Sh40bn injection needed to revive Imperial Bank, says CBK official

Troubled Imperial Bank will require as much as Sh40 billion in new capital to be put back on track, a Central Bank of Kenya (CBK) official involved in the revival proposals said.

The new capital will cover the deposits and loans that were outside the official balance sheet and financial statements, generally referred to as parallel banking.

In terms of deposits, the official financial statement showed the bank held Sh57 billion indicating it was within the threshold of capital set by the law, but court papers revealed there was nearly Sh20 billion more that had not been officially disclosed.

In terms of loans, S4 billion had been lent without due process as it was not factored into the financial statements thereby making the capital ratio relative to assets look rosier than was actually the case. One of the customers, EW Tilley (Muthaiga), admitted receiving Sh10 billion and expressed readiness to return it.

To cover for both the previously undisclosed deposits and loans, the bank and the regulator are discussing a proposal to inject new capital including conversion of some of existing deposits into equity.

“The institution requires at least Sh40 billion to get back on track. There is a delay because some of the shareholders seem to be still thinking about it. The regulator is obviously not happy with this slow development,” said the source who cannot be named due to the sensitivity of the matter.

The CBK has been growing impatient with the directors and last week the tension boiled to the surface. In a statement released Friday the regulator said it was concerned that the shareholders were dilly-dallying in the implementation of a proposal to pump in cash into the lender and put in security for the loans that had been given out irregularly.

“The CBK notes with concern the delay by shareholders to provide adequate assurances for the implementation of this proposal, and urges a quick resolution of this matter,” said the CBK in the statement.

The CBK said that together with the Kenya Deposit Insurance Corporation (KDIC) they were in regular contact with the company’s shareholders with a view to working out an arrangement to see a prompt reopening of the institution.

“The proposal includes an injection of new capital by shareholders, the conversion of a percentage of large deposits to equity, and recovery and collateralisation of fraudulent loans,” said the CBK.

The CBK also warned depositors against being misled or defrauded by being asked to convert their deposits into equity in the bank. Information on such conversion could only come from either the CBK or KDIC, the regulator said.

The bank had 53,000 depositors most of whom with less than Sh100,000, which is covered under by the KDIC.

However there were still some depositors who had more than Sh100 million banked with the institution.

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“The CBK is also aware of misleading letters that were sent to some depositors requesting their authorisation to convert their deposits to equity in the bank. These letters are fraudulent and all communications about the bank will be made only by the CBK or KDIC,” said the CBK.