Fired from Equity for Sh323 'error', ended up in court over missing Sh36m at ABC bank

Equity Bank branch on Koinange Street in Nairobi. [File, Standard]

The ‘error’ on this account was flagged by Equity Bank’s Risk and Compliance Department on May 28, 2010, during the preparation of the end month processes.

The department was counter-checking huge transactions for May, in line with the Central Bank’s (CBK’s) prudential guidelines. This one amounted to Sh116 million.

Boniface Kabue, a Treasury official, had earlier ‘inadvertently’ credited Sh323 to this account. He pleaded innocence. Equity, it appears, did not really have enough dirt on Kabue. But they handed him to the authorities anyway for investigation.

Months later, Kabue’s first employer, ABC Bank, snapped him back. Four years later, ABC Bank discovered that money amounting to Sh35.8 million had been fraudulently credited to a customer’s account in the Koinange Street Branch. In a rare turn of events, the suspect turned out to be Kabue.

At first, it appeared as though Equity Bank was being too harsh on a brilliant employee that was hired by ABC in 2009 while still in college. But in the long run, the bank might have made the right decision by being too cautious. Equity Bank Chief Executive James Mwangi must have had the last laugh.

And it appears being cautious is Mwangi’s modus operandi.

When the country first reported its first case of the Covid-19 pandemic - even before its negative effects began to manifest on banks’ loan books, Mwangi recalled a Sh9.4 billion dividend pay-out that the board had earlier declared.

Investors got jittery with the action and the bank’s share prices dipped at the Nairobi Securities Exchange (NSE). But that was not the end. The bank also pulled the plug on a deal to acquire two banks in Tanzania and Rwanda from Atlas Mara.

And when banks released their half-year financial results, Equity was among the top banks that had erected a massive wall in terms of loan loss provisioning.

This was aimed at insuring the lender against possible defaults by borrowers negatively impact by the Covid-19 pandemic. The increased provision initially ate into the bank’s profitability. The same was true for virtually all the top banks.

But the robust capital buffers and increased provisions seem to have paid off. Equity was one of the few banks that reported a big jump in profit. The bank announced a 64 per cent growth in profit after tax in the first quarter.

Dividend payout

The bank is now ready to pay a dividend by end of the year, with the board having crafted a policy that will see shareholders always get between 30 and 50 per cent of the profits.  “I know my shareholders are not happy with me. But who laughs last laughs longest,” Mwangi said in an earlier interview.

The profitability was driven largely by a combination of an increase in revenues and a check in the growth of total costs with loan loss provisions not featuring prominently in the bank’s balance sheet by end of the first quarter compared to the first three months of 2020.

Mr Mwangi laughs off any suggestion that he might be paranoid (that is not to say he is risk-averse). But he reckons it was like foresight.

“I am not prophetic, that is where James Mwangi comes in. But I am bold and courageous as a leader to make difficult decisions which most people will not make,” explained Mwangi in an earlier interview with the Financial Standard. “I am willing to risk being sacked for doing the right thing, and not to compromise great leadership.”

Mr Mwangi might talk of his passion for taming capitalism’s rough edges of greed or shared profitability but beneath this smooth talk is a ruthless risk overseer.

The pandemic, he says, brought unprecedented uncertainty that called for robust risk management tools. The bank, he said, needed to be cautious and prudent. The bank decided that the party that will take the ultimate risk is the shareholder and that is why the board had to recalled the dividend payout.

The Equity Group boss insists the decision to withdraw dividends was not due to a shortfall in the capital but because of uncertainty.

He adds that withholding of dividends showed that they were prudent thus luring investors. The lender received Sh80 billion from development partners last year because of the bank’s action in handling the uncertain business environment. “Because of our goodwill, we were fortified 10 times.” Equity’s, he says, was a twin strategy of being offensive and defensive.

Besides withdrawing the dividend offer to buffer its capital base, the defensive approach was also cancelling the Atlas Mara deal “because we were not certain how much effort would be required.” However, the decision saw the bank lose the lucrative Mara deal to KCB.

KCB has since snapped up the two banks and is only waiting for regulatory approvals to complete the deal. Also as part of the defensive, the bank made provisions of Sh26.6 billion, or 89 per cent coverage of all the bank’s risk of the bank.

If you added guarantees of Sh35 billion against loans that might go bad, the coverage rises to 120 per cent. On the offensive, said Equity Bank boss said the bank saw increased customer deposits.

“We also turned Covid into a good crisis and bought Banque Commerciale Du Congo (BCDC). It propelled us to become the biggest bank in DRC.”

BCDC Equity is the bank’s newest subsidiary and is the second-largest lender in Congo.

Mr Mwangi said if they had not withdrawn the dividend they would have been forced to raise Sh10 billion in the capital to acquire the bank. “If you remove Sh10 billion from our end-of-year shareholders’ funds, we could have fallen short of capital buffers. The minimum regulatory.”

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