also noted that some overdrafts were operating above sanctioned limited,” said the inspection report presented to bank directors.
For the next two years, the inspectors repeated the same routine of elaborating the breaches that the bank was committing but whitewashing those findings in the final inspection report.
Raj Devani
An analysis done by banking data analysis consulting firm GPW & Company hired by the directors found that in 2013, CBK officials revised the value of the accounts that had been downgraded to non performing by 68 percent from Sh683 million to sh219 million.
They also rolled back the recommended increase in loan loss provision by 82 percent from Sh59.2 million to Sh10.4 million.
The documents also show that the officials also conveniently failed to flag the main accounts that were used in the Sh38.5 billion theft from the bank even though the evidence was screaming waiting to be picked.
Overdraft accounts held by relatives of Yagnesh Devani, who was the architect of Triton scandal, were never flagged off by the inspectors in spite of the fact that they had the biggest balances in the bank’s loan book.
The accounts held by Adra International whose directors are Raj Devani and his brother Adina Devani had the biggest balances and were nonperforming in the three years when the team of four CBK carried out the inspection.
The overdraft accounts whose cumulative balance was Sh4.1 billion did not have a limit, were never selected in the exit documents and were also omitted in the final inspection report in spite of the fact they accounted for 57 percent of 50 biggest loans and advances.
Imperial Bank shareholders and non-executive directors are using the evidence as part of their defence in a case filed by CBK and Kenya Deposit Insurance Corporation (KDIC) seeking to recover Sh44.8 billion.
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