Deloitte move on Islamic assets linked to bank's collapse

Chase Bank Chairperson Muthoni Kuria consults one of the lender's directors, Anthony Gross, when they appeared before the National Assembly’s Trade, Finance and Planning Committee led by Benjamin Lang'at, at Continental House on June 9, 2016. PHOTO | DIANA NGILA | NATION MEDIA GROUP

What you need to know:

  • The directors claimed that Deloitte submitted the audited accounts directly to the Central Bank of Kenya (CBK) and published them in the dailies without approval of the bank’s board.
  • The revised numbers revealed Chase Bank had under-reported insider loans by a whopping Sh8 billion and consequently made Sh743 million full-year loss.

Deloitte’s re-classification of Chase Bank’s Islamic banking assets into insider loans triggered a series of events that led to the collapse of the lender, directors of the troubled lender told MPs on Thursday.

Chase Bank board members including ousted chairman Zafrullah Khan held that Deloitte’s treatment of sharia banking assets – technically referred to as Musharakah – as loans amounted to professional misconduct.

“It was evident that Deloitte were simply not interested in appreciating the nature and substance of the Musharakah assets or the principles of Islamic banking,” Mr Khan told a National Assembly committee probing the bank's collapse.

The standoff saw Deloitte issue a qualified opinion on the accounts of Chase Bank after restating several line items.

The directors claimed that Deloitte submitted the audited accounts directly to the Central Bank of Kenya (CBK) and published them in the dailies without approval of the bank’s board.

The CBK Governor Patrick Njoroge has previously said the directors had advanced themselves interest-free loans, which they then claimed were Islamic banking assets when they were confronted by the auditors.

“Chase Bank therefore, as it stands, has no audited and signed financial statements for the year ended 31st December 2015.”

The revised numbers revealed Chase Bank had under-reported insider loans by a whopping Sh8 billion and consequently made Sh743 million full-year loss.

The Chase Bank team summoned to appear before National Assembly’s Trade, Finance and Planning Committee included suspended Group Managing Director Duncan Kabui and four other non-executive directors namely Muthoni Kuria (current chairperson), Rafiq Shariff, Richard Carter, and Anthony Gross.

“Deloitte’s insistence on treating this as a normal loan or advance can only be labelled as professional ignorance at best,” Mr Gross said in his submissions to the team.

However, the directors had difficulties pointing out the income the bank accrued from the Sh6.9 billion invested in Chase Iman’s joint ventures financed under Musharakah and held through special purpose vehicles.

James Mwaura, Chase Bank’s general manager in charge of corporate assets, said the lender earned Sh48 million in rental income from the sharia-compliant joint ventures.

One of the properties held under the disputed Islamic assets was The Watermark Business Park which hosted the bank’s Karen branch, Mr Mwaura told the committee.

Another property is a car park at Chase Bank’s headquarters located at Riverside Drive, where the lender planned to build a new head office, the directors said.