Kenya Places Imperial Bank Under Statutory Management

Kenya’s central bank placed Imperial Bank Ltd., which completed a bond sale earlier this month, under statutory management because of “unsafe or unsound business conditions,” sending banks’ shares lower.

The Kenya Depositors Insurance Corp. is working with directors of Imperial Bank to find a “resolution mechanism,” according to a statement published on the website of the central bank in Nairobi on Tuesday. No one at the KDIC was available when Bloomberg called seeking comment. Calls to Imperial Bank weren’t answered.

Imperial is the second lender to be taken over by Kenyan regulators since Patrick Njoroge became governor of the central bank on June 19. Dubai Bank Kenya Ltd. was placed under the management of the authorities in August.

The central bank decision creates a “serious confidence crisis” among Kenya’s mid-sized lenders, George Bodo, head of banking research at Ecobank Capital Ltd., said by e-mail from Nairobi. “This event also escalates counter-party risks, given the high level of interconnectedness among banks.”

Imperial Bank’s interbank borrowings, which amounted to 1.6 billion shillings ($15.5 million) in the first half, “are still outstanding and I’m sure these have not been settled,” Bodo said.

The central bank said that while it had put the lender under management after Imperial’s directors alerted it to inappropriate practices, Kenya’s banking industry remained “safe and robust,” according to a joint statement with the Capital Markets Authority.

Bond Sale

Imperial said on Oct. 2 it sold 2 billion shillings ($19 million) of 15 percent bonds due in December 2020. The securities were scheduled to begin trading on the Nairobi Securities Exchange earlier today. The listing has been canceled, the Capital Markets Authority said in a statement.

Founded in 1992, Imperial has outlets in Kenya and Uganda. Imperial’s Ugandan operations will remain open even though the bank has been placed under the management of the central bank, the Bank of Uganda said in a statement.

“BOU has not closed Imperial Bank Uganda,” Governor Emmanuel Tumusiime Mutebile said in a statement on the bank’s Twitter account. “To ensure that depositors in Uganda are protected against possible effects of the decision taken by CBK, BOU has taken control of Imperial.”

Shares of most Nairobi-listed lenders closed lower. The local subsidiary of Standard Chartered fell 5.5 percent, while Kenya Commercial Bank and Equity Group Holdings each dropped 2.3 percent.

“The entire banking sector recorded declines except for I&M Bank, which did not trade,” Standard Investment Bank said in a note to clients. “Investors appeared concerned about whether there was a systemic issue with the sector.”

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