Imperial Bank’s closure shakes banking sector

imperial-bank

Imperial bank Riverside Drive. The bank was closed down yesterday. Photo/Enos Teche

THOUSANDS of Imperial Bank customers are a worried lot on the safety of their deposits after the Central Bank shut put it under receivership.

The action coming barely two months after CBK closed Dubai Bank (now facing liquidation) raises questions on the regulator’s supervisory role and failure to detect early symptoms of ailing financial institution.

Imperial Bank’s closure , has left customers guessing on what happens to their deposits in excess of Sh58 billion.

Imperial has been on a growth path in recent years with 30 branches spread in Nairobi (16), Mombasa (6), Kilifi county (3), Eldoret (2) and one each in Nakuru, Thika and Diani (Kwale county).

The bank’s customers at various branches were yesterday met with locked doors and a notice from CBK notifying them of the action.

“We didn’t anticipate such a move, it’ s shocking and a real setback because we don’t know how and when operations will resume normally,” said Surinder Patel, a customer in Eldoret.

Henry Kariuki,a  Nakuru-based supplier was left stranded outside the bank branch with a cheque from the county government he was hoping to cash..

The situation was the same at the Coast with the bank’s premises shut.

“I do not know how I will pay the bills and even salaries. The bank did not inform us of the pending closure and yesterday I was at the bank but I was told nothing. We use the cash to support the community but we are now in a fix” Phyllis Omido, a customer at Kilifi branch who won the Goldman Environmental Africa award that came with Sh15 million cash, said.

CBK said it has placed the bank under a one-year receivership by the Kenya Deposit Insurance Corporation to address “unsafe banking practice”.

“The board of directors of Imperial Bank Limited brought to the attention of the CBK inappropriate banking practices that warranted immediate remedial action in order to safeguard the interest of both depositors and creditors,” the CBK said in a statement. “CBK and the board of directors of Imperial Bank are working closely on a feasible resolution mechanism ….”

Sources at the bank said they came across cases of fraud which indicated that a former CEO could have been running a “parallel banking system”

CBK governor Patrick Njoroge however reassured the banking sector “remains safe and robust”.

The bank has raised Sh2 billion in a corporate sold between August 24 and September 17. The bond was due to start trading on the Nairobi Securities Exchange yesterday. The bell-ringing ceremony had not been scheduled, meaning the malprcatices could have had been discovered last week.

Acting chief executive of the Capital Markets Authority Paul Muthaura said yesterday he had directed the NSE to immediately suspend the listing and trading of the bond that has an interest of 15 per cent.

“CMA will be working closely with the Board of Imperial Bank and KDIC to ensure all material information is made available to investors to ensure the maintenance of the transparency and orderliness of the capital markets,” Muthaura said in a statement.

Imperial reported Sh1 billion in net profits for the six-month period to June, this year, from Sh999.6 million a year before. It is assets were valued at Sh70.33 billion, with Sh41.50 billion in loans.

“Post this move on Imperial Bank we are going to see a massive flight to quality and this will place intolerable pressure on the smaller banks,” Aly Khan Satchu, the CEO of data vending firm Rich Management, told the Star.

The closure of the lender chaired by Alnashir Popat caught the bank’s customers across the country by surprise.

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