In the recent past, Imperial and Dubai bank perished. Chase Bank is being given a kiss of life by the Mauritian sponsor SBM (State Bank of Mauritius). National Bank is tottering on the brink again and requires urgent government intervention, without which it will rest with the dinosaurs.
Our banking system is sick. Since independence, more than 90% of bank failures have been by indigenous banks, mostly owned by individuals whose vision were much more than just starting and running a bank, but mostly how to defraud Kenyans. Most analysts have termed these banks rogue, I disagree.
A bank cannot be rogue. Only Bankers can. These rogue bankers view deposits from the public like a githeri pot cooking in their grandmother’s house. If you can handle the heat, you can always dip your hand into the pot and make away with the contents. Better still, you can create your own pot and own all the githeri in it. An easy way to defraud the public is to start a Bank and once the contents are sizeable, hatch schemes to siphon the funds through cronies.
Bankers such as Andrew Ngumba of the defunct Rural-urban Credit, Ajay Shah of Trust bank and now Former Chase Bank chairman Zarfulla Mohammed Khan join in a long queue of such rogue bankers.
A bank is simply in-between savers and borrowers and makes its profits from the spread between the cost of deposits and the cost of loans. It is therefore in the interest of a bank to safeguard its borrowers and lenders.
Most banks go to a great extent to increase their appeal to depositors, employing marketing gimmicks and slogans. Chase Bank is for example famed for employing beautiful tellers and National bank changed its brand colors from green to yellow. The inside of the bank is usually also really spruced, to ensure customers are comfortable as they bring in their deposits. Tea and coffee are served in some banking halls. You will also notice that banks tether Ksh20 pens, just in case some customers confuse the pens to be theirs.
Behind every bank, there are individuals. There are employees who work extra long hours to serve clients. In some institutions, these are professionals who play by the rules of the book. They are told what to do and they do it. If one is found doing contra, there is a very clear guideline of how to exit them. Some institutions are iron-fisted and any employee who raises his head or voice to point out irregularities is beaten down to a pulp. Therefore as you castigate employees of fallen banks, think of them in this light. They may not be the ones who ran away with your money.
We also have directors and shareholders. They are also referred to as board members. They make decisions for the company and direct the employees. In this group of ambitious directors and majority shareholders, we find a few rogues in a few banks and institutions. These are the guys who want to build their empires in less than two years flat. They are motivated and driven. Sometimes they have other outside interest and they own the bank through a proxy. They are powerful and egoistic, some are badly behaved sending senior colleagues to get them cups of tea or carry their laptop bags from the car parking to their desks. They get irritated easily and sometimes you hear them shouting down other employees without observing professionalism. Other board members are scared of them too.
In some institutions, there are non-executive board members (these are the ones who sit on the board but are not involved in the day to day running of institutions) have offices in the company and use the employees of the company to run their other interests. In fact, the other board members are usually aware of this and do nothing. The employees they use are untouchable. These employees ignore their day to day duties because they know once they mention the name of the director; their immediate bosses shut up and leave them alone.
Power corrupts absolutely. Once they get away with a few things like spending on cooperate cards for their personal effects; they get emboldened and in situations where a company’s culture has bred docile employees, then he has his way throughout. They start flouting company policy; one female director was claiming diapers and milk for her baby in the company returns. They ignore legislation by not providing for non-performing loans as per CBK guidelines. As a board member you act in faith for your company, but the rogue directors will ignore this fiduciary obligation and advance their own personal agenda. The Uchumi debacle where employees and directors were supplying goods to their own company is known.
They pressure department heads to do as they wish, including coercing procurement officers to purchase their personal stuff on company tab and finance officers to falsify books. At this stage, a keen management board will note a few resignations in key positions and if they are diligent enough, they will be able to identify this rogue director.
Some boards are just rubber stamps for this individual as he is the one who lobbied for their appointment to the board. They cannot rebuke him/her and the company abuse continues to the extent where a director has a massive Kes 8B in loans owing in total contravention of the rules on insider loans and single borrower limits. To do this, he has to use proxies (companies he controls without his name appearing anywhere). He exploits the weaknesses of the bank’s policies or manipulates the credit department to allow these irregularities.
The board turns a blind eye and the external auditors don’t pick these governance issues either. The Governor CBK, Patrick Njoroge is doing a good job cleaning out the mess that has built over the years. Our suspicion is that CBK, being the regulator for banks, has in the past also turned a blind eye on these guys hence allowing the current build-up of nonperforming loans that went undisclosed.
Then the question is, in a society where corruption is the norm and get rich quick schemes are protected by law through cartels that in-cooperates even the judiciary, how do companies protect themselves from these rogues and in the process protect the Wanjiku and Nyaboke who have sold their bananas and deposited all their money in the failing banks?
In my view, the solution is not supporting banks with liquidity issues as envisaged by the CBK, but rather sorting out integrity issues in the sector. It should start with boards hiring the right people without biases on race, religion or ethnicity. The licensing of banks should also be strengthened to include stricter integrity checks and not just capital. Political connections should be discouraged in law as opposed to the current practice where political dalliance is a plus to open and run a bank.
Rogue bankers to be put where they belong; behind bars. In this way, banks will take their rightful role and contribute to the growth of the economy and not the current fame where they are being used as conduits to defraud innocent Kenyans.