KCB locks in Sh5bn Imperial Bank assets in buyout bid

KCB Group #ticker:KCB has cut by half the portion of loan book it intends to take over in the collapsed Imperial Bank after its due diligence revealed over Sh5 billion loans that are not fully covered by collateral.

CEO Joshua Oigara Thursday said KCB’s initial review had identified Sh10 billion loans that the lender intended to take over out of Imperial Bank’s nearly Sh25 billion loan book, but the amount has dropped sharply after the lender failed to validate a huge chunk of the assets.

“It has taken long to resolve the transaction. The assets do not match. Initially we had estimated $100 million (Sh10 billion) as we announced last year, but what we see after due diligence is that this has come down to less than half,” Mr Oigara said.

“We see less loans that we will be able to take now even though this does not stop us from going back and relooking into the entire portfolio of the original loans.”

He explained that it is important for KCB to buy loans that have enough collateral.

This means the total assets KCB will now take will be less than what it had initially anticipated, leaving Kenya Deposit Insurance Corporation (KDIC) with the laborious process of trying to realise something for the depositors.

“A big number of loans are going to remain with KDIC. We are only buying the good loans. If finally we take half, it will be because that is what is available in reality,” said Mr Oigara.

The outcome of KCB’s due diligence deals a blow to depositors of the lender under receivership and shines a spotlight on the quality of internal and external audit of the bank for the years it was allowed to operate under the supervision of the Central Bank of Kenya (CBK).

Imperial Bank was placed under receivership on October 13, 2015. The number of depositors, as at receivership date, was 49,939 with Sh85.06 billion deposited in the lender, according to KDIC data.

CBK had in a December joint statement with KDIC announced that KCB would complete the loan verification process within the first quarter of 2019 and unlock further recoveries for depositors.

KCB has been combing through Imperial’s books to identify good loans.

With yesterday’s announcement, the reduced loan book amount will have an impact on the amount of deposits that KCB will take over and pay out within three years, as had been agreed.

Mr Oigara said that only after identifying loans could they match with deposits. “We are assuming only liabilities (deposits) that we have verified but must be matched with the assets (loan book) we are taking,” he said.

“Our proposal remains to take some assets and link with equivalent liabilities. You cannot take deposits separate from the assets you are buying.”

KCB’s initial plan was to pay out 25 percent of deposits it will take within one month, another 25 percent within a year then the next 25 percent within the second year before wrapping up the last payment in the third year.