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A painful lesson for Kenyan teachers as yet another Kenyan bank teeters on the brink of collapse

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  • Spire Bank, which is owned by teachers through Mwalimu National Sacco, is in the red and is racing against time to acquire new capital before it is too late.
  • The bank is thr sole lender in the country operating with a negative asset base of Sh1 billion ($10 million) and exposing Sh6.6 billion ($660 million) worth of customer deposits to risk.
  • A substantial portion of the bank’s deposits ultimately represents teachers’ savings, putting years of toil and painful savings into jeopardy.

In a classic case of ‘preaching water and drinking wine’, Kenyan teachers are staring at losses worth over Sh6.6 billion ($660 million) all because they didn’t do their homework as they have often preached to their students.

Spire Bank, formerly known as Equatorial Commercial Bank which is owned by teachers through Mwalimu National Sacco, is in the red and is racing against time to acquire new capital before it is too late.

Heavy losses wiped out Spire Bank’s capital in the year ended December 2018, making it the sole lender in the country operating with a negative asset base of Sh1 billion ($10 million) and exposing Sh6.6 billion ($660 million) worth of customer deposits to risk.


Spire Bank. (Potentash)

A substantial portion of the bank’s deposits ultimately represents teachers’ savings, putting years of toil and painful savings into jeopardy. It is not yet clear how much the general public has deposited in Spire Bank.

The losses have seen the bank breach all the minimum capital adequacy ratios by large margins. As a rule, all banks must maintain a statutory minimum of Sh1 billion ($10 million) as core capital. However, Spire Bank’s core capital stands now at negative Sh1.6 billion ($16 million). 

And that’s not all, the bank has also failed miserably on the insurance front as only a small fraction of its deposits is insured as per the maximum deposit guarantee of Sh100,000 per customer — exposing the bulk of Spire Bank’s deposits to risk from the capital depletion.

How Mwalimu National Sacco’s ‘detrimental association’ with Spire Bank began


Mwalimu National Sacco Limited

The bank’s ‘report card’ makes for a depressing sight and reads like a rude student who forced his way into an examination room and insisted on going ahead to sitting for a test he knew he was clearly unprepared for and had no business sitting for in the first place.

Mwalimu National Sacco controversially acquired the institution in 2015, when the lender was known as Equatorial Commercial Bank after buying majority shares.

The Sacco invested a total of Sh2.4 billion ($240 million) to take a 75 per cent stake in the lender in a transaction that also included buying shares from businessman Naushad Merali, who is also the bank’s founder.

The buyout raised more questions than answers


Mwalimu National Sacco controversially acquired the institution in 2015, when the lender was known as Equatorial Commercial Bank after buying majority shares.

However, when the information of the acquisition became public, the buyout quickly raised eyebrows, with various government agencies suspending the deal before later approving it.

It later emerged that Mwalimu Sacco had agreed to make the acquisition without conducting due diligence on the bank.

Former officials of the Sacco were also accused of conflict of interest, with ex-CEO Robert Shibutse having worked for then-Equatorial Commercial Bank and other companies associated with Mr Merali.


Billionaire businessman Naushad Merali,

Ahead of the transaction, the lender transferred its office building from Equatorial Fidelity Centre in Nairobi’s Westlands area to its associate company, Fidelity Shield Insurance, in which it held a minority stake at the time.

Despite the lender’s historical losses, former officials of Mwalimu Sacco remained upbeat about the deal with Mr Shibutse, even arguing that the transaction would save Mwalimu banking fees and stop its members from ditching the Sacco for mainstream lenders.

Like a stubborn pupil, Spire Bank has, however, remained in losses that have sapped its book value to negative Sh1 billion ($10 million) in the year ended December, erasing all of Mwalimu’s investment.


Mwalimu Sacco

The bank’s net losses doubled to Sh2.2 billion ($220 million) in the review period compared with Sh1.1 billion ($110 million) the year before.

The bank has never paid a dividend since Mwalimu became a shareholder, further adding salt to the injury in the form of losses suffered by teachers.

Central Bank of Kenya seems to have its hands tied behind its back


Central Bank of Kenya

As all these unfold, Central Bank of Kenya, which has in the past shut down lenders such as Dubai Bank and Chase Bank on the basis of liquidity crises, is but biding its time.

CBK’s cool demeanour in the face of the financial crisis on its hands is not lost to the market and the fact that Spire Bank has been allowed to continue to operate despite its lack of compliance has raised queries about the CBK’s inconsistency in its regulation of banks.


Central Bank of Kenya Governor Patrick Njoroge

Analysts are, however, of the opinion that the regulator’s tolerance in the case of Spire Bank should be seen from the context of the lender’s constituency and the recent bank failures.

“Spire Bank is owned by teachers through Mwalimu National Sacco and shutting it down will have political consequences. Closing another bank will also further shake confidence in the sector,” a banking sector analyst who sought anonymity told Business Daily, a local business publication.

Spire Bank has claimed it is in the process of arranging to raise fresh capital from an unnamed strategic investor who is set to acquire a stake in the lender. The bank’s current shareholders are also said to be ready to provide new capital should the deal with the strategic investor be completed.

“The shareholders are fast-tracking an ongoing recapitalisation programme with a strategic investor already identified and the transaction is at an advanced stage,” Spire Bank managing director Norman Ambunya said.


Spire Bank managing director Norman Ambunya

As for Central Bank going slow on them, the bank says the regulator is fully aware of their situation.

“This process is subject to regulatory approval and is also subject to non-disclosure and confidentiality agreements in force. CBK is aware of ongoing recapitalisation initiatives and is currently reviewing the strategic investor transaction for approval.”

Central Bank hasn’t yet commented or issued any statement about Spire Bank’s ‘sickly’ situation.