Forget about the Eurobond , Read about Nahashon Nyagah’s Eurobank Scandal

The talk of town – especially in the past few months – has been the Eurobond. But in case anyone has forgotten, there was once a Euro Bank which left a trail of disaster in Kenya’s history of banking. It, too, caused a political storm which only claimed a single soul – Mr Nahashon Nyagah.

As we unravel the mystery of the Eurobond, the Euro Bank saga was as vicious as it was scandalous.

It was the first to ever claim “the scalp” — as BBC put it — of Kenya’s shortest serving Central Bank governor.

Nyagah has of late been in the news for all the wrong reasons: The tussle over the multi-million-shilling Tatu City. But looks like controversy stalks the son of the late Jeremiah Nyagah, Kenya’s mercurial minister for Agriculture during the Jomo Kenyatta presidency.

While Tatu is a story for another day, Nyagah remains the least known of Kenya’s former Central Bank chiefs.

His fall with the collapse of Nairobi-based Euro Bank — and with it, pension savings for thousands of workers — was a big splotch to a man who was destined to rise. Or so, we thought. And that is for a reason. Central Bank had been the citadel that shaped the careers of various technocrats, an institution that brought forth the skill and capability of different individuals. At times, as history has showed, some have walked away with heads high while others have had a tail-between-legs departure.

In a few months, Central Bank will be 50, celebrating its monetary policy achievements and learning from the failures of some of the governors who reigned within its corridors.

While others have faded into oblivion, Nyagah is still a man in the news — at least for 2015.

WHERE IT ALL STARTS

The story starts in May 1966 when the bank was established under a Polish economist Dr Leon Baranski — who became the first governor. Baranski was not a governor per se, rather he was seconded from World Bank to oversee the establishment and takeover by Duncan Ndegwa — the suave bureaucrat who ran the institution for 15 years.

In terms of management, Ndegwa was in a class of his own since he was ranked as an outsider from the powerful Kiambu mafia, which controlled the political and economic game. At times, he was frustrated and thought of throwing in the towel. He says as much in his book. But he had one man who believed in him: Jomo Kenyatta — and so he survived until 1982 when he handed over to the flamboyant economist, Philip Ndegwa.

An alumnus of Makerere, Philip entered CBK as a rank outsider having come from Kenya Commercial Bank. A man who had trained in Harvard before returning to take over a senior position as adviser on economics and planning, Philip was in a class of his own in investing. He understood the money markets more than many others of his ilk and, by the end of his tour of duty, he had amassed loads of wealth. Today, his family commands a place in real estate, banking and insurance industry.

Also, he is credited for the role he played in the privatisation of Kenya Airways, and his management style when he was chair of Kenya Commercial Bank.

Compared to Philip, who stayed as governor for six years, Nyagah’s tenure fades into oblivion, although it can never match the reign of Eric Kotut — the man whose name was tarnished by the Goldenberg scandal — a multi-billion-shilling export compensation scheme that involved cheque kiting and forex theft. Cheque kiting involved taking advantage of the float to make use of non-existent funds and that is what Kamlesh Pattni’s Exchange Bank was known for.

Kotut chaperoned Goldenberg to an extent that his deputies thought he had lost touch with reality. “He was a fence-sitter,” said CBK official Jacinta Mwatela. His deputy, the late Eliphas Riungu, appeared to be the man in charge and would bang tables — according to Mwatela — if anyone resisted payment of Pattni’s fraudulent millions.

While lots of cleansing was done by Kotut’s successor, Micah Cheserem, the bank was like a lame duck. But to his credit, the straight-shooting governor managed to pump energy back into the institution and survived for six years. Today, he is one of the former governors holding a government position in the Commission of Revenue Allocation.

Cheserem is also a big horticulture farmer having invested some Sh164 million in the floriculture business. “The money was a loan from the European Investment Bank (EIB) on condition we invest it in export agribusiness. EIB credit is no longer available, though, because local banks are now offering loans,” Cheserem told the Nation early in the year.

