The saccos regulator barred the teachers’ Mwalimu National Sacco from injecting Sh2 billion into the troubled Spire Bank, putting the loss-making lender at risk of collapse unless they find a buyer for it.
A parliamentary probe has revealed that the Sacco Societies Regulatory Authority (Sasra) stopped the teachers’ cooperative from pumping additional money into the bank.
The regulator fretted the withdrawal of billions from Mwalimu National Sacco would hurt its financial standing.
The freeze has put pressure on the bank to quickly offer a stake to a strategic investor who is expected to inject billions into a lender that has breached regulatory capital levels.
Mwalimu has been supporting Spire Bank with funds after the bank accumulated losses of Sh9 billion, including a Sh3.4 billion conversion of teachers’ deposits into equity.
The teachers’ sacco has admitted the investments in the bank and in real estate triggered cash flow constraints at Mwalimu, prompting the regulator to intervene to stop further haemorrhage.
“The CEO informed the meeting that this was not possible [giving the bank Sh2 billion to sort out challenges] because the sacco was under administrative sanction — cease and desists sanction — by the Sacco Societies Regulatory Authority in terms of offering support to the bank. Additionally, members of the sacco are not willing to fund the bank,” says the Finance committee report.
The report reveals regulators — Central Bank of Kenya (CBK) and Sasra — have given Mwalimu up to June 2022 to resolve Spire Bank’s problems, leaving teachers with less than three months to find a buyer.
The bank has breached all the other minimum capital thresholds and has been operating under the forbearance of the CBK as it seeks a buyer.
The bank has struggled to get a strategic buyer to inject much-needed capital, with suitors walking out at the last minute.
Mwalimu has presented seven potential buyers to the CBK, but the regulator informed MPs it was carefully engaging the potential investors while trying to balance the conflict of interest issues and ascertaining their credibility.
Spire Bank has been unable to access cash from other banks due to its financial challenges, with its managing director Brian Kilonzo telling legislators it would need nearly Sh4.5 billion to manage liquidity and satisfy regulatory thresholds.
Mwalimu CEO Kenneth Odhiambo told MPs the bank had also requested funds from the CBK, which refused to give Spire Bank a long-term interest-free loan to recover.
The CBK has been providing short-term liquidity of up to Sh1.3 billion through reverse repos (repurchase agreements), which is short-term and not enough to revive the bank.
The bank’s balance sheet has rapidly eroded over the last five years, with assets plunging from Sh13.8 billion in 2016 to Sh4.5 billion by June last year and deposits reducing from Sh8.1 billion to Sh5.2 billion.
Its core capital has been eroded from Sh1.5 billion to negative Sh3.1 billion, forcing it to halt issuing loans.
CBK governor Patrick Njoroge told MPs he had not yet considered putting Spire Bank under receivership and that he was hopeful the bank could still recover.
He said receivership was a last resort and carried the risk of the teachers’ sacco being deemed an unviable shareholder in the financial sector, a position that would lock it out in future dealings in the sector.
Last week, a Dubai-based Singaporean fund made a new offer for the purchase of Spire Bank, presenting a tough choice for the new board of Mwalimu that is this week also expected to receive a formal buyout proposal from a rival local lender.
Feonirich Investment Pte on Thursday handed the Mwalimu board an expression of interest offer (EoI) for the purchase of the teachers’ bank.
Others who have shown interest in the teachers’ bank are a Hong Kong Stock Exchange-listed Chinese technology company that was last year licensed by the CBK to purchase a local microfinance bank.
There is also a group of local tycoons – representing Murang’a old money and political connections – who have tabled an offer to purchase the licence on a going concern basis.
The CBK had insisted that the strategic investor had to meet three stringent conditions, including proof of availability and the source of funds as well as experience in running a bank.
This comes ahead of an expected offer from a local large and highly profitable bank that on Thursday last week confirmed interest in Spire Bank during a closed-door session with the Finance committee of the National Assembly.
The board now has to decide on whether to go with an offer that will see the bank sold as a going concern or one that would see the local lender acquire Spire’s assets and liabilities.
Kenneth Otieno, a teacher from Siaya County, filed a case in court claiming Mwalimu would be forced to write off Sh9 billion from their assets and recapitalise the bank to the tune of Sh2 billion if it chose to sell the assets and liabilities before the bank can be wound up.
Mwalimu first acquired a 75 percent stake in the bank, which was then operating as Equatorial Commercial Bank, for Sh2.4 billion.
In 2020, it acquired the remaining 25 percent, offering it full control of the loss-making bank.