Deep rot could bring down National Bank

The government has shelved plans to sell its shares in the National Bank of Kenya and instead ordered an investigation into the bank’s activities.

In a letter to NBK chief executive Munir Sheikh Ahmed, Treasury Principal Secretary Dr Kamau Thugge asks the bank to liaise with the Privatisation Commission to conduct fresh due diligence.

“This is to advise that at its meeting held on April 22, 2015, the Cabinet directed a halt to the intended disposal of government shares in NBK until a due diligence is conducted to establish the risks in the process,” Dr Thugge said, in a letter dated May 14, 2015.

Among the issues to be investigated are details of bank accounts held by individuals in NBK.

The Sunday Nation has established that the bank has since been advised by its lawyers against providing such details to the Privatisation Commission, setting off a power struggle between the NBK board and the government.

The move comes as investigations by the Sunday Nation revealed what appears to be a systematic plunder and misuse of the bank’s resources by management, putting at risk billions in workers’ savings invested by the National Social Security Fund (NSSF) in the bank.

NSSF has a 48.05 per cent stake in NBK while the government owns 22.5 per cent of the shares.

SUSPICIOUS LOANS

The Sunday Nation investigations have unearthed how the top management of the bank has used the institution to dish out loans to relatives and companies associated with senior managers.

Our inquiries also revealed suspected cases of asset stripping, staff purging, a high number of employee exits and irregular payments of bonuses to senior managers.

Documents available show how a company associated with a top manager, whose name we withhold for legal reasons, was suspiciously advanced Sh99 million, and the money moved out of the bank the same day.

The bank has also seen more than 15 top managers leave in the past eight months over what insiders said were differences with the chief executive.

NBK is also having trouble replacing these managers. The bank’s attempt to replace one of the executive directors, Mr Sam Okero, who headed the corporate and institutional banking segment, has failed to attract any candidates despite advertising the vacancy in international media since he quit last June.

When contacted, Mr Ahmed responded that the bank is undergoing “strategic transformation and people are bound to complain or leave”.

He said he had grown the branch network by 25 branches, invested in 40 off-site ATMs, introduced internet and mobile banking and restructured operations to address the low productivity and high cost income ratio which cost Sh1 billion.

“I cannot do justice using email so please come over and you will understand the details of how NBK is rising out of the decline into a leading bank that now wins multiple awards locally and internationally,” said Mr Ahmed. 

He also defended the Amanah banking segment in NBK which, he said, “doesn’t have a non-performing loan”.

LOST CONTROL

But he conceded that some staff had left and that the bank was selling some of its assets to concentrate on its core business. He argued that they cannot be held accountable for how customers spend their money once the bank given them loans.

The government lost control of the bank in 2011, after NSSF decided to go it alone in decision-making. Then chaired by Mr Adan D. Mohammed, NSSF flexed its muscles, replacing government appointees Jennifer Riria, Paul Ngumi and Alfred Juma with Mohammed Hassan (who was later voted as the bank’s chairman), Sylvia Kitonga and Erastus Mwongera.

The new catch added to NSSF directors sitting on the bank’s board who included Francis Atwoli (Cotu boss) and then NSSF managing trustee, Alex Kazongo giving the Fund five of the bank’s eight voting rights.

A few months later the board retired Mr Reuben Marambii who had taken over in 1998 from Mr John Simba. Mr Marambii steered the bank to declare profit in 16 years and for the first time paid dividends to its shareholders in 2010. In June 2012, Mr Ahmed was tapped from Standard Chartered Bank where he had worked for 16 years. It was the first time the National Treasury had no say on who was to head NBK.

Mr Ahmed’s brief was to help diversify NBK from consumer lending, which accounted for over 75 per cent of its loan book, to corporate lending, investment banking and insurance to support its growth.

The new CEO was given unfettered powers to hire and fire staff. Mr Marambii left a lean team of top managers who in total earned a salary of Sh9.7 million a month. When Mr Ahmed came in he embarked on an expansion programme, rebranding and recruiting new staff. The current payroll for the top management stands at Sh23 million monthly.

A board meeting on November 27, 2014 cautioned the CEO against unilateral hiring.

The meeting was attended by Mr Hassan (chairman), Mr Mwongera, Mr Atwoli, Mr G. W. Kyengo, Ms Wangui Mwaniki,  Mr Ahmed (CEO) and Mr Kitonga.

NOT SUPPORTED

Two directors, Ms Mwaniki and Ms Kitonga, who questioned the direction Mr Ahmed was taking the bank were, however, in the subsequent AGM this year, dismissed from the board.

