Spire Bank, formerly known as Equatorial Commercial Bank, is in the spotlight over allegations of increasing interest rates on a borrower's loan without seeking the approval of the Treasury Cabinet Secretary.
High Court Judge Nixon Sifuna found the bank had increased interest on a business loan advanced to Bear Afric (Kenya) Limited in February 2014 without the required approval as provided in the Banking Act.
The loan was for $843,055 (Sh108.9 million in current forex rate) and a term loan for Sh3.5 million. It was to enable the company finance the importation of electrical conductors in accordance with its contract with the Rural Electrification Authority.
"The first defendant did not provide any evidence that it obtained the requisite approval before increasing the interest rate to 32.5 percent. Therefore, I find that the agreed interest of 28.5 percent is applicable," said the judge.
Consequently, the court ordered the bank to render a true and accurate statement of account with the particulars of the debits made and the rate of interest charged, and the date when the loan became non-performing.
The statement is also expected to show the principal amount, when the loan became non-performing and the total interest charged.
The court noted that according to the charge offered as collateral, the loan interest was 20 percent and the default rate was 28.5 percent.
However, the bank indicated that the total amount owed by the borrower was Sh143.7 million with interest at 32.5 percent per annum with effect from April 30, 2016.
The bank was also ordered to issue fresh statutory notices reflective of the accurate arrears with the agreed interest applied.
The orders stemmed from a case filed by Bire Hussein, a director of the company and one of the loan guarantors, in 2016, challenging the bank's decision to refuse to release his land's title deed. He claimed that his title covered part of the loan amounting to Sh12.6 million, not the entire facility.
He claimed the bank refused to release the title or render the true statement of account without any justifiable cause.
The dispute started after the bank advertised the suit property for sale in July 2016, in exercise of its statutory power of sale to recover the outstanding loan amount of Sh143 million. The businessman alleged fraud, misrepresentation and illegality.
However, Justice Sifuna rejected the contention that Mr Hussein's liability was capped at Sh12.6 million. Similarly, the court found there was no proof of the claims of fraud and misrepresentation.
"I note that during trial, the Plaintiff admitted that he agreed to charge the suit property to Spire Bank as security for the bond. The charge secured the principal amount of Sh12.6 million. However, the charge was a continuing security," said the judge.
In its defence, the bank said that it was a condition precedent that the directors of Bear Afric, Mr Hussein and Lorenzo Kodzo Makonnen, would give personal guarantees for the loan facilities.
The court heard that the bank paid for the costs of importation of the conductors. It said the amount due was Sh143.7 million as of June 2016.
It stated that Hussein issued the guarantee but failed to settle the sum guaranteed and that the claim for the release of the title was contrary to the terms of the charge.
