CBK must clear the air on Imperial to avoid a crisis among small banks
What you need to know:
- We must not forget that until the shareholders and directors reported the scam to the Central Bank, the supervision department — the watchdog for depositors and bond holders — was still pretending that all was well at the bank.
- If the government does not make an announcement soon with a clear road map on when Imperial Bank is likely to resume operations, the wave of panic currently blowing through the markets could precipitate a full-blown crisis, especially in small banking.
- As an outsider who has just joined the system, the governor of the Central Bank, Dr Patrick Njoroge, is still free from the capture of powerful networks and patronage systems on which Mr Janmohammed depended to keep his game of deception going.
The story of Imperial Bank of Kenya is that of a massive conspiracy against innocent depositors perpetrated by three parties: a flamboyant well-connected chief executive and one of the bank’s top shareholders by the name of Abdul Malik Janmohammed, elements within the banking supervision department of the Central Bank of Kenya, and the bank’s external auditors.
We must not forget that until the shareholders and directors reported the scam to the Central Bank, the supervision department — the watchdog for depositors and bond holders — was still pretending that all was well at the bank.
And, although the results of the forensic investigations and the full details of the exploits of Mr Janmohammed have yet to be disclosed, my prediction is that what we are dealing with here is a very wide network with links from within Imperial Bank to the very sanctum of Central Bank’s supervision department.
I have it on the authority of sources who have seen the gap in the books of the bank revealed by preliminary forensic work that it is very significant.
I also gather that as far back as 2012, a whistleblower had informed the Central Bank about some of the shady dealings of Mr Janmohammed.
I refuse to believe that the Central Bank’s supervision department did know anything about what was going on at Imperial Bank. Together with external auditors, the supervision department is part and parcel of the game of deception that allows sick banks to remain open, collect deposits from innocent people, and, in the case of Imperial, even allow banks to float bonds to allow them to collect billions of shillings from the public.
It is a network of operatives sharing not only rewards but also risks, where all operators have a stake in keeping the big holes in a bank’s books hidden while freezing out critics.
It should not come as a surprise if the names of some key players in the Central Bank’s supervision department or even employees from the external audit firm pop up on the list of the beneficiaries of Mr Janmohammed’s patronage machine, which has reportedly been compiled by the forensic auditors.
As an outsider who has just joined the system, the governor of the Central Bank, Dr Patrick Njoroge, is still free from the capture of powerful networks and patronage systems on which Mr Janmohammed depended to keep his game of deception going.
Imperial Bank has presented the new governor with the opportunity to do a thorough shake-up of the supervision department. He must break the fiefdoms, restore clear lines of command, and reform this critical department to become an entity with robust off-site surveillance tools that can perform regular stress-testing, a department with a robust model of early warning systems.
Under the Banking Act, the Central Bank of Kenya must approve the appointment of external auditors. Dr Njoroge must weed out week external auditors found to be involved in fudging numbers. The Imperial Bank case is about a crisis of accountancy.
The external auditor who is supposed to be the servant of the depositor, has duped everybody. If the hole in Imperial’s books is as significant as has been suggested, how come it did not show in the figures for non-performing loans? The audited accounts put non-performing loans at 3.5 per cent, well below the industry average of 5 per cent.
Right now, the priority for the Central Bank must be to allow the 50,000 depositors to access their hard-earned savings as quickly as possible so that sanity can be restored to the market.
I say so because in the past seven days, the markets have been gripped by panic, the air rife with unsubstantiated claims about the imminent closure of other small banks.
Many small banks have been reporting large withdrawals and instances where panic-stricken depositors have rushed to terminate fixed deposits before they mature.
If the government does not make an announcement soon with a clear road map on when Imperial Bank is likely to resume operations, the wave of panic currently blowing through the markets could precipitate a full-blown crisis, especially in small banking.
I have it on authority that the shareholders of Imperial Bank have agreed to pump money into the bank. A big bank from Mauritius has also agreed to play ball. I see no reason innocent depositors should be denied access to their savings.
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