We are back to Moi era, at least as the performance in the banking industry is concerned. This we witness in the ongoing banking woes in Kenya the genesis of which is best understood by taking a quick historical journey.
There is a book in Google Books called Kenya: A History Since Independence authored by Charles Hornsby and published in 2013 by I.B.Tauris. In the book we get a glimpse of the banking industry where we are told in Page 429 that “In 1984-6, Kenya suffered several bank failures, the first of a cycle of collapses”. Hornsby goes ahead to explain that in the year 1984 “the CBK put the Rural-Urban Credit Finance Company chaired by Kikuyu MP Andrew Ngumba into receivership, the first Kenyan finance institution to go under. The cause was unsecured loans, many linked with Ngumba’s election victory in 1983 in Mathare”.
Hornsby narrates stories of a few other banks that went under in the 1980s and concludes that section of the book by stating that “In 1985, the CBK established a receiver for banks – the Deposit Protection Fund (DPF) – funded by contributions from institutions that accepted deposits, which guaranteed some returns for small depositors in a collapse, and could take over a failing bank”.
Although the book seem to be silence on what happened to the banking industry in the 1990s, we find news articles telling us of the list of banks that were wound up in 2014 due to mismanagement in the 1990s here, here and here. In the last article for example, we are told of how depositors lost shs 225 million in two Moi-era bank collapses.
News about a bank’s liquidation, a bank put under receivership, or a bank being wound up took a break during the 10 years of Kibaki leadership, but two years after Jubilee Government came into power, hardly three months passes without mismanagement of bank is reported, a situation that has since seen three banks placed under receivership and one bank suspend top managers due to mismanagement allegations.
The first bank to be placed under receivership was Dubai Bank. CBK explained the closure of Dubai Bank this way, ““Owing to the deteriorating cash reserve ratio position and Dubai Bank’s failure to honour financial obligations, including shs 48 million due to Bank of Africa Kenya, the CBK is of the opinion that the bank will most likely fail to meet its financial obligations in the normal course of business.” That was August 14, 2015.
In October 13, 2015, exactly two months after Dubai bank went under, we read of the headlines to the effect that Central Bank of Kenya had put Imperial Bank under statutory management, and this time round it was due to “unsafe and unsound business conditions to transact business” that existed in the bank. Further, CBK explained that it had received information from the Board of Directors of Imperial Bank of “inappropriate banking practices that warranted the immediate remedial action in order to safeguard the interest of both depositors and creditors”.
Roughly six months after Imperial Bank was put under receivership, National Bank of Kenya sent its chief executive officer Munir Ahmed and five top managers on forced leave to pave the way for a detailed audit. The reason for the suspension was due to claims of mismanagement and a loose credit policy resulting in the ballooning of bad loans that affected its financial standing. A day later, National Bank of Kenya reported a surprise shs 1.2 billion loss for the year ending December 31, 2015 compared with a profit of shs 1.3 billion in the same period in 2014. The huge loss was blamed on the suspended officials who had issued bad loans.
One week after National Bank woe’s were reported in the media, Chase Bank hit the headlines after information emerged that the Bank had made a loss of shs 742 million, despite making a profit of shs 2.3 billion the previous year. The loss was attributed to bad and insider loans totalling to shs 16.6 billion that auditors had issued a qualified opinion on. The Bank was later put under receivership, a decision that Central Bank of Kenya blamed on Social Media for spreading “rumours“.
During Moi era, the failure in the banking industry was easily attributed to greedy politicians and presidency that had controlling stakes in most of the banks that went under. According to analysis done by experts during the era, the politicians were syphoning the money in those banks and channeling them to off-shore accounts. Some of the Bank collapses that happened during Moi era were linked to some key scandals like the Goldenberg, investigations of which are still ongoing.
The current Bank collapses under Jubilee Government have been largely attributed to the immediate CBK Governor Njuguna Ndung’u, who among other things is being accused of having slept in his job. Despite those accusations, I have not heard of any probes being opened by either EACC or the Director of Public Prosecution to investigate whether or not the former Governor was complicit in the current Banking woes in Kenya.
Although majority of Kenyans consider the current CBK Governor as performing, some of us view him as either incompetent or reactive. Kachwanya described the situation more aptly when he wrote on his Facebook;
I said yesterday that CBK has letdown the once great Financial sector in this country and some of you great friends said nooo. The new Governor is working…
And today I can see people praising CBK Governor Dr Patrick Ngugi Njoroge….really, so far he has been more reactive than proactive. They did not see Imperial Bank coming until the death of the culprit…the guy who was helping the founder went to the board to report the issue. Without that we would have not known what was going on at the Imperial Bank may be up to date…
National Bank has had problems in the last few years..CBK did not see that until the insiders started leaking information to Bloggers. In many cases such happen when somebody within the eating cycle is short changed. The board took action to suspend the Chairman and the MD , still CBK has not said what they will do to prevent the Bank from going down.
Chase Bank case came to the public domain when Bloggers wrote stories about the issue at the bank. The bank categorically said that things are ok and blamed malicious bloggers. Just yesterday CBK Governor told the nation that Chase Bank is ok, everything is going on well. Waking up the following day, the bank is closed. So how do you trust a guy who yesterday told you that the Bank is ok only to wake up and close it? And again CBK blamed social media . But then you ask yourself how did social media manage to steal 13 Billion from the bank , the money which ended up in the directors personal accounts…
We need the CBK to do its JOB…and guys stop cheer leading leaders until you see tangible results …we have seen this movie before.
The current banking woes in Kenya is a sign of a failing economy
There is something common in all the banking woes in Kenya today, and was also common in the collapse of banks during Moi era, it is the thorny issue of bad loans that run into billions of shillings. There are three ways to understand the route cause of these bad loans:
- Bank managers have found it way too easy to fleece depositors by giving themselves huge but unsecured loans
- Loanees have found it way too easy to forgo repaying their loans, or are having difficulties repaying their loans
- Both 1 and 2
What’s obvious in the four recent bank woes in Kenya is that the bank managers have found it way too easy to fleece depositors of their hard earned cash in bad loans. This can only happen when CBK is deep asleep or intentionally turns a blind eye to the ongoings in the banks. The absence of prompt checks on banking activities reveal a CBK that does not care on how banks operate, and this can only be the case if the high and mighty are in cahoots with those bank managers hell-bent to fleece Kenyans. At this point I would only state that general elections are not cheap to fund – refer to paragraph two of this article to appreciate the connection between politics and banking woes in Kenya.
Loanees will find it way too easy to forgo repaying their loans if the bank managers do not care, and the bank managers who fleece billions of shillings in unsecured loans within months will surely not care to chase after loanees whose loans are in the range of a few thousand shillings. The other angle to look at this is that the loanees are having difficulties repaying their loans due to bad business environment, risen cost of living, or shrinking income.
Whichever way we want to explain the current banking woes in Kenya, one thing is for sure, a collapsing banking industry in any country either due to fraud or genuine bad loans is a sign of a badly performing economy. Other than a few banks, Kenya’s corporate sector has reported huge losses both in 2014/2015 and 2015/2016 financial years, the Nairobi Securities Exchange performed its worse in the entire history of Kenya in 2015, Kenya shillings hit its lowest exchange rate against the dollar in 2015, and Kenya’s debt has grown to past the recommended debt to GDP ratio, a situation that forced the Government to rebase the GDP. To add salt to injury, KRA is unable to meet its revenue collection targets.
The question is, how do we as good citizens save our country from Moi’s era type of governance?