It was after Cheserem’s departure in 2001 that Nyagah entered the fray — the first person to have risen through the CBK ranks to become a governor.

Nyagah entered at a time when President Moi was ending his final term and was under pressure from within and without Kanu on his successor. It is not yet clear why he settled on Nyagah – although he was known to have been a friend of his father during the Kenyatta years. Whether that informed the choice is neither here, nor there.

But a few deals signed before Moi left were to form a narrative that would finally see the fall of Kenya’s shortest serving CBK governor.

The first was a decision to award an exclusive currency-printing contract for a British firm De la Rue, which would later contribute to the acrimony between the British High Commissioner and the Kibaki administration.

The agreement signed by Central Bank during Nyagah’s reign had given – through single-sourcing – a 10 year multi-billion-shilling contract to the currency printer. Actually, this was the first contract that was cancelled by Kibaki after he came to power and after he appointed Dr Andrew Mullei as Nyagah’s successor.

In his letter Dr Mullei, who was hardly 10 days in office, wrote to the Finance Minister David Mwiraria to confirm the State House agreement: “[That] De La Rue be informed that a decision has been made to go for open tender for the supply of our notes for the period after December 2004, it being understood that De La Rue will be free to participate in bidding.”

But it is not the De La Rue deal that saw Nyagah’s fall. It was the Euro Bank scandal – which has today been forgotten.

Nyagah actually became the first governor of the Central Bank of Kenya to step down after being criticised for failing to prevent the loss of Sh1.4bn, which state organisations had deposited in Euro Bank.

The lost cash included Sh958m in pension funds deposited by state-owned health institutions, including Kenyatta Hospital and the then Health minister Charity Ngilu demanded that the governor take personal responsibility for the loss.

Although CBK had put Euro Bank into liquidation on February 21, the scandal seemed deeper than was being discussed in public.

The first to go was Kenya Revenue Authority Commissioner General John Munge who was a director of Euro Bank and had previously worked at the bank. Nyagah’s sin of omission was that he could have done better to regulate this bank and seen the weaknesses within.

BANKING CIRCLES

In banking circles, Euro Bank is still seen as one of the worst banking disasters — where embezzling and fraudulent deals reigned supreme.

While it had high-level personalities listed as co-shareholders and directors, the reality was that these were put there to dupe CBK. Why it never investigated the bank is never known but it used political connections to build a huge clientele in the parastatals.

Actually, the parastatal deposits accounted for 67 per cent of the deposits, which led critics to say “the ill-fated bank was in the business of milking state money not trading.” Again, its dud assets piled at 260 per cent of their equity fund size and 92 per cent of the debts taken by state firms’ heads and politicians were non-performing. That is what brought down Nahashon Nyagah.

His successor, Mullei, did not survive for long too and was embarrassed out of the CBK with a court case over abuse of office. He was later acquitted but by then he had been replaced by Prof Njuguna Ndung’u, the academic who survived through a myriad of challenges to pave way for Dr Patrick Njoroge.

Apart from Cheserem and Nyagah, the other governors are today out of the limelight.

While focus has been on the Eurobond, we can now recall how Nyagah went through the scam that was the Euro Bank.

Apparently, and like all political cases, the Euro Bank scandal has seen the cases dropped after the deaths of some of the key suspects. Some of these include: Dr Augustine Muita, former director of Kenyatta National Hospital (KNH), Paul Songok, former financial director at Post Bank Limited and Zachary Kamondo, one of Euro Bank’s owners.

Others acquitted by the courts include: Mr Munge — former Kenya Revenue Authority boss and Euro Bank director, Prof Julius Meme, a former director of Kenyatta National Hospital (KNH) and one-time Health permanent secretary, Isaiah Kiplagat, former managing director Post Bank Limited, Mr Solomon Muthamia, a former director and Mr Jamal Firdosh, also a director.

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