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How National Bank was brought to its deathbed

Sunday September 15 2019

National Bank

A photo of the National Bank on Kenyatta Avenue, Nairobi, taken on March 26,2019. The NBK never managed to put its house in order and was bedevilled by a myriad of problems. PHOTO | FILE | NATION MEDIA GROUP 

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After 50 years of a troubled run, the National Bank of Kenya, as we knew it, has come to an end.

In between, it was a citadel of thieves and charlatans and a case study of how to bring down a bank.

Once upon a time, the politically correct would walk into the bank and walk out with unsecured loans.

Parastatals and their heads would also take out loans they were not planning to pay back, and the Treasury would continue to pump more money into the bottomless pit.

Officially opened in November 1968 to help Kenyans access credit and control their post-independence economy, NBK — as it was better known — has now been merged with KCB, which was also bedevilled by the same mismanagement crisis of the Nyayo era but managed a comeback.

When the National Bank was founded, it was hoped that it would quickly be rolled out into rural areas as a commercial outfit while the Co-operative Bank of Kenya would cater for the emerging cooperatives in the countryside, where settler capitalism was still in place.


But, as Treasury found out, the bank had few branches and the British-run banking behemoth known as National and Grindlays had an intriguing network in both urban and rural towns.


The only solution in the hands of the new finance minister — Mwai Kibaki — who had come to the helm after the December 1969 General Election — was to approach Lord Aldington, then the chairman of National and Grindlays, and his Africa manager JC Sheen and persuade them to sell their bank.

Behind the scenes, the Jomo Kenyatta government was nationalising various sectors of the economy, and that explains why after only a few weeks in office, and when National Bank was only 14 months old, Mr Kibaki called a press conference in January 1970 and announced that the government would buy a controlling stake in the British bank, and that National Bank would hold 60 per cent shareholding of the lender.

In London, Mr Kibaki was viewed positively by diplomats, and they said as much.

Ian McCluney, the then-British High Commissioner in Nairobi, wrote to Mr JW Lonie, Chancellor of the Exchequer, and told him that Mr Kibaki’s appointment was “likely to be very much to our advantage”.

That letter, dated January 27, 1970, paved the way for Mr Kibaki’s official visit to the British exchequer that April where he had a well-publicised meeting with Mr Lonie.


In one of the Foreign and Commonwealth Office (FCO) documents filed on Mr Kibaki, he was described as one of the key elite figures in Kenya — “the most capable, intelligent and potentially effective.”

That explains why any decisions that he took on the National Bank were never questioned, locally or abroad.

But some of the complaints that Mr Kibaki had inherited was that the British-owned banks were not lending money to Africans in the expected numbers.

The banks then argued that the locals did not have collateral — a problem that had curtailed the development of commerce.

The bulk of the criticism for not lending enough to Africans was levelled against Lord Aldington’s National and Grindlays, and the bank openly acknowledged it.

When confronted with such accusations, Lord Aldington always had an answer: “It is not in anyone’s interest for banks to lend money which people cannot pay back. It is not good for farmers, businesses or Kenya. We would be letting down Kenya if we indulged in bad banking. We are welcomed here because we are good bankers.”

But Lord Aldington was more than a banker. He was a good friend of Kenya’s minister for Agriculture, Bruce McKenzie, and would be used by the FCO to pass messages from London to President Kenyatta as a trusted non-official channel.


With the appointment of Mr Kibaki and the trust the British had in him in building the local banking sector, the birth of both the National Bank of Kenya and the takeover of National and Grindlays was a smooth exercise.

The National Bank was born in this environment, and in the hope that it would offer the local entrepreneurs a platform to grow their trade and expand their businesses.

While initially the Treasury’s shares in National and Grindlays were to be held by the National Bank of Kenya, Mr Kibaki made a policy shift and registered Kenya Commercial Bank Limited, which was to own 60 per cent shareholding in National and Grindlays.

The bank would also be renamed Kenya Commercial Bank. That left National Bank of Kenya somehow in limbo.

Within the government, it was decided that the National Bank’s growth should be slowed down in order to give KCB a chance to become Kenya’s number one bank.


As a result, NBK was not allowed to venture out to the rural areas.

Actually, by 1982, NBK had only opened just eight branches countrywide and the countryside was left to KCB and Co-operative Bank.

In the early 1990s, the NBK became the playground of charlatans and the National Social Security Fund (NSSF) found a place to put money in fixed deposits.

In the 1991-92 financial year, for instance, NSSF executed a fixed deposit of Sh2 billion of workers’ contributions.

When it was due for withdrawal, the NSSF was told that there was no money, and the game that ensued ended in the debt being converted into equity.


That is how NSSF became one of the largest shareholders in banks. Its money was stolen and the debts converted to equity.

The NSSF was actually being used to bail out banks caught up in the Nyayo-era financial mess and then forced to take shares.

Why the Fund did not loan National Bank this amount but illegally turned it into equity is one of the banking notorieties of the Moi era.

The NSSF would put workers’ money in collapsing banks such as Postbank Credit and others.

The NBK never managed to put its house in order and was bedevilled by a myriad of problems.

The idea of a merger with KCB therefore came at an opportune time. If that had not happened, NBK would have died, albeit slowly, in the hands of politicos and unscrupulous managers.