Why Central Bank of Kenya top officials are under siege

Refusal to bend rules over the closure of banks found to have broken the law and action against financial institutions involved in the multi-million-shilling National Youth Service (NYS) scandal has triggered the huge pressure being applied on top bosses at the Central Bank.

Investigations by the Sunday Nation revealed that powerful interests in the banking sector working with senior lawyers, high ranking state officials and politicians, seem to have closed ranks in an effort to oust Central Bank of Kenya Governor Patrick Njoroge.

The governor’s efforts to strictly enforce the law appears to have upset people with powerful connections in Kenya’s corporate sector and beyond.

“He is certainly not popular because he is professional, strict and very stubborn with doing the right thing,” said analyst Robert Shaw.

Mr Shaw, however, believes the governor will be protected by the security of tenure he enjoys under the Constitution and hopes the forces against his “good work” will not succeed.

Dr Njoroge’s firm anti-corruption stance appears to have rubbed many figures in the banking sector the wrong way. Sources familiar with the unfolding saga at CBK have told the Sunday Nation that efforts to reach out to the governor as well as CBK chairman Mohammed Nyaoga to discuss their concerns had failed, leaving the concerned people to consider other options to achieve their goals.

“There has been a well-choreographed strategy to attack the governor from all directions, filing cases in court, using other arms of government such as the anti-corruption commission and launching a smear campaign in the media, including social media,” a source familiar with the saga said.

Both Dr Njoroge and Mr Nyaoga could not be reached to comment on the issue but the source said Mr Nyaoga’s support for the governor’s position on the NYS scandal and other matters has infuriated the forces fighting Dr Njoroge.

So connected and influential are the banking sector cartels that they had managed to convince senior state officials to consider removing the governor from office. Indeed an email from a presidential adviser to a top state lawyer seeking advice on options to remove the governor is already in the public domain.

SEEKING PROTECTION

The fight against the CBK officials seems to have been triggered by a July 29, 2016 letter to the Director of Public Prosecutions, Mr Keriako Tobiko, asking him to consider charges against senior bank officials including board members related to the NYS scandal.

The letter also recommended that one of the banks named in the scam be charged as an institution. The letter touched off a flurry of activities culminating in a confidential letter from bank bosses to senior government officials on November 12, seeking protection against CBK officials. “The letter was basically asking top government officials to tell the CBK to behave,” our source said.

“The scaling up of the dispute seems to have been informed by the fact that some of the board members in the banks involved in the NYS scandal could face charges relating to money laundering.” Mr Tobiko, on November 18, ordered immediate investigations of top bank officials of a bank adversely mentioned in the NYS scandal. 

The seven senior managers of the bank who appeared on Tobiko’s list were lined up for investigation on whether they abetted the multi-million-shilling scam at the Devolution ministry.

The DPP also asked the Directorate of Criminal Investigations to undertake a probe into 28 banks said to have handled questionable transactions linked to the scam.

Last month, the Financial Reporting Centre, an independent agency that monitors financial flows from suspect transactions, said 15 of the country’s 41 banks raised 42 alerts over suspicious transactions relating to the NYS funds that were stolen through fictitious tenders. 

The fact that this scam touches on a wide range of individuals and institutions under Dr Njoroge’s watch and his characteristic strict stand is believed to be fuelling the effort to have him kicked out as soon as possible.

The US-educated economist has also been very strict on financial reporting standards for the local lenders with some already facing hard times under his straight path approach.

In one of the fights against Dr Njoroge, prominent city lawyer Ahmednasir Abdullahi wrote to the anti-corruption commission and the DPP accusing the governor of “abusing his office” in the decision taken on Imperial Bank, Dubai and Chase banks.

COLLAPSED IMPERIAL BANK

The dispute arose from CBK action to ask the court to bar the lawyer from representing shareholders of the collapsed Imperial Bank because of a conflict of interest. He had initially represented the bank. But in a rejoinder, Mr Abdullahi said:

“Personally I don’t know of cartels fighting the CBK governor. I have no personal interest there. What I am doing is that I am acting for my clients in three distinct suits in relation to CBK. It is CBK who sued my clients.

“All these issues are the same ones we raised in our defence. We are asking whether when Dubai Bank and Imperial Bank were placed under receivership, was there a board to deliberate? The answer is simply no.”

MPs appear to have entered the fray. Last week, the governor was summoned to Parliament where MPs put pressure on him to release an audit report on Imperial Bank even as multiple cases over the collapsed bank are before the courts.

The governor declined. It would seem some MPs have also been drafted into the bigger scheme to arm-twist CBK to release details whose ultimate effect would be to jeopardise its case against former directors of the bank. In June, a curious proposal to amend the law that gives CBK autonomy over supervision of banks was presented in Parliament.

The amendment seeks to introduce a clause requiring CBK to seek Treasury’s approval before putting a bank under receivership. The net effect of this is removing Central Bank’s authority over supervision of banks and transferring it to a political entity – Treasury.

A senior staffer in one of the top local banks told the Sunday Nation that Dr Njoroge has been a pain on some of the unstable lenders who fear for their survival under the strict regime imposed by CBK.

ADVERSELY AFFECTED

The source said any sustained efforts to kick him out will, however, not augur well with the international community — among them funding agencies and donors.

“Those who want the governor fired have obviously been adversely affected by his strict stance which is the right thing to do in the management of a central bank. All these allegations involving the Imperial Bank case have nothing to do with him.

It is a mess he only stepped in to correct and the resistance from shareholders has been stiff. He is wrongfully being targeted and I hope he doesn’t get frustrated and leave because that will be a victory for the cartels. Kenya needs people like Njoroge and I guess it is the bad culture we have cultivated that those who do the right things are not left to survive,” the source said.

A prominent lawyer at the centre of the legal battle against the governor is said to hold significant shares in the troubled Sharia lender, First Community Bank. The bank, currently clinging on the emergency lending window set up by the CBK, recently laid off a number of its workers in the latest sign of difficulties as the new CBK regime continues to keep a keen monitoring eye on the banks.

One analyst wondered how an Islamic lender, which does not charge interest, would be hurt by an interest rate capping law, a signal that there were more issues underneath. 

The July arrest of former National Bank CEO Munir Ahmed as he attempted to take a night flight at the Jomo Kenyatta International Airport is said to have added salt on the injury on a minority community crying foul for being targeted in the banking reforms process.

Munir was removed from a Dubai bound plane as his wife and children watched, a scene his lawyer Paul Muite described as “degrading”.

Shaw said politicians must also be frustrated by how difficult it has become to move cash under the new regime. 

“Many would like to overspend or withdraw unlimited cash as we head to the election period and his strict nature is certainly not conducive,” he said.

“That’s the strong hand we need to steer CBK as the shilling faces an uncertain future. He cannot be subject to pressure from any outfit and the more resilient he remains, the better for Kenya.