The Central Bank of Kenya (CBK) has placed Imperial Bank under receivership for a period of 12 months, signalling that trouble has been brewing in the bank for sometime.
Kenya Deposit Insurance Corporation (KDIC) will assume control of the bank for the period, a decision which CBK says is in the interest of depositors, creditors and members of the public.
Section 34 (1) of the Banking Act empowers CBK to intervene in the management of an institution if it discovers or becomes aware of circumstances which, in the opinion of Central Bank, warrants this move. In addition, section 43 (2) of the KDIC Act requires the Central Bank to appoint it as a receiver bank if unsafe or unsound business conditions to transact exist.
The move by CBK comes barely two months after another bank, Dubai Bank, was also placed under receivership.
In August this year, Imperial Bank issued a bond targeting high net worth individuals in a Sh2 billion bond to boost its capital and increase its branch network. The funds, which were to be raised through a corporate bond that offers investors a 15 per cent annual return. The decision to put the bank under receivership also led to the suspension of the bond until further notice.
The third-tier bank associated with the wealthy Popat Family has seen its ratio of total capital to total assets constrained because of the new rules that increased the statutory requirement to 14.5 per cent from January this year.
A month ago, Imperial Bank appointed Mr. Naeem Shah as interim managing director following the death Mr Abdulmalek Janmohamed due to a heart attack. Mr. Abdulmalek Janmohamed had been serving in the position since 1992 while Mr Shah had worked as head of credit and asset finance at the bank.
Imperial Bank Limited offers banking and financial services in Kenya and Uganda. Founded in 1992 as a Finance and Securities Company, Imperial Bank converted into a fully-fledged commercial bank in January 1996 has since opened 17 branches.
KDIC is expected to assume full control of the bank at the exclusion of Imperial Bank’s Board of Directors and advice CBK on the appropriate resolution strategy. This is expected to be done within the 12 months under receivership.
The move by CBK must have been calculated over a period of time. While the change of leadership just took place a month ago, there seems to be a leadership wrangle within the bank as there was a lack of succession strategy. But it cannot just be this issue that called for CBK’s intervention, the bank has been suffering for a while.
It is expected that normal transactions of the bank will continue, just under new leadership.
What this move also signals is a strong central bank leadership geared towards protecting the public. In about three months in office, Central Bank Governor Dr. Patrick Njoroge has placed Dubai Bank under receivership, warned Treasury’s appetite for debt and now placed Imperial Bank under receivership.