Banks sit on billions in unclaimed assets

By MACHARIA KAMAU and JAMES ANYANZWA

Hundreds of billions of shillings in unclaimed financial assets could revert to banks, financial institutions and the Government, due to the absence of a scheme regulating their disposal.

And millions of impoverished Kenyans are completely unaware that they are the rightful claimants to some of these funds, in large part because the owners passed away without writing a will.

A Government appointed task force established that financial and corporate entities in Kenya may be holding up to Sh81 billion in dormant and unclaimed financial assets. This total could easily top Sh200 billion, if Government entities were included.

By definition, an unclaimed asset refers to any financial asset, usually intangible, being held for a person or entity that cannot be found or traced. The rightful owners may never reclaim a significant amount of such funds, because there exists no mechanism to return them to their owners, or transfer them to possible beneficiaries.

When reading this year’s Budget in Parliament, former Finance Minister, Amos Kimunya said this class of assets were particularly high in banking institutions, and remained there while the beneficiaries continued to live in poverty.

According to the findings of the Task Force on Unclaimed Financial Assets, commissioned by the Government in March 2008, most holding institutions write the assets to their profit and loss accounts between two and seven years, after which their owners cannot claim them.

Institutions left out by the survey, and believed to be holding large amounts in unclaimed assets, include the Kenya Revenue Authority and other public sector financial bodies, utility companies and the Judiciary, which receive money from the public in the form of bails and bonds.

The Task Force, which released its findings last week, was inaugurated to determine the nature, extent and value of unclaimed assets in relevant markets in Kenya.

POOR RESPONSE

Its findings were based on responses from private sector companies. The Task Force, however, noted that a significant number of companies approached failed to respond to the survey, while some of the respondents may not have given the accurate amount of money they hold in unclaimed assets.

For instance, in the pensions industry, where retirees have over time had difficulties in accessing their retirement packages, only one firm responded, but only partially, while in the insurance sector it was difficult to obtain adequate responses from which to draw inferences and conclusions.

"The responses from private sector participants lacked comprehensive and accurate reporting," said Mr Joe Ngigi team leader of the Task Force on Unclaimed Assets.

Banking institutions hold the largest amounts estimated to be between Sh26 billion and Sh55 billion.

According to the survey, which sampled 44 of the 45 targeted banking institutions, 45.6 per cent of all unclaimed financial assets in the banking industry have been dormant for two to seven years.

An estimated 26.8 per cent of the unclaimed balances were separated from the owners for between six months to two years, while less than one per cent of retail accounts were unclaimed, or remained dormant deposits.

RISING STEADILY

Another 7.8 per cent of all accounts were found to be dormant. In the capital markets, 30 of the 127 polled firms (listed companies) and one stockbroker participated in the survey.

The quantity of unclaimed assets has been increasing steadily. Among the listed companies, the unclaimed dividends for the 30 participants who responded to the survey totalled Sh1.5 billion in 2007, a 50 per cent increase from Sh1 billion in 2006.

The pensions industry has between Sh10 billion and Sh20 billion, while listed companies hold about Sh1.5 billion in uncollected dividends.

The study looked at unclaimed assets in the last three years.

"This whole process will look at how the assets will be reunited with their owners, and also ensures that nobody loses their property," said Mr Barrack Amollo, the Deputy Secretary in the Ministry of Finance.

Amollo said the Government was committed to seeing such assets revert to their owners.

The Task Force had members drawn from all sub-sectors in financial services, as well as Government institutions.

It recommended the enactment of legislation to govern the management of unclaimed assets, and the establishment of an Unclaimed Assets Trust Fund to pool together unclaimed assets in the country.

Among its responsibilities will be to conduct inventories, and provide recommendations for appropriate legal, regulatory and institutional framework to govern assets.

According to the report, the banking code specifies dormant accounts as those where the volume and nature of transactions has fallen to a level believed to be inappropriate for the account or product type.

"Account owners are notified when accounts are classified as dormant due to insufficient account operations over a given period of time, and advised of actions required to re-activate accounts," says report.

FORENSIC AUDIT

The Investor Compensation Act provides for unclaimed dividends to be collected after seven years.

Beneficiaries are then paid from the collected funds when they are identified. The Task Force recommended the drafting of an Unclaimed Assets Bill that specifies legal definitions and determination of unclaimed assets, establishment and duties of an Unclaimed Assets Fund Board of Trustees, and the establishment and scope of an Unclaimed Assets Trust Fund.

The Task Force also proposed a follow-up on an estimated Sh1.3 billion on unpresented cheques, and a forensic audit of the unclaimed assets values reported, and presentation of the Bill to Parliament for enactment. Other proposals include setting up the Unclaimed Assets Authority, and the Unclaimed Assets Trust Fund. "This Fund should be managed professionally," said report.

And while companies may take blame for holding property not belonging to them and eventually writing it back as their own, Kenyans are also to take a share of the blame.

"Lack of wills by many people was one of the most striking features during the survey, and it is a key factor as to why, in instances of death, one’s kin are unable to trace the assets," said Ngigi.