Shuttered Kenyan Bank Is Said to Seek Funding Before Reopening

  • Imperial Bank seeks $98 million, person familiar says
  • Injunctions filed in court to recover 34 billion shillings

Shareholders of Imperial Bank Ltd., the Kenyan lender seized by regulators last month after it said it uncovered internal fraud, plan to raise 10 billion shillings ($98 million) as part of a proposal to re-open as soon as possible, according to a person familiar with the strategy.

They’re also considering asking depositors holding more than 1.5 million shillings to convert as much as 20 percent of their savings into preference shares and agree to keep their funds with the lender for at least two years, the person said. He asked not to be identified because the plans are confidential. The recovery strategy has been submitted to the central bank, he said.

Imperial was seized less than a month after former Managing Director Abdulmalek Janmohamed died on Sept. 15. He’s among three managers implicated in fraud at the bank, according to a lawsuit filed by Imperial Bank last month in the capital, Nairobi. Imperial is trying to recover 34 billion shillings from Janmohamed’s estate and two other defendants -- acting Managing Director Naeem Shah and acting Deputy Managing Director James Kaburu, who are both accused of fraud, according to the court documents. The case is ongoing.

Capital Injection

Shah referred questions to his lawyer, Ahmednasir Abdullahi, who said his client didn’t do anything wrong. “This man is an employee and he was only paid salaries,” Abdullahi said by phone Thursday. In a Nov. 10 phone call, Abdullahi, who also represents Janmohamed’s estate, denied any wrongdoing by the former managing director.

Kaburu’s lawyer, George Kithi, said by phone Thursday he will file a response to the lawsuit on Nov. 23. “Kaburu is the one who blew the whistle and if he had not done that, Imperial Bank would still be operating,” Kithi said.

The central bank and the Kenya Deposit Insurance Corp., which was appointed as the statutory manager of Imperial after the bank self-reported the suspected fraud, are considering options that may lead to the “quick” resumption of operations, the central bank said in an e-mailed response to questions. It didn’t comment directly on the recovery strategy being considered by Imperial’s shareholders.

“These options being considered may require the shareholders to inject new capital to meet the identified capital shortfall in the bank,” the central bank said. “The central bank and KDIC are working closely with Imperial Bank’s shareholders and all concerned parties to facilitate an expeditious, holistic and sustainable resolution of the bank.”

‘Inappropriate Practices’

The central bank placed Imperial under statutory management on Oct. 13 after Imperial alerted the regulator to “inappropriate banking practices.” It was the second bank in East Africa’s biggest economy to be taken over by regulators since Patrick Njoroge became governor of the central bank in June. He placed Dubai Bank Kenya Ltd. in liquidation in August after it ran out of money. A High Court judge on Nov. 18 ordered that the dissolution of Dubai Bank be stopped after Chairman Hassan Zubeidi proposed a capital injection, Business Daily reported.

Imperial had total assets of 70.3 billion shillings at the end of June. That compares with assets of 566 billion shillings at the country’s biggest lender, Kenya Commercial Bank Ltd.

‘Fraudulent Activities’

Imperial was seized after it discovered “that the deceased together with other senior officials of the bank and their associates were responsible for illegal and fraudulent activities,” according to the lawsuit filed by the bank on Oct. 29. The suit seeks to freeze the bank accounts of Janmohamed and “representatives of his estate,” Shah and Kaburu, as the lender seeks to recover missing funds.

The alleged fraud involved Janmohamed “allowing certain customers to overdraw their accounts and concealing the overdrawn amounts using specially created secret accounts and financial reporting software,” George Oraro, a lawyer for the bank, said in an e-mailed response to questions on Nov. 11. “The result is that the financial reports that were published by the bank didn’t reflect the true financial position of the bank.”

Abdullahi rejected the allegations against Janmohamed and said he plans to argue the former managing director’s case in court on Dec. 1.

‘No Case’

“There is no case against the former group managing director,” he said by phone Nov. 10. “It is sheer propaganda.”

Peter Gatere, the receiver manager at the KDIC, disconnected the call when Bloomberg called him for comment. He didn’t answer a subsequent call to his phone.

Imperial hired Washington, DC-based FTI Consulting Inc. last month to conduct a forensic audit, according to an affidavit filed in court on Thursday. The audit found that Janmohamed and six other managers were involved in the alleged fraud in which three separate sets of loan files are believed to have been prepared: one for the central bank, a second one for the board of directors, while a third which had the correct details was kept secret, the person familiar with the shareholder plans said, citing the report.

Irregular Loans

Some customers were allowed access to funds even after the relevant board committee declined their loan application, according to the person. In some instances, the borrowers received credit without following a regulation that requires loans of more than 50 million shillings to be approved by a board committee, the person said.

A spokesman for FTI declined to comment. A central bank directive prevents officials at Imperial from commenting publicly about the case.

“We are not permitted to communicate on behalf of the bank at the moment
because it is under receivership,” Mercy Randa, a spokeswoman for the shareholders, said by phone Nov. 18. “However, we confirm that we had meetings with Central Bank of Kenya last week to discuss the recovery plan.”

Imperial’s shareholders include closely held Kenyan companies Imaran Investments Ltd. and Abdumal Investments Ltd., with 14 percent each; Janco Investments Ltd. at 13.5 percent; Rex Motors Ltd., Kenblest Ltd. and Momentum Holdings Ltd. with 12.5 percent each; EA Motor Industries Ltd. with 11 percent and Reynolds & Co. Ltd. with 10 percent.

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