Rotich gets power to extend bank receiverships

Treasury secretary Henry Rotich. FILE PHOTO | NMG 

By MUGAMBI MUTEGI

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Summary

• The Kenya Deposit Insurance Act currently allows the Central Bank of Kenya (CBK) to appoint an administrator for 12 months with possible extension of six months.
• The Finance Act, which President Uhuru Kenyatta signed into law on June 21, has amended this law allowing Mr Rotich to extend the receivership period by another 12 months.

Treasury secretary Henry Rotich has been handed powers to extend the receivership period of financial institutions by a year after the maximum period of 18 months stipulated in law lapses.

The Kenya Deposit Insurance Act, one of the laws used to place Chase Bank and Imperial Bank under receivership, currently allows the Central Bank of Kenya (CBK) to appoint an administrator for 12 months with possible extension of six months.

The Finance Act, which President Uhuru Kenyatta signed into law on June 21, has amended this law allowing Mr Rotich to extend the receivership period by another 12 months.

“The Cabinet secretary, may under exceptional circumstances, extend the term of receivership, for a further period not exceeding twelve months,” the Finance Act states.

The sub-section, which was not present in the original Bill, means that a distressed financial institution can be placed under statutory management for up to 30 months without the regulator having to seek intervention of the courts.

This amendment takes effect January 1, 2018. Imperial Bank was placed under receivership on October 13, 2015 after the CBK learnt of a Sh34 billion fraud at the lender.

READ: Imperial Bank sale raises hopes for big depositors

After the lapse of the stipulated period, the regulator went to court to seek an extension, arguing that it needed more time to complete selling off the bank.

Last week, the High Court extended the Kenya Deposit Insurance Corporation (KDIC) statutory management of Imperial for 90 days following an agreement by the receiver and the lender’s shareholders.

The CBK says it will seek a further 12-month extension. Chase Bank, which was placed under statutory management on April 7, 2016, is currently in its 14th month under the management of the KDIC.

The Treasury, through proposed amendments of the law, last year unsuccessfully sought power to place distressed banks under statutory management in a move that would have cut the powers of the (CBK).