Harmonise relevant laws for equitable economic growth

The Central Bank of Kenya. The mandate of the CBK and the Capital Markets Authority has been undermined by corporate directors and managers implicated in corruption, leading to wastage of public and private investments. FILE PHOTO | NMG

What you need to know:

  • CBK faces a barrage of cases over the forced closure of Dubai Bank in August 2015, Imperial Bank in October 2015 and Chase Bank in April 2016.

  • The Central Bank of Kenya and CMA are the custodians of financial sector discipline.
  • Investors should be concerned that CBK is constrained to provide sufficient protection to customers and shareholders of banks and other financial intermediaries.

The role of the financial sector in supporting economic growth and equity is under threat. In recent months, the mandate of the Central Bank of Kenya and the Capital Markets Authority has been undermined by corporate directors and managers implicated in corruption and abuse of office, leading to massive losses and wastage of public and private investments.

CBK faces a barrage of cases over the forced closure of Dubai Bank in August 2015, Imperial Bank in October 2015 and Chase Bank in April 2016.

Large depositors of Imperial Bank are demanding Sh100 billion for loss of access to their locked deposits, arguing that the CBK and the Kenya Deposit Insurance Corporation failed in their administrative duties and breached the constitutional rights of depositors.

Moreover, Chase directors and shareholders attempted to stop the sale of the bank’s good assets and liabilities to State Bank of Mauritius, through its local subsidiary SBM Bank Kenya.

FRAUD

The challenge to CMA arises from cases against two former Uchumi Supermarket directors. Former CEO Jonathan Ciano was sanctioned in November 2016 over allegations of fraud and conflict of interest over supplies to the retailer by a firm associated with his wife.

Former finance manager Chadwick Okumu has faced disciplinary proceedings since October 2016 over the publishing of “incorrect and incomplete” accounts.

Justice George Odunga stopped the administrative action against Ciano on April 9 while, on May 2, Justice John Mativo ordered nullification of proceedings against Okumu.

However, the two rulings were peculiar. Justice Odunga’s rested on a technicality — that Ciano was not given a KPMG forensic audit report in time — but upheld the mandate of CMA to investigate and sanction officials of listed firms. But Justice Mativo questioned the powers of CMA to investigate and impose sanctions, contradicting his ruling in a matter involving the CMA and the audit firm Ernst & Young.

ISSUED NOTICE

The CMA has issued a notice of appeal in the Ciano matter, its incapacity to investigate and sanction directors and shareholders of public Nairobi Stock Exchange-listed  firms is likely to affect investor decisions.

The CBK and CMA are the custodians of financial sector discipline. Their roles are critical to the success of President Uhuru Kenyatta’s ‘Big Four’ agenda.

Challenging their authority to investigate and recommend criminal proceedings against officials implicated in financial fraud and corruption raises business risks and discourages private investment.

Investors should be concerned that CBK is constrained to provide sufficient protection to customers and shareholders of banks and other financial intermediaries. Similarly, compromising the CMA’s role of ensuring orderly development of financial markets would hurt the quality of business climate and foundations of investment.

DISPUTES DRAG

While disputes drag on in court, stakeholders of the failed banks and companies bemoan the massive losses and injustice they have suffered.

The banks went down with hundreds of billions of shillings in depositors’ funds. Uchumi is technically insolvent; it has lost billions of shillings and considerable market share every year.

Uchumi’s financial statements show the sales for “the home of value” nosedived from Sh12.9 billion in the year to June 30, 2015 to Sh6.4 billion in June 2016, when net loss decreased from Sh3.4 billion to Sh2.8 billion.

Its latest unaudited accounts show a turnover of just Sh527 million for the half year to December 31, 2017 with Sh895 million losses and Sh6.4 billion current liabilities — Sh2.4 billion over its total assets of Sh4 billion.

Protection of bank depositors and investors in securities at NSE can only happen if there’s harmony between the Constitution and the laws under which regulators are established.

Mr Warutere is a director of Mashariki Communications Ltd. [email protected] 

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