Court battle reveals HF’s Sh4bn hidden bad loans

Former Housing Finance Company (HFC) director Kevin Isika’s wrongful termination suit has blown the lid off the bank’s inner dealings, including alleged cooking of books and illicit insider lending.

Mr Isika says in a suit he has filed against the mortgage lender that high-ranking executives have over the years colluded to hide a massive Sh4.3 billion bad loans mountain, offering shareholders and regulators a false financial position.

The former director of credit claims in court filings that Housing Finance Group managing director Frank Ireri and his HFC counterpart, Sam Waweru, engineered his sacking after he raised questions about the risk that such a huge and hidden bad loans book posed to the company.

Mortgage lender HFC is a subsidiary of the HF Group, which also has an insurance solutions arm, a real estate arm and a foundation that aims to train one million artisans in the informal sector.

Mr Isika claims that Mr Waweru and Mr Ireri have ensured that the mortgage lender’s bad loans are reported as Sh5 billion, rather than the actual Sh9.3 billion.

The two executives, Mr Isika says, have been thwarting attempts to recover or list the hidden bad loans in HFC’s books.

“The bank has been reporting a non-performing loans figure of Sh5 billion. However, the real position is that non-performing loans are Sh9.3 billion, almost double the published amounts. This information was notified to the managing director (Mr Waweru) and the group managing director (Mr Ireri) via several emails starting from December 2015,” Mr Isika says in correspondences filed in court.

The suit papers further claim that a select group of Housing Finance employees have been exploiting a loophole in the bank’s system to exempt some borrowers from interest on loans taken, in return for kickbacks.

Mr Isika says that as head of credit, he investigated and found that the bank lost more than Sh200 million in the interest-exemption scam but that the actual figure could be significantly higher.

HFC has, in a response to the suit claims, dismissed the claim insisting that the matter had been investigated and resolved, and that Mr Isika never raised the issue of non-performing loans in bi-monthly meetings chaired by Mr Waweru.

The bank says in its response that it was only after Mr Isika was laid off that he wrote to the HF Group board of directors detailing his version of the goings-on at the bank.

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The correspondence with the board has been attached as evidence in Mr Isika’s court case against HFC.

A clerk in the bank’s retail projects department, David Muchiri, who now owns 40 acres of land in Nairobi and collects rent of over Sh1 million monthly despite earning less that Sh100,000 per month, is named as one of the beneficiaries of the interest omission scheme.

“In effect, the monster that is non-performing accounts kept on being fed with fraudulent accounts. At this moment, fraud is getting bigger and more brazen and it is well known that credit has become ineffective and toothless due to the continued negative propaganda,” he adds.

Deal with matter conclusively

The bank, however, insists that Mr Ireri formed a committee to investigate the alleged interests omission scam, and that the probe dealt with the matter conclusively.

Mr Isika claims that the committee was compromised, as it was headed by finance director Constance Barasa, who was involved in previous cover-ups of irregularities at HFC.

Mr Barasa has since been promoted to HF Group finance director.

Human resource general manager Ben Lanya, however, insists that Mr Isika was fired for using unprofessional language in the workplace and being absent without permission.

He adds that HF Group has a strict policy on corruption that allows thorough investigation of any claims against employees, and that nobody from the credit risk department was found to have done any wrong as claimed by Mr Isika.

“Further concerns had been brought to Mr Isika’s attention regarding his threatening of staff and lack of clarity in credit approvals. There have been several instances where the claimant had disregarded various lawful instructions,” Mr Lanya says. Mr Isika holds that after Mr Waweru was appointed MD of HFC, he clipped the credit risk department’s powers by taking overall authority of credit approvals.

The former director of credit risk claims that there are eight HF employees that customers made grave complaints against but were protected from investigations.

Three of the said employees — former general manager for liabilities Geoffrey Kimaita, former head of projects Steve Kivuva and former relationship manager Kennedy Okatch — resigned, Mr Isika says.

Ex-project clerk Mactouff was fired for forgery and fraud, but that HFC has shielded him from police investigations despite visiting the mortgage lender shortly before Mr Isika was sacked, the former credit boss adds.

The correspondence shows that complaints have been filed against head of collections Geoffrey Mwaura, head of legal Belinda Nganga alongside Mr Mwaura and Mr Kimaita for extortion of bank customers to stop attachment of their property but no action has been taken.

It further shows that head of internal audit Joseph Ngare made Sh20 million from an unspecified fraud scheme that only saw junior staff fired upon discovery.

Assistant manager recoveries Moses Ndung’u has allegedly been involved in irregular dealings totalling over Sh1 billion despite being on a salary of Sh134,000 per month, according to the email to the HFC board.

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