Kenya’s banking crisis questions Prof. Njuguna Ndung’u 2015 Africa Banker of the Year Award

Eleven months after being awarded the Africa Banker of the Year Award by London-based African Banker magazine, Prof. Njuguna Ndung’u term as the Central Bank of Kenya (CBK) is turning out to be marred with poor leadership of the banking sector.

In awarding Prof Ndung’u, the magazine cited him for having led the central bank through crises, stabilizing inflation and currency at times of turbulence.

Inflation was particularly high after weeks of turbulence peaking at 20 per cent in November 2011, when many critics called for Prof Ndung’u to resign, accusing him of being slow to act on the turbulence even when other experts pointed to the need for urgent action. It has since remained at single digit levels since July 2012.

The growth of mobile banking in Kenya over the past 10 years has also been lauded as his tangible contribution. Certainly, no other Central Bank Governor has done as much for financial inclusion in Africa as he did during his time.

But the ongoing banking crisis casts doubt over the award being meritoriously deserving. This week, Chase Bank was put under receivership due to liquidity challenges while on October 13th 2015, Imperial Bank was also put under receivership.

The Chase Bank problems are due to sh16.6 billion questionable loans. Central Bank of Kenya Governor Dr. Patrick Njoroge affirmed that the bank’s problems are largely related to Sh16.6 billion “problematic” loans whose chances of recovery are minimal. The unsecured loans are comprised of Sh8.7 billion suspicious loans, Sh8.7 billion loans to companies owned or related to some directors and Sh1 billion personal loans to some directors. The former Chairman Zafrullah Khan and group Managing Director Duncan Kabui are the main culprits.

For Imperial Bank however, court documents show that the bank paid for a six-day retreat for the former CBK Governor, Prof. Njuguna Ndung’u and his wife, Nancy to Bangkok. And email from Nancy to the then Managing Director Abdulmalek Janmohamed’s personal assistant dated August 3, 2011 said

“Please inform Mr. Janmohamed that we shall be staying at Sheraton Grande Sukhumvit Hotel from 21st to 24th. The organizers of the conference have kindly agreed to drive us to the resort. The only assistance we now need is on the return trip on 29th August.”

Imperial Bank lost sh38 billion over 13 years, a situation which could have been avoided with a diligent Central Bank.

In addition, Anwar Hajee, an Imperial Bank shareholder, swears in his affidavit that shows how CBK officials and the Imperial Bank’s leadership had a close, personal relationship which obscured objectivity in each undertaking their responsibilities. The affidavit, shows email correspondence between James Kaburu, the then chief finance officer (CFO) of the bank, and a Mr. Reuben Cheres, a manager at CBK, that suggests how a cover-up that led to the cooking of the bank’s books was managed.

CBK issues licenses and regulates banks pursuant to the Banking Act (2015), Central Bank Act (2015) and Constitution of Kenya 2010 and relevant regulations. It means that Prof. Njuguna Ndung’u eight year term at the helm of CBK has been put under spotlight, questioning his integrity, diligence and commitment to not only growing and sustaining the banking sector, but taking advantage of public trust and goodwill.
Speculations abound as to the solidity of some other mid-tier banks and micro-finance institutions. What Dr. Njoroge is doing is cleaning up the messy banking sector that Prof. Njuguna Ndung’u oversaw.
Just like the National Bank of Kenya (NBK) and Chase Bank directors who have been arrested for questioning over their roles in the financial imbroglio of their banks, Prof. Njuguna Ndung’u should be questioned for his role. While the Imperial Bank has put his personal integrity in the line, his role in other banks and general leadership of the sector needs to be investigated.
The former Governor could be innocent of crimes of commission as the head of the bankers’ regulations. But he is guilty for crimes of omission, having overseen (aloof) an industry that to the eyes of the public is above board, but in reality it being kept afloat by unscrupulous individuals both at CBK and respective banks who cook figures and hide details to show the truth picture of bank’s short-term and long term standing.
At least 33 banks have either failed or been put under receivership since 1986 when Continental Bank of Kenya and Continental Credit Finance collapsed. However during his tenure, no bank ever collapsed. From 1986, almost every Central Bank Governor oversaw the collapse of a bank as an average of three years saw at least one bank collapsing.
But it is becoming clear that what Prof. Njuguna Ndung’u would do is to oversee poor leadership, which includes inaccurate book keeping to ensure his tenure is clean.


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