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Will Kenya’s Central Bank Governor rescue Spire Bank?

By Morris Kiruga, in Nairobi
Posted on Wednesday, 17 April 2019 15:13

Although not a systemic financial institution, Spire Bank's owners are a vocal bunch: the teachers union

One of Kenya’s smallest lenders, Spire Bank, is teetering on the brink of collapse. The bank has piled up losses over the last decade, from Shs. 326million five years ago to Shs. 2.255 billion in 2018.

  • Although its losses before tax reduced from Shs. 1.576 billion in 2017 to Shs. 307.3 million in 2018, Spire Bank’s total losses increased to Shs. 2.254bn after it accounted for deferred tax arrears.
  • Nearly a decade of losses, except for a small reprieve in 2013, have left the lender with a negative asset base of Shs. 1 billion.

It is now struggling with critical capital and liquidity deficiencies, even as it seeks capital injections from its shareholders and an unnamed strategic investor.

Spire Bank is majority owned by Mwalimu National Sacco, the largest savings and credit group in Kenya. Mwalimu Sacco bought a 51 percent stake in late 2015 and have since increased its stake to 75 percent.

  • The controversial purchase, it emerged after the sale, could perhaps have done with greater due diligence. The sacco’s executives at the time said that in addition to it being an investment, it would help the organisation save on banking fees.
  • It was bought from Kenyan tycoon Naushad Merali.

The ownership changes were triggered in part by regulatory rules on ownership structures, as the bank had been majority-owned by Merali since its founding in 1995.

  • It was known as Equatorial Commercial Bank (ECB) at the time, before rebranding to Spire Bank in 2016.
  • In 2010, the bank merged with Southern Credit Banking Corporation to create a new bank that met the regulator’s requirements of a core capital of Shs. 1 billion.

The Kenyan Central Bank’s silence on Spire Bank’s status has triggered a wave of speculation, as the current governor’s term began with the closure of the smallest bank in Kenya at the time, Dubai Bank.

  • The bank had been suffering liquidity and capital deficiencies at the time, while the next two banks to be closed were bigger Tier II banks with a solid capital base but other significant issues.

Contacted by The Africa Report, the Central Bank declined to comment.

One reason for the regulator’s wary approach this time, banking analyst George Boda tells The Africa Report, is previous experience. “[The closure of] Chase Bank caused liability flight out of Tier 3 banks, and Jamii Bora is a good example of a bank that has had to deal with elevated funding gaps,” Bodo says.

  • The struggles of Tier III lenders have been compounded by other issues as well, such as the rate cap. “In 2015 [before the rate cap], Tier III lenders made a profit of Shs. 3b. In 2017, they collectively made a loss of Shs. 1.6bn, which narrowed slightly to Shs. 1.2b in 2018,” Bodo says.

The bank itself has announced that it is in talks with a strategic investor, even as questions arise over the possible political implications of closing the bank while it is owned by a powerful teachers’ Sacco and holds substantial deposits.

In the meantime

  • On April 5th, Central Bank announced that the Kenya Deposit Insurance Corporation (KDIC) had accepted a final offer from KCB for Imperial Bank. “The accepted Final Offer includes a further recovery of 19.7 percent of eligible depositor balances remaining at IBLR,” CBK said in its press release. It further said that the remaining balances will be released in three tranches over four years after the agreement is signed.

While the announcement means good news for depositors of the troubled lender, several still expressed dismay with what they see as incomplete information from the regulator.

  • “The CBK should also have told us what the actual binding offer, and what actual percentages of the original deposits we should expect” Mohammed Khambiye, the chair of the depositor lobby group, told The Africa Report.
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