Kenyan bank closes amid IMF scrutiny

Mark Huband in Nairobi

The Guardian, 16 April 1993


ILLEGAL banking practices and mismanagement led to the collapse yesterday of one of Kenya’s main local banks after foreign donors demanded an end to the state financing of banks run by powerful businessmen with political connections.

TradeBank, one of several local banks whose activities are regarded by foreign bankers in Kenya as aimed solely at enriching their politically-connected owners, closed its doors after experiencing recurrent liquidity problems caused largely by its failure to recoup loans made to some of the country’s richest and most powerful individuals.

The collapse follows a visit last week by World Bank and International Monetary Fund officials, who are believed to have received assurances from the Kenyan government that none of the country’s so-called “political banks” still have overdrafts with the Central Bank of Kenya and that it will attempt to curb corruption in the banking sector.

These measures lie at the heart of IMF demands for monetary reform, which the government rejected on March 22 but now appears to have partly accepted after further discussions with IMF officials.

Economic reform is the condition upon which £27 million of monthly balance of payments support will be restored by donors who froze it in November 1991.

But some political sources say it is unclear whether the banks’ overdrafts really have been cleared, or whether the political banks loaned each other money in order for records to give that impression while TradeBank – the least well-connected of the political banks – was used as a sacrifice to give the appearance to the IMF that the government is committed to reform.

Opposition MPs are now demanding to know why TradeBank was advanced 1.6 million Kenyan shillings (£26,600) by the Central Bank of Kenya on March 29, even though its imminent collapse was expected in banking circles. Two TradeBank directors, Alnoor Kassam and the managing director Ian Raynor, disappeared at the weekend and are now being hunted by police. Mr Kassam is thought to be in London.

The CBK, whose governor Eric Kutu is expected to come under increasing pressure from critics who believe it is guilty of knowingly continuing to give credit to illiquid and mismanaged institutions from state coffers, has now appointed a new management to the bank.

“The acid test will be whether the CBK goes into the other banks. If you go along to some of these banks and you look at who owes them money, it’s like looking at the government. This closure has brought things a little closer to the nerve centre,” said Robert Shaw, spokesman on economic affairs for the Ford-Kenya opposition party.

Opposition MPs, who have highlighted the serious liquidity problems of TradeBank and other banks since parliament opened last month, are now expected to seize the opportunity to identify the political connections of the bank’s personnel as a key cause of the TradeBank collapse.

TradeBank is fighting to recover loans of 150 million shillings (£2.5 million) made to companies belonging to Kenya’s disgraced former energy minister Nicholas Biwott.

Such is Mr Biwott’s continued influence over government, despite losing his ministerial post after he was accused of involvement in the 1990 murder of the foreign minister, Robert Ouko, that financial experts in Nairobi believe he may have influenced the CBK’s decision to close TradeBank rather than other “political banks”.

Bad investments made by TradeBank since its foundation in 1985 lie at the heart of the collapse. Last month it accepted a leasehold agreement on a Nairobi shopping centre – the Yaya Centre – in settlement of 600 million shillings (£10 million) of debts owed by the former owner, Mr Biwott, despite a slump in property.

A report on TradeBank written last month by the Nairobi-based financial consultants Polo Financial Reports, described the bank’s “reckless management” and examined practices which clearly contravened local banking laws.

“Considering the penalties that stand to be inflicted on these errant officers, should they be convicted, PFR is not surprised that the bank’s top two directors should appear to have left the country in a great hurry,” the report said.


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