In an appearance before the Senate Finance committee, Governor Patrick Njoroge said they had learnt ‘painful’ lessons from the case of Dubai Bank and Imperial Bank which were put under receivership, and it was time to address the matters more urgently.
“We have been in touch with all the CEOs of commercial banks to ensure banks are working well. We have been monitoring the conditions on a day-to-day basis and bank-to-bank,” he assured.
He noted that the shocks that hit the market affected liquidity especially on those that had a lower amount pointing out they had encouraged banks to recycle liquidity since they found out that only four banks had high amounts.
He said they would now interrogate the data in all banks to get the actual status to avoid cases where institutions ‘cook up’ results and give false information.
“We need to go deeper down interrogating the loan by loan data in the system and not just the reports that indicate the total loans,” he said.
He also disclosed that he intended to write to all auditors of banks to spell out the new way of conducting bank supervision to avoid another case of a bank going down while at the same time increasing the number of staff to enhance efficiency as part of the plan to tighten bank supervision.
“We are still trying to do a forensic analysis of what went wrong in Imperial Bank because this flags our weaknesses… but we have solid evidence of fraud,” he stated.
While acknowledging responsibility for what happened, the Governor blamed technology for the wrong information since most of it was edited to give a certain picture.
As part of the new plan to revive Imperial Bank, shareholders would be required to inject in more capital to cover for the undercapitalisation even as CBK went after the individuals who got large loans to get security for those loans since Sh38 billion was withdrawn unprocedurally and eventually lost.
He said once the bank stabilises, large depositors will be able to access their monies and it would also be easier for the bank to seek a partner to help get it back to its feet.
Njoroge however questioned why most depositors in Dubai Bank were yet to come to them despite intense publicity as only 561 out of 7,700 had come forward hinting at a possibility of fraud.
He said while the bank was not salvageable, there was hope at Imperial Bank.
He cited the bank’s impressive franchise and the quality of loans as part of the banks good qualities saying there was plan to revive the bank.
He further expressed confidence in stabilising of the interest admitting that the increase caught them off guard.
“The tight liquidity conditions and CBK’s direct interventions helped stem speculative expectations and stabilized the foreign exchange market” stated Njoroge.
The Governor also revealed that the government had since put its finances in order by planning expenditures and revenues and there was structured domestic borrowing plan.
“The government is now on top of its borrowing plan,” he added.