SMB Bank probed over loan to Kenya consortium

State Bank of Mauritius, which is buying the assets and liabilities of Kenya’s troubled Chase Bank, is under investigation in its home country over a $195.15 million fraudulent loan to a Kenyan consortium.

The Mauritius lender is being investigated by the central bank of Mauritius after it emerged that the security offered for half the amount of the loan was not registered and that in fact, the title could have been a forgery.

In January this year, Kenya’s banking regulator accepted the sale offer from SBM Holdings, the parent company of SBM Mauritius, to buy out the collapsed lender, becoming its second bank acquisition after Fidelity Bank.

Mauritius media report that forensic experts from Ernst & Young have been investigating loan accounts at SBM after they were called in by the Bank of Mauritius.

“At the moment, a line of communication has opened between SBM Holdings and the Bank of Mauritius. This is to help better understand how a financial deal of this scale could escape the vigilance of two banking executves who worked on this loan project. The Bank of Mauritius is briefed on a daily basis with regards to the investigation progress,” L’Express weekly newspaper reported.

The EastAfrican has found out that one of the bank’s executives involved in the arrangement of the loan has resigned.

According to a source, the Kenyan consortium, whose identity has remained a secret due to bank-client confidentiality, deals in wheat, maize and drought relief supplies.

Apparently, half the loan amount was guaranteed through deposits in US dollars, while the difference, which was guaranteed through a mortgage, was not registered. This meant it could not be executed exposing the SBM Mauritius unit to a potential loss of more than $90 million.

According to L’Express, SBM executives visited Kenya several times between May and June in a bid to regularise the property registration.

However, it was its external auditors Ernst & Young ‘s revelations that the property title could have been a forgery that has now set off the alarm bells for the bank over this transaction.

“It is against the ethics of our profession to comment on the issues involving our client,” said EY Mauritius managing partner Gerald Lincoln.

SBM Bank in a statement refuted the media reports, saying it adheres to strict compliance with credit and lending guidelines set by Bank of Mauritius.

“Following a number of recent press articles relating to facilities granted to a Kenyan-based entity, the board of directors of SBM Holdings Ltd wishes to inform its shareholders and the public in general that SBM Bank (Mauritius) Ltd reviews and monitors significant exposures on a continuous basis.

Despite certain factual inaccuracies contained in the press articles, for reasons of banking confidentiality, no further details can be disclosed,” the bank said.

Drop in share price

The media reports resulted in a drop in the value of the bank’s shares on the country’s security exchange, prompting SBM to release the statement.

However, it advised shareholders and the investing public to exercise caution when dealing in SBM Holdings shares at the Stock Exchange of Mauritius.

“The risk appetite of SBM Bank (Mauritius) Ltd and its credit policies are kept under review by its Credit Committee, which ensures strict compliance with Bank of Mauritius credit and lending guidelines. SBM Bank (Mauritius) Ltd notes that no breach of these guidelines has occurred. At this point in time, neither SBM Bank (Mauritius) Ltd nor SBM Holdings have any reason to expect a financial impact on the Group arising from the facilities granted,” the bank said.

The Central Bank of Kenya said it accepted SBM Holding’s binding offer on January 4. It includes the acquisition of certain assets and matched liabilities from Chase Bank.

“SBM’s binding offer represents a viable proposal for the substantial resolution of Chase Bank, for the benefit of depositors and the strengthening of the Kenyan financial sector. It is expected that the transaction will be concluded upon the execution and operationalisation of the offer,” CBK said in a statement.

SBM’s offer is similar to the non-binding offer that was discussed with depositors on October last year.

It is now expected that this transaction will ensure the transfer of 75 per cent of the value of deposits currently under moratorium and the transfer of staff and branches of the existing CBLR operations.

SBM Holding is a leading financial services group and the second largest company listed on the Stock Exchange of Mauritius, with a growing international presence currently extending to Madagascar, India and Kenya, where SBM acquired Fidelity Bank in May 2017.

SBM has a market capitalisation of approximately $600 million, with the government of Mauritius as a significant shareholder, and total assets in excess of $4 billion.

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