The rise and fall of Trade Bank: A tale of the sleazy 90s

Trade Bank depositors queue for a refund of their deposits at the bank's valley road offices in Nairobi in April 1994. [File, Standard]

Integrity Centre, the home of Kenya’s anti-graft czar on Valley Road, once housed a banking empire that spectacularly collapsed in the early 1990s.

Trade Bank had established itself as one of the most innovative and visionary local financial institutions.  

It is where titans such as Equity Group boss James Mwangi, who now oversees an over Sh1 trillion asset-rich bank, cut their teeth.

It fashioned itself to attract small depositors. One only required an identity card and a passport-size photo to open an account.

This is in contrast with other banks that asked for a host of documents, such as letters of introduction and payslips.

It lived up to its slogan Hakuna Maneno (no problems). At Trade Bank Centre, now Integrity Centre, the bank operated a drive-in banking service, allowing account holders to access services from their cars.

But in the end, it was just another “political bank,” a highlight of the 1990s banking era where dozens of financial institutions collapsed.

Banks were extending a huge share of their loans to politically connected shareholders. Trade Bank was the brainchild of the politically connected Alnoor Kassam, who at 35 had built a banking empire. The cunning businessman was said to have fled the country after the collapse. He outsmarted immigration officials sent to confiscate his passport, escaping through a back door.

Its woes fully manifested when it allegedly loaned the late politician Nicolas Biwott Sh600 million for the development of Yaya Centre, which he defaulted on. This drove it into serious liquidity problems and had also violated the Banking Act as the loan was in excess of its capitalisation.

Trade Bank was then forced to buy a stake in Yaya Towers, further plunging into liquidity problems.

“This customer subsequently defaulted on his loan, thereby threatening the very survival of the bank itself. In the crisis management that befell it, it was forced to purchase an interest in Yaya Towers for Sh755 million, thereby valuing Yaya at Sh1.4 billion,” said a secret independent report from a financial consultancy firm.

The report warned that failure by Trade Bank to sell its stake in Yaya Towers would lead to dire liquidity problems. If Trade Bank had succeeded in selling at a price above Sh860 million, added the report, all “liquidity problems would evaporate.”

However, the late Biwott vehemently denied any involvement with the collapse of Trade Bank, terming such reports “baseless and malicious.”

In 1993, the Central Bank of Kenya (CBK) ordered the liquidation of Trade Bank and its two subsidiaries - Trade Finance and Diners Finance - after being in statutory management for several months.

CBK said it had detected irregularities in the management of the bank, with the police launching a manhunt for Kassam – the bank’s chairman - and the managing director Ian Rayner. The bank was said to have been experiencing liquidity problems since 1992 “due to a variety of reasons, including a run on deposits, investments in fixed assets, and other non-bank activities.”

The apex bank had helped Trade Bank recover huge amounts of money from its debtors, which helped stabilise operations. In 1990, the Capital Markets Authority (CMA) thwarted the lender’s attempt to go public at the then Nairobi Stock Exchange (NSE).

According to CMA, the bank had failed to fully disclose crucial information, which prevented the public from making an informed investment decision.   

This saw the bank have a private placement and ceased being family-run. Kassam had founded it together with his brother Iqbal Kassam.

Shareholders included Trade Bank Group, Concorde Properties, and the over 500 individuals who’d acquired shares through the private placement.

Customers would make a beeline for their deposits, resulting in bitter exchanges with bank tellers. The maximum amount one could withdraw in a day had been reduced from Sh20,000 to Sh1,000.

Despite the government’s knowledge of the depth of Trade Bank’s problems for years, then Finance Minister Musalia Mudavadi would tell Parliament that it saw no “need to intervene in a bank’s management.”

The liquidator was the Deposit Protection Fund, now Kenya Deposit Insurance Corporation (KDIC), which is currently in the process of liquidating Imperial Bank, Chase Bank and Charter House Bank. Trade Bank traces its roots to 1984 when it was incorporated and started operations as a commercial bank the following year. By the time of its collapse, it was the ninth-largest bank in Kenya with four branches in Nairobi, one in Mombasa and agencies at the Jomo Kenyatta International Airport (JKIA) in Nairobi, the Moi Airport, Mombasa and in Diani.

The Deposit Insurance Fund later moved to sell most of its assets, including Trade Bank Centre by a private treaty.

The reserve price quoted by auctioneering firm Tysons was put at Sh250 million.

The advertisement is said to have also attracted Biwott who wanted to acquire lost ownership. It was also rumoured that Kassam had sold the bank to a South African hotel chain for Sh1.5 billion before fleeing the country. Foreign press like The Guardian would report that Trade Bank may have been “sacrificed” to impress Bretton Woods institutions such as the International Monetary Fund and the World Bank that the government was committed to economic reforms, hoping that aid taps would be reopened.  

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