Treasury clears Spire Bank's acquisition by Equity

Spire Bank

Spire Bank branch on Koinange Street in Nairobi on May 29, 2020. The National Treasury has approved the purchase of Spire Bank by Equity Bank Kenya.

Photo credit: Dennis Onsongo | Nation Media Group

The National Treasury has approved the purchase of teachers’ owned Spire Bank by Equity Bank Kenya, handing a lifeline to the struggling lender. 

Central Bank of Kenya (CBK) Governor Patrick Njoroge on Friday said the acquisition will be closed on Tuesday next week.

“Pursuant to section 9 (1) of the Banking Act, the Cabinet Secretary for the National Treasury and Planning on January 24, 2023, approved the acquisition of certain assets and liabilities of Spire Bank Limited by Equity Bank (Kenya) Limited. The acquisition shall take effect on January 31, 2023,” said Mr Njoroge in a gazette notice.

The Treasury’s nod is set to bring to a swift conclusion the acquisition process which began last year. 

On September 2 last year, the shareholders of Equity Bank, a subsidiary of Equity Group Holdings, gave the nod for the lender’s acquisition of certain assets and liabilities of Spire Bank, which is owned by Mwalimu Sacco.

This was followed days later by approval from Spire’s shareholders on September 8 in a deal that will inject fresh liquidity in the bank. 

In the transaction, Equity Bank has acquired approximately 20,000 customers of Spire Bank holding Sh1.3 billion deposits.

In addition, Equity Bank will acquire approximately 3,700 loan customers of Spire Bank who have outstanding loan balances of about Sh945 million.

Spire Bank has been facing liquidity challenges due to inability to access loans from peer lenders due to its precarious position, which has pushed it to pursue a turnaround plan pegged on lower costs, loan recoveries, and conversion of shareholder deposits into equity.

“We feel honoured to extend a hand of partnership to teachers with whom we have had a long and strong relationship. With the 20,000 teachers who we will be inheriting from Spire Bank, Equity will become home to over 100,000 teachers spread throughout the country and accessing our services through our branches, our agent network and digital banking channels,” Equity Group CEO James Mwangi said last year.

Records show that currently, Equity processes a total monthly remittance of Sh1.8 billion in teachers’ salaries.

An estimated 43,000 teachers have borrowed loans worth Sh33 billion from Equity with a monthly repayment of Sh800 million.

“In view of Spire Bank’s current market position, the board of directors is of the view that this development is in the best interest of Spire Bank’s customers and shareholders,” Spire Bank board chairman William Rahedi said.

In its unaudited half-year financial report as of June 2022, Spire Bank reported total customer deposit liabilities of Sh1.93 billion and net loans and advances to customers of Sh1.74 billion.

It also reported statutory loan loss reserves of Sh800 million that reduce the net loan and advances after applying statutory loan loss provisions of Sh945 million.

The teachers’ bank has been unable to lend due to low capital ratios that have seen its loan book shrink from Sh2.3 billion to Sh1.7 billion.

The Equity deal marks a major relief for Spire Bank, which has been surviving on emergency loans from the Central Bank of Kenya.

A report by the National Assembly’s Finance committee revealed that Spire Bank has largely relied on CBK support through the reverse repo facility to keep its operations going.

Reverse repos are commonly used by the CBK to advance short-term capital to businesses during cash flow challenges. They involve the purchase of government securities by the CBK from commercial banks.

Interest expense declined from Sh221 million to Sh85 million on the conversion of Sh3.4 billion deposits to equity while operating expenses declined seven per cent to Sh470 million.