Kenyan teachers are set to inject another Sh375 million as capital in loss-making Spire Bank through a shareholder loan meant to help the lender boost its capital ratios.
Mwalimu National Sacco, which owns 75 per cent of Spire, will fork out the cash in a deal where the troubled tier III bank is seeking to raise a total of Sh500 million from shareholders to shore up its thinning capital base.
Spire, formerly Equatorial Commercial Bank, saw total capital to total risk-weighted assets ratio drop to 16.27 per cent as at December 2016, which is 1.77 percentage points above the Central Bank of Kenya statutory minimum of 14.5 per cent.
This ratio – crucial for the bank to grow its loan book – was at 17.45 per cent in December 2015.
“The cash has already been provided by shareholders and is undergoing regulatory approval,” said Tim Gitonga, chief executive at Spire Bank.
“We are already looking for additional funding lines and we have commissioned advisers to this extent,” Mr Gitonga told the Business Daily in an interview.
In the red
Spire Bank sank deeper into the red last year with a third consecutive full-year loss since it was acquired by the giant teachers’ credit union from billionaire businessman Naushad Merali.
The lender posted a net loss of Sh751 million in the period ended December 2016 compared to loss of Sh486 a year earlier and was Sh326 million in the red in 2014.
The performance is attributed to higher provisions for non-performing loans which nearly doubled to Sh667 million, declining interest income which dropped nearly a fifth to Sh1.71 billion, and a shrinking loan book in the period under review.
“The board made deliberate decision to take additional provisions,” he said, with some of the bad loans said to be from Southern Credit, which merged with then ECB in 2010.
Spire Bank has held two rights issues in as many years, raising Sh500 million in December 2015 and a further Sh1 billion mid last year.
Despite the fresh capital raised, accumulated losses – which currently stand at Sh2.7 billion - continue to wipe off Spire’s capital which fell to Sh1.81 billion from Sh2.06 billion in 2015.
Mwalimu Sacco in 2014 invested Sh1.6 billion to acquire a 51 per cent stake the bank, and later in 2015 pumped in an another Sh1 billion for an additional 24 per cent stake.
Spire continued its dividend drought, meaning teachers will have to wait longer to get a return on their investment at the bank.