Business

Teachers now ready to cut ties with loss-making Spire Bank

Teachers now ready to cut ties with loss-making Spire Bank
By Dominic Omondi | January 13th 2022

Teachers will cut all links with the loss-making Spire Bank by end of March this year, lifting a heavy financial burden off the books of their Sacco.

In a communique dated January 12, Mwalimu Savings and Credit Society Chairperson John Ochieng told members that the Sacco will either sell or kill the lender, which they bought from the late billionaire Naushad Merali in 2015.

“It’s time for the Sacco to cut its losses emanating from the Spire Bank venture and that must be done now,” he said.

Mr Ochieng said the Sacco had not, and will not, inject any additional cash into the troubled lender. “We shall not tire to ensure that this matter is brought to finality despite efforts by disgruntled forces, whose sole aim is to be sabotage this worthy move through sensational media reporting designed to cause panic among members,” he said.

The Sacco also plans to go slow on its real estate business by divesting from Mwalimu Assets Management, offloading the remaining houses under a project at Kisaju in Kajiado County, and some land.

It will also put on hold capital-intensive projects until it has divested from the loss-making investments to protect the members’ deposits.

But it is the need to resolve the Spire Bank problem that is at the heart of Mwalimu Sacco.

This, they plan to achieve by, first, trying to find a suitable buyer - an uphill task for a lender that has breached all the capital adequacy and liquidity ratios.

With a negative minimum capital ratio of Sh3.4 billion as of September 2021, against the regulatory limit of Sh1 billion, an investor needs to pump in Sh4.4 billion for the bank to be in the industry regulator’s good books.

Moreover, the bank’s bad loans have already surpassed its total loan book, which stood at Sh2.1 billion during the period.

The second option, Ochieng said, is for the bank to be voluntarily wound up. This can only be done with the approval of the Central Bank of Kenya (CBK) on the condition that the company demonstrates the ability to meet all its liabilities. However, given that the Sacco is not willing to pump any more money into the bank, they might leave the onus of ‘killing’ the lender to the financial regulator.

The giant cooperative - the largest in Kenya by assets bought Spire Bank (then known as Equatorial Commercial Bank) from Mr Merali at Sh6 billion, hoping to get a foothold in the commercial banking market.

The bank turned out to be an empty shell that has haunted teachers to date.

Their returns from the Saccos have over the years been dwindling. While the bank was in trouble before the sale, matters were made worse when Merali withdrew his deposits amounting to Sh1.7 billion ($15.74 million) immediately after selling his stake.

This triggered panic, leading other customers to withdraw their deposits and further weakening the institution’s financial stability.

Since then, deposits shrunk to under Sh5.2 billion as of September 2021, from Sh14.3 billion in 2014. The bank has accumulated losses of more than Sh818 million in the period.

Spire Bank had 12 branches as at end of 2020. The lender’s latest financial results indicated a non-performing loan portfolio of Sh2.6 billion against net loans and advances to customers of Sh2.5 billion. Its liquidity ratio now stands at 3.8 per cent, which is way below the CBK requirement of 20 per cent.

This, coupled with other non-earning investments in real estate, plunged the Sacco into a leadership crisis, resulting in bitter board elections in March 2021 and management shakeup.