What you need to know:
- Report by the National Assembly’s Finance committee revealed that Spire Bank has largely relied on support by the CBK.
- Reverse repos are commonly used by CBK to advance short-term capital to businesses during cash flow challenges.
Mwalimu Sacco-owned Spire Bank has been surviving on emergency loans from the Central Bank of Kenya (CBK), a new report has revealed, even as MPs demanded investigations into the lender’s cash woes and its suspect acquisition from deceased tycoon Naushad Merali.
A report by the National Assembly’s Finance committee revealed that Spire Bank has largely relied on support by the CBK through the reverse repo facility to keep its operations going.
Reverse repos are commonly used by CBK to advance short-term capital to businesses during cash flow challenges. They involve purchase of government securities by the CBK from commercial banks.
“In order to mitigate its liquidity constraints, the bank has been borrowing from the Central Bank of Kenya through the reverse repo to stabilise its operations” Mwalimu National Sacoo chief executive officer Kenneth Odhiambo said in a submission to the committee.
Spire’s Bank’s repo balance was Sh1.3 billion and the lender’s position at 8.91 per cent against a statutory requirement of 20 per cent as at December 31 last year, underlining the gravity of the matter.
Mr Odhiambo also disclosed that the Sacco, which has a 75 per cent stake in Spire, has supported the lender over the years through conversion of deposits into equity or share capital and daily liquidity injection.
Recently, it was revealed that Spire Bank requires Sh2billion to survive, a sum that neither Mwalimu Sacco nor the CBK is willing to finance. CBK declined the long-term facility request by the bank and instead urged the lender to carry on with the repo facility. The apex bank, however, approved Spire’s operation model.
Mwalimu Sacco, on its part, insisted that the bank finds a strategic partner to inject the required working capital or push for an interest-free loan from CBK.
The Finance committee urged CBK to address the bank’s challenges as stipulated in law in the interest of teachers.
“Central Bank of Kenya and the Sacco Societies Regulatory Authority should give the bank adequate time to find a strategic investor,” the committee said, noting that the two regulators had given Spire Bank a deadline of June 2022 to solve its woes.
Chain of fallouts
“Additionally, the Ethics and Anti-Corruption Commission and the Directorate of Criminal Investigation carries out investigation immediately to establish whether there was any foul play during the purchase of the bank and the current situation of the bank,” the committee added.
A Dubai-based Singaporean fund last week made a new offer for the purchase of Spire Bank. Feonirich Investment Pte Ltd last Thursday handed the Mwalimu Sacco board an irrevocable expression of interest offer for the purchase of the teachers’ bank.
Mwalimu Sacco has linked Spire’s woes to a Sh1.7 billion withdrawal by Merali days after selling the lender to the Sacco, triggering a chain of fallouts that has pushed the bank to the brink of collapse.
Mr Merali’s huge withdrawal in 2016 – an equivalent of a fifth of the bank’s Sh8.54 billion deposits at the time – prompted panicky customers to cart away cash, officials revealed in April during a session with a Parliamentary committee.
Data presented showed that the bank lost Sh2.2 billion in the three years following Mr Merali’s move, with the withdrawal of 81.3 per cent of the cash or Sh1.79 billion happening in under a year.