January 20th 2018

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CBK forced us out,” say Chase Bank’s former directors

The directors also allege that Deloitte, not understanding Islamic banking principles, classified assets as liabilities, hence their qualified opinion on the books which sparked panic withdrawals and forced the bank under.

By Waithera Murugiswaithera@kenyafreepress.comFriday, 10 Jun 2016 20:51 EAT

Former directors of Chase Bank, who are widely believed to have resigned their positions in the wake of panic withdrawals from the bank between April 5-6, yesterday claimed that it was the Central Bank that demanded their resignation. Chase Bank is currently under statutory management, with Kenya Commercial Bank overseeing its operations.

Chase Bank’s former directors who appeared before a committee of Parliament investigating the bank’s collapse suggested that auditors and the Central Bank might not have a comprehensive understanding of the concept of Islamic banking that is taking root in Kenya. Also evident was the potential for bank directors to give bank loans to entities in which they have interest under the Islamic banking model where the same should be held in conventional accounts.

On May 4, Deloitte auditors, appearing before the National Assembly’s departmental committee on finance, planning and trade, maintained the same views in their audit report that indicated that Chase Bank directors had advanced themselves huge insider loans that contravened banking regulations. Yesterday was the turn of the current and former directors of the bank to appear before the same committee.

The former directors accused Deloitte of professional ignorance, alleging that Deloitte mistakenly re-classified Chase Bank’s Islamic banking assets, musharakah, as insider loans as opposed to assets. The confusion was over properties that had been acquired over a period of three years between 2012 and 2015, when Deloitte was already the bank’s auditors.

The directors said that Deloitte auditors raised questions in respect of the properties during their audit but they did not listen to explanations on its Islamic products where they wanted it treated as a normal loan.

Zafrullah Khan, a retired director under whose name some of the properties were held, said that Deloitte had not questioned the holding of the properties by a Special Purpose Vehicle (SPVs) during any other audit period, and in fact had previously agreed with the “beneficial ownership” was granted in the bank.

The directors said that Chase Bank managers emphasized to Deloitte that treatment of the Musharakah assets as loans and advances would be in violation of the principles of Islamic banking and therefore a breach of trust with Islamic depositors and Banking Act.

The directors also accused Deloitte of acting in bad faith by submitting the audited accounts directly to the Central Bank of Kenya (CBK) and then published their audit report with the qualified opinion in the dailies without approval of the bank’s board.

Based on the report, the CBK Governor Patrick Njoroge said the directors had advanced themselves interest-free loans, which they then claimed were Islamic banking assets when they were confronted by the auditors. However, the directors had difficulties pointing out the income the bank accrued from the Sh6.9 billion invested in Chase Iman’s joint ventures financed under Musharakah and held through special purpose vehicles.

The directors’ testimony left grey areas about whether Khan’s properties, which he said were part of his retirement package from the bank, were based on a commercial criteria to favour an insider or genuine religious practice.

When Khan was asked whether he and the former Managing Director Dancun Kabui, resigned on their own volition, he said no. They were summoned to a meeting at CBK and asked to step aside.

The directors said that all monies that were queried by Deloitte or suspected to have been embezzled were fully back in the bank, a revelation that, if true, will also raise questions about whether statutory managers should remain in the bank.

Waithera is a staff writer at the Kenya Free Press.

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