Queries linger over CBK handling of four troubled banks

Central Bank of Kenya (CBK) handling of stress problems in four troubled remains shrouded in mystery slightly close to two and years since the problems cropped up.

Since 2015, four banks have gone under severe stress forcing the banking regulator to place under under receivership, liquidation or forced acquisition.

CBK is at various stages of dealing with stress in the four banks namely, Fidelity Bank, Imperial Bank, Dubai Bank and Chase Bank.

So far, only the problems in Fidelity Bank have been resolved through a forced acquisition.

But the manner in which the banking regulator has handled the troubled banks has raised more questions than answers.

One of the sticking issues is the forced acquisition of Fidelity Bank.

The bank was acquired last year for a dollar by a Mauritius State bank, State Bank of Mauritius (SBM) after it started experiencing liquidity problems.

A look at at Fidelity Bank books shows its liquidity problems emanated directly from the collapse of Imperial Bank.

According to a forensic audit on Imperial Bank fraud that led to its collapse, part of the Sh38 billion loot was banked at Fidelity Bank by W.E Tilley (Muthaiga) Ltd, the chief architects of the fraud.

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In 2016, shortly after the collapse of Imperial Bank, Sh10 billion was mysteriously withdrawn from Fidelity Bank leading it to sink into severe liquidity pressures.

So severe was the pressure for liquidity as customers sought to withdrawal their savings that the bank was forced to seek capital from Duet, a London based private equity fund.

But the hole created by the mystery withdrawal was so huge that the capital injection by the private equity fund was not enough to plug it.

Not even borrowing from CBK could hold the bank stable.

But there was more in the Fidelity Bank acquisition saga. At the time of its acquisition, an auditor who had been indicted by a forensic audit report for helping in the cover up of Imperial Bank fraud was alleged to have held a 4.2 percent shareholding at Fidelity Bank.

This information was known to CBK as was the fact that W.E Tilley were the acnchor depositors at Fidelity Bank. In other words, without W.E Tilley deposits, Fidelity Bank was a shell!

In fact, in private conversations, SBM directors have lamented that they were forced to acquire a very bad Kenya in the Fidelity acquisition.

It is unclear why CBK hurriedly forced the acquisition of Fidelity Bank under these circumstances where a major shareholder in the bank was involved in the collapse of another bank.

It is also curious that CBK did not freeze the accounts of W.E Tilley, at Fidelity Bank in good time to prevent the withdrawal which led to bank’s liquidity problems.

Even the interest of SBM on Fidelity Bank is shrouded in mystery. Documents seen by this news site shows that SBM had initially expressed interest in acquiring Imperial Bank but CBK would hear none of it.

Instead, later on, CBK was to advise  SBM to look at the possibility of acquiring Fidelity Bank when it started experiencing liquidity problems.

In Chase Bank, SBM has taken over the good assets and liabilities leaving Kenya Deposit Insurance Corporation (KDIC) to deal with toxic loans that had been advanced to its former directors.

Dubai Bank on the other hand is in the process of liquidation.

In the case of Imperial Bank, the banking regulator is mum on whether it has found an interested buyer despite bursting the timeline it had announced to complete the process of identifying a suitor.

KDIC last week admitted that the crucial timelines for resolving Imperial Bank receivership have been burst but said the missed deadlines was a result of requests from interested buyers.

“It is true the deadline for completing the expression of interest have lapsed. This is because some of the interested investors asked for more time to conduct due diligence on the bank,” said KDIC managing director Mohamud Mohamud in a meeting with digital business journalists and bloggers.

The High Court allowed extension of Imperial Bank recievership to July this year. Essentially this means that the two institutions only have 20 weeks to resolve the receivership or begin the process of liquidation.

With deadlines lapsing, Imperial Bank depositors have been left guessing the fate of their savings held up in the bank for the last two and a half years.

People familiar with the goings on in handling the Imperial Bank have intimated to this news site that SBM could be picked as the best suitor for Imperial Bank.

But Mohamud was tightlipped on the SBM prospects only saying he could not say anything on the matter at this point because it is still delicate.

Then there is big question on how much KDIC has collected from loans in the three banks whose receivership is still on going.

Mohamud said the institution has so far collected Sh20 billion for Chase Bank and Sh4.5 billion for Imperial Bank.

“I did not carry all the information when coming to this meeting. But that is what I can give you on loans collections for now,” he said.

3,100 Chase Bank and 5000 Imperial Bank big depositors can’t access their savings to date as the receiverships of the two banks drag on.