Company secretary Habil Waswani informed the two directors, in an email dated February 3, 2015, that they would not be supported for re-election by the main shareholders - NSSF.

“Following a meeting held between the chairman and the representative of the majority shareholder of the bank, I have been advised that your re-election at the forthcoming AGM will not be supported by the majority shareholder,” Mr Waswani says.

We also established that some customer bank accounts at NBK are inter-related and seem to have been opened for the sole purpose of borrowing.

Details provided show that this is happening mainly in the Amanah Express branch of the bank and a few corporate account holders, some linked to the controversial Lamu land whose titles were cancelled by the National Land Commission (NLC).

Since 2013, Amanah has lent out more than $10 million (almost Sh10bn) mainly to companies.

Funds are transferred from the borrowing account to a related account instantaneously before the money is sent to accounts elsewhere belonging to borrowers in other banks.

In another transaction, a man walked into the bank and cashed Sh40 million across the counter, among other suspicious transactions. In most instances funds transfers of amounts between Sh950,000 and Sh990,000 are punctuated by RTGS and SWIFT code messages as the money is transferred to other banks.

According to people who would know, it is apparent that this is meant to avoid tracking movement of funds.

SWIFT messages of large amounts from outside the country are credited to head office NOSTRO (suspense) accounts from where they are transferred in hard currency with instructions from a security firm.

The bank has also lost funds in other ways, for instance when Mr Ahmed was fined Sh3.5 million for contempt of court for selling a customer’s property in Westlands, Nairobi, despite a court order stopping the sale.

Mr Ahmed was mentioned adversely in a court case where the Kenya Civil Aviation Authority lost close to Sh100 million due to a garnishee order (court order to close account). The order had been delivered by a top city lawyer.

Another customer lost Sh50 million through a garnishee order by the same lawyer. There is a pending case over an illegal sale of property belonging to PCEA Ruiru Foundation. The court had issued an order against this sale.  The same lawyer extracted close to Sh65 million from the bank following a protracted legal battle with some bank officials.

According to a senior staff member who corroborated the information, two directors spent a day in a city hotel negotiating with the lawyer to reduce his court award which was an upward of Sh100 million. The lawyer whittled it down to Sh65 million.

NAMED IN LIST

In what could also set the bank against CBK regulations, the board recently decided to hire Mr Chris Kisire as the chief finance officer (CFO) even with his name being on the corruption ‘List of Shame’ which President Uhuru Kenyatta tabled in Parliament.

Mr Kisire, who was mentioned in the list in regard to Mumias Sugar Company saga, later went on leave. However, he has since resumed duty before being cleared by EACC.

An exchange of emails between directors and senior managers on why Mr Kisire should step aside saw the board split before the chairman Mr Hassan overruled them on the need to have a special board discuss the issue.

“Anything else will expose us to potential litigation and can be seen as a witch-hunt. Let us not try and pre-empt or sidestep courts as the ultimate arbiters of cases and uphold the presumption of innocence that is necessary for real justice,” he said in an email to other directors.

During the board meeting at Swahili Beach hotel directors also expressed concern that Mr Ahmed was leaving Mr Kisire to act as CEO while on official duties abroad.

However, Mr Ahmed claimed that he trusted Mr Kisire to act because the last time he left one of the directors in charge, he dished out loans to his relatives.

Mr Ahmed was scolded for awarding himself a bonus pay of Sh2 million against the board’s advice. However, the chairman defended the MD claiming that he had approved the bonus.

In the midst of the on goings at the bank, is a tussle pitting the government against NSSF and top managers over Sh5 billion worth of shares the State owns in the bank. There is also a move by the government to consolidate NBK with Development Bank of Kenya and Consolidated Bank which has been resisted by top managers and some shareholders of NBK.

The tussle is against suspicions that certain individuals within and without government intended to buy the bank.

Documents show that a move by the government to convert the debt owed to them by the bank to ordinary shares flopped after the bank claimed that it was willing to pay the debt.

The Sunday Nation also established that the bank had issues renewing it operating licence this year. The licence was issued in March 24, after the exit of the Central Bank Governor Prof Njuguna Ndung’u. Prof Ngung’u left CBK early March.

The licence was backdated to January 1, 2015.  The renewal was done only on condition that the bank increases its minimum capital, a move that could have prompted the sale of the buildings and structures which according to a senior manager is expected to raise more than Sh1.3 billion.

The license is up for review by end of this month.