Managers who cooked National Bank books could face court action
NBK CEO Wilfred Musau during the bank's Annual General Meeting at the KICC, Nairobi, on May 19, 2017. Former managers of the bank could face fraud charges. PHOTO | FILE | NATION MEDIA GROUP
What you need to know:
- The management had perfected the art of hiding losses by internal restructure of the loan accounts not to reflect arrears.
CMA on Wednesday said its investigations had found the officials liable for misrepresenting the bank’s financial statements for the periods ended June 30, 2015 and September 30, 2015.
It said it had found that the Nairobi Securities Exchange-listed bank’s profits were grossly overstated.
The eight former senior National Bank of Kenya (NBK) managers who were last week punished by the capital markets regulator for falsifying books and stealing more than Sh1 billion could face criminal proceedings.
On Saturday, the Central Bank of Kenya and the office of Director of Public Prosecutions told the Sunday Nation that they were awaiting the investigations file from the Capital Markets Authority (CMA) to take action.
“We are expecting the file from the CMA who were conducting the investigations in the course of next week. We expect the file will have recommendations on the next course of action,” said Mr James Mungai Warui, a senior assistant director of public prosecutions.
SH1.6 BILLION
He added: “Initially, we had given them (CMA) 14 days to complete investigations and hand over the file to us but they asked for more time. If we do not get the file next week, we will write to them asking them to hand it over immediately.”
Yesterday, CBK also confirmed the possibility of the eight managers, including former NBK chief executive officer Munir Sheikh Ahmed, facing charges.
“In light of the magnitude of the malpractices that were revealed to CBK, some immediate actions were taken. These included the statutory external audit, following which the final December 2015 accounts were correctly stated by inter alia ensuring that additional provisions of over Sh2 billion for non-performing loans were effected leading to a loss of Sh1.6 billion,” CBK said in a statement.
Subsequently, the NBK board in March 2016 suspended six senior management officials, including the CEO, who were implicated in the irregularities, the statement went on.
GROSSLY OVERSTATED
“The findings confirming the alleged irregularities were also shared with the relevant criminal investigative agencies. These investigations have so far led to the charging of two of the former senior NBK officials with criminal offences in court in March 2017. The criminal investigative agencies are finalising their investigations on the irregularities,” the statement said.
This follows CMA’s move to fine the former managers millions of shillings and bar them from holding office in listed companies for cooking books and siphoning more than Sh1 billion from the lender.
CMA on Wednesday said its investigations had found the officials liable for misrepresenting the bank’s financial statements for the periods ended June 30, 2015 and September 30, 2015.
It said it had found that the Nairobi Securities Exchange-listed bank’s profits were grossly overstated.
“The board of the Capital Markets Authority has taken administrative action against the NBK board members and former senior managers, who served at the bank as at December 31, 2015 for misrepresentation of financial statements and embezzlement of funds,” the regulator said in a statement.
PRIVATE AGENTS
Other senior managers facing sanctions over the alleged cooking of books and theft of funds are Mr George Jaba (former chief credit officer), Mr Chris Kisire (who was chief finance officer until April 2015), Mr Wycliffe Kivunira (former acting chief finance officer), Mr Solomon Alubala (former head of treasury), Mr Boniface Biko (former director corporate and institutional banking) and Mr Dennis Chumbe (former relationship manager business banking).
The distortion of financial statements was linked to a premature recognition of sale of assets amounting to Sh800 million, under-provisioning for loans, and wrongful recognition of interest income leading to overstatement of profit in the respective periods.
The regulator said the scheme was linked to a deposit mobilisation programme that paid commissions to private agents for funds banked by government agencies. Up to 90 per cent of the commissions paid to the private agents may have subsequently been transferred back to NBK officials, the CMA said.
INVESTIGATIVE REPORT
Mr Ahmed was fined Sh5 million, Mr Alubala Sh104.8 million and Mr Kisire Sh1 million.
