Up to Sh3.4 billion of teachers’ savings in Mwalimu Sacco could be used to re-capitalise the struggling Spire Bank.
The bank, in an extraordinary general meeting (EGM) set to be held both virtually and physically at Mwalimu Towers today from 10am, will seek its shareholder’s backing through the capital injection as it fights to stay afloat.
Mwalimu Sacco is the sole shareholder of the bank, having gradually raised its stake in the lender over the years after buying out the late businessman Naushad Merali in a controversial transaction signed off in 2015.
Spire Bank is seeking to raise extra cash to meet the Central Bank of Kenya (CBK) minimum capital requirements.
A shareholders’ notice seen by the Nation shows that the bank wants to increase its share capital to Sh9.15 billion from the current Sh5.77 billion.
Mwalimu Sacco proposes to raise the amount through conversion of members’ deposits into equity by issuing an additional 680 million shares at Sh5 each to its existing shareholders.
The Sacco bought a 75 per cent stake of Equatorial Commercial Holdings Limited (ECH), which is the main shareholder of Equatorial Commercial Bank (ECB), and rebranded the lender to Spire Bank in 2016. In November 2020, Mwalimu Sacco increased its shareholding in ECH to 100 per cent.
“(The agenda of the meeting) is to consider and, if thought fit, authorise and approve the allotment and issuance of six hundred and eighty million ordinary shares to Equatorial Commercial Holding Limited” the company secretary, Africa Registrars, said in a notice ahead of today’s EGM, adding that the pre-emption rights of existing shareholders will not apply to the proposed share allotment.
CBK did not respond to our queries about the struggling lender’s recapitalisation plan. Sacco Societies Regulatory Authority (Sasra) head of corporate communications Yvonne Gatobu said the regulator would only comment on the matter after today’s EGM. Sasra is by law charged with regulating the Saccos sector to safeguard members’ deposits.
Spire Bank is currently desperate to shore up its capital after breaching all the minimum capital adequacy ratios set by CBK by large margins following years of erosion through losses.
As a rule, all banks must maintain a statutory minimum of Sh1 billion core capital. Spire Bank’s core capital, however, stood at negative Sh3.41 billion as of September 30, meaning it requires Sh4.41 billion to comply with the requirements. It is also in breach of other capital-related parameters such as total capital to total risk-weighted assets ratio, which in September stood at negative 107.7 per cent against the set minimum of 14.5 per cent.
Further, the bank’s liquidity ratio stood at 3.33 per cent against the required minimum of 20 per cent, marking a drop from 7.66 per cent in December 2020. The reduced liquidity was despite customer deposits rising to Sh5.21 billion in September from Sh4.79 billion at the end of December 2020.
Spire Bank’s gross non-performing loans stood at Sh2.62 billion in the nine months ended September, a drop from Sh2.67 billion a year earlier, and way above its Sh415.62 million loan book, indicating the depth of the financial meltdown facing the small lender.
Mwalimu Sacco has linked Spire Bank’s current cash woes to a Sh1.7 billion cash withdrawal by the late Merali days after selling the lender to the Sacco, triggering a chain of fallouts that has pushed the lender 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 other panicky customers to cart away cash from the bank, Spire Bank’s top officials revealed in April during a session with a Parliamentary Committee probing the financial mess at the lender.