Former Chase Bank chairman Zafrullah Khan has claimed that the
collapsed lender’s auditors — Deloitte — wrongly reported Islamic
banking investments as insider loans, which stood at Sh13.63 billion as
per a published financial report when the industry regulator placed the
lender under statutory management.
Mr Khan, in fresh
court filings, says the auditors changed the reporting of Islamic
banking investments from “other assets” as per Central Bank of Kenya
(CBK) requirements, to insider loans.
The CBK placed
Chase Bank under receivership on April 7 last year after the lender
restated its financial results, which pushed insider lending up by Sh8
billion from the initially published report.
Chase
Bank’s receiver manager, the Kenya Deposit Insurance Corporation (KDIC)
in April this year filed a suit seeking to recover Sh14 billion from Mr
Khan and other top brass managers at the lender.
The
KDIC says Mr Khan and three of his former executives—Duncan Kabui
(managing director), Makarios Agumbi (general manager, finance) and
James Mwaura (general manager, corporate assets)—approved and accessed
irregular insider loans.
Mr
Khan now says that after unsuccessfully requesting the CBK to let it
report its Islamic banking investments separately, it retained their
classification as “other assets” until 2015, when its auditors
irregularly listed them under insider loans.
“This
change was made unilaterally and unprocedurally as the auditor is not
mandated to alter reports. Further, the auditor also changed the 2014
financial report and moved the Islamic banking investments from “other
assets” to “insider loans” without noting that the 2014 reports had been
restated,” Mr Khan claims.
Sh1.05-billion bonus
The
KDIC has also accused Mr Khan of ensuring that a Sh1.05 billion bonus
he was to receive over five years starting 2015, was paid to him in
under two months.
But Mr Khan now says that the bonus
payment was intended to help him boost the collapsed lender’s capital
after a sudden jump in bank deposits.
“Due to a rapid
growth of bank deposits in 2015, it was apparent that the bank required
an increase in capital from shareholders to the tune of Sh1.6 billion.
"As
a result of this urgent requirement I decided to inject from my bonus
entitlement as rights into the bank so as to ensure it attained the
capital requirement with the agreement that it would be repaid to me
later.”
“For accounting purposes and for this
arrangement to work, I had to access the funds first then put them back
into the bank,” Mr Khan adds.
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