We must look beyond liquidation to help commercial banks in problems
What you need to know:
- The Governor of the Central Bank of Kenya was in his element last week, when he publicly declared that Imperial Bank was a much bigger scandal than Goldenberg and Anglo Leasing put together.
- Forensic auditors brought to investigate the affairs of the bank have produced evidence which disclose several cases where Central Bank of Kenya Supervision Department were engaged in unethical behaviour.
- Even through the doors of the banks have been closed since October, it’s expenses have not changed - the bank still pays salaries regularly to some 500 employees who have to report to the office every day to do nothing.
The Governor of the Central Bank of Kenya was in his element last week, when he publicly declared that Imperial Bank was a much bigger scandal than Goldenberg and Anglo Leasing put together.
Speaking in a tone of self-righteous indignation, the governor heaped blame on the shareholders of the bank for it’s current predicament, charging that they were yet to produce the Sh10 billion they had promised , and describing them -rather sarcastically - as ‘men of means’ who were unwilling to meet their part of the bargain.
Yet, we all know that when it comes to Imperial Bank, the governor can hardly assume the moral high ground.
It is the Central Bank which ultimately carries the responsibility of protecting the interests of the depositor.
You take your hard-earned savings to a bank believing that the fact that it’s licence is renewed every year by the Central Bank of Kenya counts for something.
As an ordinary depositor, you hand over your savings to a bank because you know that the Central Bank has a strong supervision department that keeps tabs on all banks on a regular basis.
Even directors and senior managers of banks are appointed only with the approval of the Central Bank of Kenya.
The regulator has powers to demand changes in the corporate governance of a bank.
In the Imperial Bank case, the public watchdog went to sleep.
And there is evidence that long before the bank fell into trouble, a whistle-blower had warned the regulatory authority of looming problems.
Worse still, forensic auditors brought to investigate the affairs of the bank have produced evidence which disclose several cases where Central Bank of Kenya Supervision Department were engaged in unethical behaviour.
HEIGHT OF HYPOCRISY
Is it not the height of hypocrisy that the Governor of the Central Bank has the temerity to utter self-righteous statements when depositors have not had access to their hard-earned savings since October last year?
You wake up one morning to find that your bank has been closed and you have no access to your hard-earned savings.
The uncertainty the depositors have been subjected to is simply unbearable.
Even through the doors of the banks have been closed since October, it’s expenses have not changed - the bank still pays salaries regularly to some 500 employees who have to report to the office every day to do nothing.
The bank is incurring heavy cost in paying expensive rental fees in more than twenty branches.
Yet, interest on deposits are not being collected and depositors who have approached the bank with proposals to off-set their loans against deposits they hold in the bank have been turned away.
Meanwhile, a good number of employees have left the bank.
In theory, the Kenya Deposit Insurance Corporation is supposed to be working in the interest of the depositor.
But if truth be told, this institution- formerly known as the Deposit Protection Fund, has over the years morphed into a parasite that feeds off the misery of depositors.
Clearly, we are still a long way from a modern and quick system of dealing with banks that fall into problems.
BEYOND LIQUIDATION
Methinks that the current regulatory framework and institutional mechanisms for dealing with bank problems is ill-equipped to give adequate protection to depositors.
We need to take regulation of problem banks to the next level by looking beyond liquidation.
In this country, we don’t have even a single case where a bank that went into administration under the Kenya Deposit Insurance Corporation (KDIC) was brought back to life.
KDIC more or less operates like an undertaker.
We need to start a conversation around consolidation of financial sector regulators.
The CEO of the Capital Markets Authority, Mr Paul Muthaura, is in no position to have a full view of risks posed by the Imperial Bank bond issue.
He has no access to regular financial data of all banks listed on the Nairobi Securities Exchange.
That is how we ended up in a situation where Imperial Bank was allowed to issue a bond only for it to be put on receivership in less than a week.
Intra-financial regulator’s co-operation failed. We need to start moving towards Australian, Canadian, and the UK models where financial stability is the responsibility of a Financial Stability Council chaired by the Treasury Ministry.
We have to move beyond liquidation of banks.
