Teachers have walked the proverbial extra mile in efforts to save their bank.
In attempts to bring Spire Bank back to profitability, Mwalimu National Sacco has converted its deposits into share capital worth Shh3.4 billion.
According to documents seen by the Nation, Mwalimu National has increased the authorised share capital of Spire Bank from Sh5.775 billion — made up of Sh1.155 billion ordinary share of Sh5 each — to Sh9.175 billion — made up of Sh1.835 ordinary shares of Sh5 each — by adding an additional Sh680 million ordinary shares.
The shareholder has previously converted deposits equal to Sh1.7 billion since acquisition in 2015.
While attempting to comply with the regulatory requirements of the Central Bank of Kenya (CBK), the capital injection is expected to create solvency in its balance sheet, a move that will see its assets growing more than its liabilities.
This capital injection is expected to make the bank attractive to investors whom it has has been eying and is said to be already considering several options.
The enhanced capital will be used for the general business purposes of the bank to boost the liquidity ratio of the lender which is in the middle of a turnaround.
Besides getting it out of the woods by raising core capital to a positive score, the move by the teachers is also expected to enhance customer confidence and attract more deposits.
Moreover, the bank’s counterparties will have more confidence trading with it and granting such lines as overnight lending, trade finance and forex.
The investors approved the allotment and issuance of Sh680 million ordinary shares to Equatorial Commercial Holdings Limited.
Spire bank is pursuing several strategic initiatives to turn around the business.
These include actively looking for both debt and equity financiers, pursuing a strategic investor with both financial and technical capabilities, engaging current customers to grow confidence and raise more deposits, enhanced debt recovery and cost management initiatives including rent renegotiations.
Mwalimu National Sacco has supported the operations of the bank over the years, which has included several conversions of deposits to equity. This support has, however, not been enough to mitigate against liquidity constraints and the bank has turned to the Central Bank for borrowing through the reverse repo to stabilise its operations.
A reverse repo is whereby commercial banks borrow from the Central Bank on short term basis at the prevailing Central Bank rate against government securities held by the commercial banks pro rata.
As of June 30, 2021, the repo balance was Sh1.3 billion and the banks liquidity position was 4.33 per cent against statutory limit of 20 per cent. A bank’s ability to lend is mainly guided by its regulatory capital position.
Spire Bank started having liquidity challenges in 2016 following the collapse of Imperial Bank and Chase Bank, which led to a significant flight of deposits to Tier 1 banks across the banking industry.
Last year, it sought shareholders’ nod to engage potential suitors seeking acquisition of a 100 per cent stake in the bank.
In November last year, Mr Naushad Merali sold his remaining 25 per cent stake to Mwalimu National Sacco for an undisclosed fee in a deal that gave teachers full control of the lender.
The sacco, which is owned by teachers, first acquired a 75 per cent stake in the lender, then operating as Equatorial Commercial Bank, and owned by Mr Merali. Last year, it acquired the remaining 25 per cent, offering it full control of the bank.