CMA’s move brought to the fore alleged attempts by some members of the NBK board to sell the bank for a song three years ago, uncovered by the Sunday Nation in a special June 2015 investigative report .
According to documents seen by the Sunday Nation at the time, the plot became public after the National Treasury’s attempt to convert over Sh5 billion debt owed by the bank to ordinary shares failed, with NBK insisting on paying the debt instead.
The government lost control of the bank in 2011, after the National Social Security Fund (NSSF) decided to go it alone in decision-making. Then chaired by Mr Adan Mohammed, NSSF flexed its muscles, replacing government appointees Ms Jennifer Riria, Mr Paul Ngumi and Mr Alfred Juma with Mr Mohammed Hassan — who was later voted as the bank’s chairman — Ms Sylvia Kitonga and Mr Erastus Mwongera.
DESPERATE
The new appointees added to NSSF directors sitting on the bank’s board, who included Cotu secretary General Francis Atwoli 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 as CEO.
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.
In a bid to boost its numbers, NBK planned for a rights issue in 2013 but this was blocked by the capital markets regulator. With the rights issue frozen and the tussle with government looming, NBK was desperate for capital injection.
STAFF REDUNDANT
It is then that the bank’s management opted to cook books of 2013 and 2014 and declared a profit of Sh1.7 billion when the bank was actually in dire financial straits.
According to the internal auditors, who analysed the financial statement, and whose investigations CMA relied on, the analysis of total deposits on maturity indicated that over Sh97 billion was due to be repaid within the quarter when the bank declared a Sh1.7 billion profit.
The analysis showed the bank was gambling with customers’ money. The managers were relying on short-term deposits to lend long-term.
During the period, the staff costs continued to increase because of higher pay to new employees even after the bank spent close to Sh1.2 billion to declare staff redundant.
And during the AGM held in February 2015, amendments were inserted to create more executive director positions.
FINANCIAL INDISCIPLINE
In that financial year, the management had perfected the art of hiding losses by, among other moves, continually doing internal restructure of the loan accounts not to reflect arrears.
In other cases, moratorium and grace periods were renegotiated to avoid reflecting arrears. A review of the cash flow statement also reflected financial indiscipline, which led to a drain of over Sh4 billion in the cash available. After spending over Sh1 billion more than they generated from operations, NBK went ahead to incur capital costs amounting to Sh1.1 billion amongst other expenses.
The sale of property and other assets was part of efforts to cover the dent made in the bank’s coffers. The balance sheet reflected total assets of Sh123 billion compared to liabilities of Sh110 billion showing a thin margin of Sh13 billion. The analysis indicated total impaired assets of Sh7 billion, reducing the margin to Sh6 billion.
As desperation set in, NBK management embarked on auctioning its assets, mostly buildings, to raise close to Sh1.1billion to inject into the bank to raise the capital and maintain the liquidity ratio.
FORCED OUT
As things unfolded, there were massive staff exits, sackings and hiring of loyalists, including former Mumias Sugar Company manager Chris Kisire as the bank’s Chief Finance Officer. Mr Kisire’s employment split the board as minutes of the discussions show, since he had been named in alleged corruption at the sugar miller.
Mr Mwaniki Wangoi, a vocal critic of the move, was later forced out of the board together with Mr SM Kitonga.
Previously, board members had been rattled by Mr Kisire’s attendance of their meetings.
AWARDING HIMSELF
“Members were not comfortable with this position given that CFO was not directly answerable to the Board and by extension to the shareholders. Further, the CFO sat through the Board meetings even after having presented his papers yet he was not a member of the Board,” state the minutes of a meeting held at Swahili Beach hotel on November 27, 2014.
However, the CEO argued that he had confidence in Mr Kisire because the last senior manager who was left in-charge had irregularly dished out unsecured loans to relatives.
During the meeting, Mr Ahmed was also scolded for “unfairly and dishonestly” awarding himself a bonus of Sh2 million against the Board’s advice. However, the chairman defended the MD claiming that he approved his bonus.
