Kenyan banks ‘illegally funded by government’


Mark Huband in Nairobi

The Guardian, 23 March 1993


THE Kenyan government has lent millions of pounds to debt-ridden banks in contravention of local banking laws, despite promises after December’s multi-party elections to act more accountably.

Documents in the hands of the Guardian show that banks viewed even by their own creditors as illiquid are being lent billions of Kenyan shillings in contravention of a legal stipulation that deposits should not exceed 13.3 times the value of the banks’ share capital.

Banking sources confirm that several senior members of President Daniel arap Moi’s Kenya African National Union (Kanu) government are shareholders in the banks. Other members influence the decisions to make loans from state pension and other funds.

When the IMF suspended £28 million a month in balance-of-payments assistance in November 1991, it and the World Bank called on the Kenyan government to take decisive steps to curb corruption and improve financial accountability. Kenya’s foreign donors meeting unofficially in London last week were divided on whether to resume aid.

Loans to banks from the Kenyan state pension fund, the National Social Security Fund (NSSF), totalled 9.5 billion shillings (£176 million at the then exchange rate) by January 31 1993, NSSF documents show. The figure is now significantly higher and loans are continuing to be made to banks which NSSF documents show would collapse if immediate repayment were demanded.

Confidential papers presented to the NSSF board of trustees when it met last October to discuss the placing of funds with local banks show that at least four of the banks seeking funds were badly managed. Nevertheless, all were given funds, totalling 165 million shillings (£3.5 million), and had repayment of previous debts postponed.

One banking source said the local banks, most of which were relying on state funds because commercial depositors had lost confidence in them, had become “one big black hole”.

“They were set up to help their owners get rich quickly. They first lent money to other banks, then to companies owned by themselves. And whenever the politicians involved with the banks lose power they lose some of their deposits.”

A confidential NSSF document on requests for fresh loans to the Post Bank Credit (PBC) says the bank’s accounts show “a zero rate of return on assets”.

Nevertheless, a confidential NSSF statement of account shows that by the time of February’s 25 per cent currency devaluation it had lent 2 billion shillings (£33 million) to PBC, whose directors include senior civil servants. PBC in turn has lent heavily to companies whose financial record is causing increasing concern among politicians, financiers and foreign donors.

According to banking sources, PBC lent 230 million shillings on March 12 to a sugar processing company in western Kenya, the Nzoia Sugar Company. Despite £70 million in development assistance in 1988-90, the company is bankrupt. It has shown no profits and is crushing one-enth of the sugar planned. Vehicles are lying idle and machinery is breaking down.

The issue is expected to be raised when parliament reconvenes today. Questions will focus on the process of fund placement and the location of funds which do not appear to have reached the factory.

Accusations of corruption and the dubious placement of money from NSSF and other sources of public funds are angering professional staff in state institutions who see the mismanagement but are powerless to stop it. One source said officials in the treasury, ministry of labour and the office of the president place funds against professional advice.

Last year an NSSF trustee, T. D. Owuor, wrote to the labour minister demanding the temporary suspension of the NSSF finance manager pending investigation of alleged financial malpractices. No action was taken.


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