Kenya's National Bank warns of profit decline

Kenya's National Bank has warned its 2015 earnings would fall by at least a quarter due to bad loans, a day after saying its chief executive and five top managers had been placed on compulsory leave pending an internal audit. In a statement on Wednesday, the bank said its portfolio of non-performing loans had increased towards the end of 2015, leading to a sharp increase in the level of impairment charges it was facing.
Yet Munir Ahmed, the chief executive who was sent on forced leave by the bank's board after serving for three and a half years, told Reuters there had been a disagreement with the central bank and external auditors on levels of provisioning for bad debts. "It is just an over-reaction to the provisions that the central bank has enhanced at all banks," Ahmed said by phone, referring to the board's decision to place the executives on leave. The central bank said on Tuesday it welcomed the board of National Bank's actions to strengthen the bank while ensuring its operations continued smoothly.
The board said its decision to send the six managers home showed its commitment to corporate governance rules and central bank's guidelines. But Ahmed disputed this view. "Corporate governance is generally the responsibility of the entire board so to put that on the CEO's office is both wrong and unnecessary," he said. Ahmed accused the central bank of being rigid with its rules on the treatment of borrowers, demanding the lender makes full provision for problem loans, even when a borrower has provided a credible account of delays in repayments.
"Those are the kind of things that are open to interpretation, have always been open to interpretation and if rules are to be changed, they should be done in a bit more transitional way," Ahmed said. Commercial lending rates jumped to above 20 percent in the second half of last year, driving up non-performing loans across the industry. Two Kenyan lenders, Imperial and Dubai, were placed under statutory management by the central bank last year, causing central bank Governor Patrick Njoroge to vow to tighten supervision of banks. National Bank's board said the compulsory leave for Ahmed and the other managers did not mean they were guilty of any offence. "We reiterate that the internal process is not an indictment on the said managers but an opportunity to ensure a fair, transparent and independent audit process," Mohamed Hassan, chairman of National Bank's board, said in a statement.