No relief yet for Imperial Bank’s large depositors in Kenya

Central Bank of Kenya has authorised payment of small depositors up to $10,000. PHOTO | FILE 

By ALLAN OLINGO

In Summary

• Only $80m will be paid out to 44,300 small depositors.
• The remaining 5,700 account holders, who are mainly owners of small and medium-sized enterprises, will have to wait until the end of March next year when CBK will release the details of the payout plan.

The fate of Imperial Bank’s large depositors, whose accounts hold about $880 million, still hangs in the balance after the Central Bank of Kenya announced a deal that would enable holders of accounts with up to $10,000 to get their cash.

The bank was in October placed under receivership over massive fraud, with up to $380 million unaccounted for.

The Central Bank on Wednesday announced it had reached an agreement in which two banks — KCB and DTB — will give some 44,300 small depositors a total of $80 million, subject to a maximum of $10,000 per account.

READ: 44,300 Imperial Bank customers to access their deposits

However, the remaining 5,700 account holders, who are mainly owners of small and medium-sized enterprises, will have to wait until the end of March next year, when CBK will release the details of the payout plan.

The long wait could have serious ramifications for their businesses, including closures and job losses. The latest move could also signal the bank’s imminent closure.

It is not clear how this would affect its Uganda affiliate, which is still under receivership, though the Bank of Uganda remains guarded over the sale of its stake.

READ: Imperial Bank managers move to protect assets

Announcing the agreement with the two regional banks, CBK Governor Patrick Njoroge praised the Aga Khan Fund for Economic Development (AKFED) for its role.

He added that AKFED, the largest shareholder in DTB with more than 40 per cent ownership (jointly held with its subsidiaries) had offered to inject capital into Imperial Bank to keep it afloat but the hole was too big.

The EastAfrican has learnt that CBK sought AKFED’s advice on how the small depositors could get access their funds and disentangle their interests from those of the shareholders and larger depositors.

Advisory services

It is understood that AKFED only offered advisory services that touched on the structuring of these depositors, available systems for funds access, while evaluating both the pros and cons of allowing them access to their funds.

The CBK announced that the Kenya Deposit Insurance Corporation (KDIC) had released $80 million to KCB and DTB to enable the payments. He said the move was taken after Imperial Bank’s shareholders failed 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.

“I had hoped this would be a different case but unfortunately, we may be headed to incomplete closure if the shareholders do not play ball,” Dr Njoroge said.

The maximum of $10,000 to be paid to depositors is 10 times the amount stipulated in the Kenya Deposit Insurance Corporation Act (KDIC) that oversees the receivership and liquidation of collapsed financial institutions.

“The Corporation shall insure each deposit placed with an institution, provided that the maximum amount payable to a customer in respect of the aggregate credit balance of any deposit accounts maintained by the customer with the institution shall not exceed one hundred thousand shillings or such higher amount as the Corporation may from time to time determine,” the law states.

Dr Njoroge said the payments would be done outside the provisions of the KDIC Act.

The large depositors will have their accounts assessed for quality, customer disclosures and securities before they are acquired by KCB and DTB.

“The outcome of the financial and legal due diligence will determine which loans can be taken over. The depositors will be required to open accounts with KCB and DTB to facilitate payment of the refunds,” the Central Bank said.

Dr Njoroge said CBK would make an announcement on the way forward upon completion of this exercise by the end of March 2016.

It would include the treatment of current bond investors, Dr Njoroge said, in reference to the $20 million bond the bank had issued days before its closure. The two banks will share the performing accounts, which will include fixed deposit accounts and loans.

At the time of its collapse, the bank had close to $960 million in deposits, and the available $80 million that will be paid out from next week means that the large depositors held more than $880 million.

An investigation into the bank after its closure found that the management was only declaring $580 million in deposits, keeping $380 million under wraps to beat CBK capital requirements. With the higher level of deposits, the bank would have been required to inject another $40 million into the operation.

READ: The intricate web of ‘smelly’ deals: A tale of four banks and a fish company

Early last month, CBK had indicated that Imperial Bank would reopen in 30 days, noting that its books were salvageable but on condition that its shareholders would inject $400 million in capital.

However this didn’t happen and last week, part of the shareholders turned and accused CBK of stalling the re-opening.