Sizeable fraud at Imperial Bank but there’s optimism – CBK

October 28, 2015
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The CBK has received a report from KDIC that reveals fraudulent activities of substantial magnitude, and the misrepresentation of Imperial Bank's financial statements/FILE
The CBK has received a report from KDIC that reveals fraudulent activities of substantial magnitude, and the misrepresentation of Imperial Bank’s financial statements/FILE
NAIROBI, Kenya, Oct 28 – The Kenya Deposit Insurance Corporation (KDIC) has found substantial fraud at Imperial Bank Limited (IBL) but says the bank is still viable for business.

The Central Bank of Kenya (CBK) says the receiver has examined options that will lead to the prompt reopening of the bank that includes shareholders injecting new capital to meet the identified capital shortfall.

The CBK has received a report from KDIC that reveals fraudulent activities of substantial magnitude, and the misrepresentation of Imperial Bank’s financial statements.

According to the report, the fraudulent activities have resulted in a significant shortfall in IBL’s capital position. The fraudulent activities include irregular loans granted by the management and in particular violating the limit on lending to a single borrower.

“In particular, these irregular loans were a violation of the statutory limit of lending to a single borrower, and inadequate loan loss provisions, thereby overstating IBL’s capital adequacy position,” CBK said in a statement.

Other proposals to bring the bank back to business include conversion of some of the large deposits to equity, recovery and collateralization of the fraudulent loans, as well as a change of Board of directors and senior management.

The CBK hopes that an agreement with shareholders will be reached enabling the bank to reopen in a month’s time.

“Shareholders appreciated the proposal and expressed their strong commitment to reopen the bank quickly. Shareholders requested to consider the proposal over the next few days and to come back with an implementation plan for the way forward. In parallel, CBK and KDIC will on Wednesday, October 28, 2015, meet some representatives from a cross-section of IBL’s depositors to brief them on these,” the regulator said.

In the meantime, steps are being taken to facilitate the recovery of the funds that were obtained irregularly from IBL. A forensic audit and other investigations are also ongoing on the culpability of these fraudulent activities.

The CBK and KDIC will continue to work closely with IBL’s shareholders and all concerned parties to facilitate an expeditious resolution.

Imperial Bank was placed under receivership this month after the board alerted CBK to malpractices at the lender.

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