KCB and DTB to pay Imperial Bank savers up to Sh1 million

Central Bank of Kenya governor Patrick Njoroge. He says decision made after shareholders failed to recapitalise collapsed bank. PHOTO | EVANS HABIL |  NATION MEDIA GROUP

By GEORGE NGIGI, gngigi@ke.nationmedia.com

In Summary

• CBK estimates that the payout will require Sh8 billion in the initial phase.
• The payout plan follows growing tensions between the CBK and Imperial Bank shareholders, who have accused each other of inaction in the restructuring plan.

The Central Bank of Kenya (CBK) will pay depositors of the collapsed Imperial Bank up to Sh1 million in a plan that is seen as signalling that the embattled lender is unlikely to open its doors to customers any time soon.

The payments will be made through KCB and Diamond Trust Bank and will see 44,300 or 89 per cent of all the depositors access their full savings. The CBK estimates that the payout will require Sh8 billion in the initial phase.

Patrick Njoroge, the CBK governor, said the regulator had decided to act after the shareholders failed to keep a promise they made earlier to provide additional resources that would enable the bank to reopen.

“This follows the failure of Imperial Bank shareholder to provide adequate assurances to implement a proposal that would enable the prompt reopening of the bank and resumption of normal activities for its customers,” said Dr Njoroge.

“Why are we taking this route? It is because the persons who should have helped us are not there – they are missing in action.”

Depositors with more than one account in the bank will have their savings consolidated and reimbursed to the Sh1 million limit. The CBK was late yesterday expected to meet the depositors to inform them of the plan.

Tensions

The payout plan follows growing tensions between the CBK and Imperial Bank shareholders, who have accused each other of inaction in the restructuring plan.

The CBK had previously promised to revive the bank in collaboration with shareholders who were said to have alerted the regulator to fraudulent activities perpetrated by a rogue chief executive.

Cracks have, however, emerged in recent weeks between the CBK and the owners over the regulator’s insistence that they provide additional capital to plug the hole created by the Sh38 billion fraud.

Imperial Bank was closed on October 13 and the central bank said two weeks later on October 27 that it had tabled a revival plan before the shareholders.

The CBK’s latest plan will, however, see some 5,700 depositors with more than Sh1 million at Imperial Bank access only a portion of their savings.

The CBK promised to release a second payout plan in March next year which will cater for the 5,700 depositors and investors in the Sh2 billion bond that the bank issued days before its collapse.

Depositors will make their claims at any KCB or DTB branch and such claims will take three days to confirm their details before they are paid.

Dr Njoroge said depositors will have the option of retaining their savings with the two lenders, a move that is likely to boost the deposit base of KCB and DTB.

“They are the ones that answered the call,” said Dr Njoroge when asked how the CBK settled on the two.

Analysts said the payout, higher than the insured Sh100,000, will bring back confidence in the CBK and position it as an institution that is serving the interest of the depositors and not the rich shareholders.

“It is a strategic way to avert a potentially large-scale run on the bank, in case it reopens. The move also creates ample room to start negotiating with the large institutional depositors on the conversion to equity,” said an analyst who did not wish to be named.

The central bank had proposed conversion of large deposits to equity in the revival plan. The 5,700 depositors who will be left in the bank are estimated to hold over Sh80 billion in savings.

Imperial Bank’s half-year financial statements showed that it had Sh58 billion in customer savings. However, the CBK discovered that the lender had understated the deposits by Sh38 billion in order to cover for off-book lending of a similar amount.

Dr Njoroge said that Aga Khan Fund for Economic Development (AKFED), who are the largest shareholders in DTB and Habib Bank, had in partnership with other banks offered to pump money into Imperial Bank to keep it afloat.

The plan was, however, dropped because of the large amount of capital required and also to ensure that Imperial Bank directors, who had responsibility to ensure the safety of depositors’ cash, take the bullet and bear the cost.

KCB and DTB will analyse Imperial Bank’s remaining deposits and loans with the option of booking any good business into their books. The Kenya Deposit Insurance Corporation (KDIC) will retain the remaining business in a possible liquidation, the CBK said.

The CBK had previously said that Imperial Bank was salvageable as it had portions of good business. The revival plan depended on shareholders pumping in more cash, persons who had been given the off-book loans providing security for the debt and depositors converting some of their savings to shares.

The bank’s directors, who initially seemed to be on the same page with the regulator, however started playing hard ball to the extent of accusing the KDIC of failing to follow the proposed restructuring plan, thus delaying the reopening.

On Monday, one of Imperial Bank’s executive managers, Naeem Shah, denied claims that he blew the whistle on a fraud scheme that its long-serving chief executive Abdulmalek Janmohammed run for 13 years before his death in September, instead accusing CBK officials of being part of the scheme.

READ: Imperial Bank chief links CBK staff to fraud

Mr Shah, who had been appointed acting chief executive following the demise of Mr Janmohammed, had been accused by the CBK of either abetting or benefiting from the fraud. Mr Shah, however, laid the blame on the company’s board of directors chaired by Alnashir Popat.