A team of lawyers has accused CBK of not doing enough to save financial institutions and protect depositors’ savings.
MMC Africa Law noted on Tuesday that of all the banks that have collapsed since Kenya’s independence, only two have been re-opened.
"None of the directors of the collapsed banks has ever been successfully prosecuted and convicted. This fortifies the view that CBK has been part of the problem and not the solution," Edward Muriu, MMC Africa Law senior partner and team leader, said.
"This is despite CBK having at its disposal the Banking Fraud Investigations Unit (BFIU), one of the best paid police units in Kenya."
Trust Bank and Bullion Bank are the only banks that have ever been re-opened after their collapse.
Trust reopened in August 1999, after a series of looting by its top managers saw it go under on September 18, 1998.
The CBK appointed the Deposit Protection Fund Board (DPFB) as the liquidator of the bank.
The DPFB is a public institution established by Section 36 of the Banking Act as a deposit insurance scheme to provide cover for depositors and act as a liquidator for failed financial institutions.
Bullion Bank was reopened in January 2000 after collapsing in 1998 following its acquisition by Southern Credit which then merged with Equatorial Commercial Bank.
Depositors in both banks had agreed to capitalise part of their deposits as shares.
The first wave of collapse that affected nine banks occurred between 1984 and 1989.
Majority of the lenders were mainly family or community owned.
The unprecedented collapse necessitated amendments to the Central Bank Act and the Banking Act in 1989 to create stricter licensing and credit regulations.
The amendments also saw the establishment of DPFB.
Despite the strict measures being in place, the second wave of collapsed banks happened between 1993 and 1995 affecting a total of 19 banks.
Most of the banks affected during the second wave were wrapped up in the infamous Goldenberg scandal.
The third wave occurred in 1998 and affected six banks including Trust bank and Bullion Bank.
The latest occurred between 2007 and 2015 and affected four facilities -
Charter Bank, Euro Bank, Kenya Finance Corporation and Trade Bank.
"It is unfortunate that CBK, which should have taken prompt action to ensure compliance with the statutory and regulatory framework, failed at the hour of need to protect depositors," Muriu said.
He added that conflict of interest has resulted in
failure by the regulator to act on time to save depositors’ money at some of the institutions.
"For instance, there are claims that one of the CBK’s auditors for Imperial Bank was a business partner to the bank’s managing director," the senior partner said.
"Such conflict of interest ought to have been discovered by the Central Bank of Kenya while carrying out its supervisory duties of vetting the bank’s officials."
Muriu alleged that former CBK Governor Njuguna Ndung’u and other officials had improper relationships with Imperial Bank’s senior management that saw them conspire to file falsify financial records.
A forensic audit by American firm FTI Consulting reportedly revealed that the bank’s managers may have stolen up to Sh 45 billion through dubious loans the day before the bank went into receivership.
The CBK has never made the report public.
"This then begs the question; what does the Central Bank of Kenya have to hide? Are they trashing their own commissioned report in an attempt to cover up their own negligence?" Muriu asked.
The team leader argued that the collapse of banks due to fleecing of their accounts by top managers is indicative of CBK’s failure to vet the management’s professional and moral fitness from time to time.
"CBK is only proving to us that if you want to rob a bank, just own one," he said.
Muriu further said CBK’s administrative action of closing commercial banks amounts to violation of depositors' rights by denying them access to their money.
"In view of that constitutional violation, the saving grace for the depositors is spelt out under Article 23 (3) (E) of the Constitution which provides for compensation."
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