Imperial Bank depositors have filed a Sh100 billion class action suit against the Central Bank.
They accuse the bank of failing to allow them to withdraw their funds.
MMC Africa Law has moved to the High Court on behalf of depositors to compel
CBK and the
Kenya Depositors Insurance Corporation
to unconditionally release the funds
in interest and damages.
The firm said the CBK and KDIC violated depositors’ right to property against constitutional provisions and the right to fair administrative action and consumer protection.
The petitioners argue that CBK must have had prior knowledge of the impending collapse of the mid-tier lender but failed to act on time as required under the Banking Act, CBK Act and the Prudential Guidelines.
They said CBK carries out annual audits on financial institutions and should have noticed that Imperial Bank was struggling.
“Had the CBK diligently carried out its statutory obligations of vetting bank officials, auditing, and inspection to ensure compliance with the law, the now frequent collapse of banks would likely not have occurred,”MMC Africa Law said in a statement on Sunday.
CBK placed Imperial Bank under receivership on October 13, 2015 and appointed KDIC as the Receiver.
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This was after massive fraud was discovered at the bank which held Sh58 billion in customer deposits at the time.
Several top managers were later implicated in running an elaborate fraudulent scheme that saw the bank lose Sh34 billion in a span of three years.
The receivership meant all banking activities at the local financier were suspended and depositors denied access to their deposits.
Early last year, at least 44,300 customers who had Sh1 million or less were allowed full access to their deposits in the first phase of payouts through KCB and DTB.
Large depositors who accounted for 11 per cent of the bank’s depositors were paid in phases with an initial withdrawal of Sh1.5 million through NIC Bank.
NIC managing director John Gachora said in a statement in August last year that more than 5,000 customers had opened claim accounts through which about Sh3 billion had been disbursed in the second phase of payment.
With the payments, the number of customers with full access increased by 1,400 bringing the total number of those with less than Sh1 million to Sh45,700 (92%).
On December 28 last year, CBK said in a statement that customers would be able to access up to 10 per cent of their remaining funds.
“Verified depositors will be able to access additional funds of up to a maximum of 10 per cent of their remaining deposits, subject to a minimum of Sh200,000 or the actual deposit amount for balances below Sh200,000,” read the statement.
Currently, KDIC is by law permitted to guarantee only a maximum claim of Sh100,000 on customer funds.
MMC Africa Law said the amount is neither appropriate, sufficient nor just.
The case could see more petitioners join the suit, the outcome of which could have huge implications on the banking sector, consumer rights and the CBK’s institutional accountability.