KENYA – Equity Bank, a financial service provider, has concluded negotiations to buy Spire Bank, setting the stage for the signing of a deal that is expected to get the teachers-owned bank out of a financial crisis.
According to Business Daily, the deal will see Mwalimu Sacco, which owns Spire Bank, pay Equity an additional KSh1.7 billion (US$14.12m) to cover liabilities.
The top-tier lender will take over just under KSh900 million (US$7.48m) in assets and KSh1.3 billion (US$10.80m) in liabilities.
The half-a-billion-shilling difference, employee costs, claims and litigations amounting to KSh1.7 billion (US$14.12m) will be borne by Mwalimu Sacco.
Equity becomes the latest tier one bank to buy a struggling lender in search of new growth opportunities after KCB, which recently acquired the National Bank of Kenya (NBK).
The Central Bank of Kenya (CBK) has agreed to financially back the deal in a bid to avoid a collapse of the lender and the ensuing banking crisis that saw three banks collapse within months just five years ago.
Spire Bank has been unable to access cash from peer banks due to its financial challenges.
The bank has been begging for additional support from its majority shareholders Mwalimu Sacco and the CBK to allow it to earn money to meet expenses and recover losses.
The CBK has been providing short-term liquidity of up to KSh1.3 billion (US$10.80m) through Reverse Repo (Repurchase Agreements), which is short-term and not enough to revive the lender.
The teachers have also been constrained by Sacco laws to limit their exposure after they pumped billions of shillings into the bank over the years.
Mwalimu Sacco has been supporting Spire Bank with funds after the lender accumulated losses of KSh9 billion (US$74.75m), including a KSh3.4 billion (US$28.24m) conversion of teachers’ deposits into equity.
Sacco has admitted the investments in the bank and real estate created cash flow constraints, prompting the regulator to intervene to stop further haemorrhage.
The bank cut its half-year net loss by 21 per cent to KSh403 million (US$3.35m) despite constrained lending due to low capital and delayed resolution through the bank sale or finding a strategic investor.
It reduced losses from KSh512.8 million (US$4.26m) in June last year on drastic cost-cutting measures that reduced interest and operational expenditure.
Interest expense declined from KSh221 million (US$1.84m) to KSh85 million (US$0.71m) on the conversion of KSh3.4 billion (US$28.24m) deposits to equity while operating expenses declined 7.0 per cent to KSh470 million (US$3.90m).
The teachers’ bank has been unable to lend due to low capital ratios that have seen its loan book shrink from KSh2.3 billion (US$19.10m) to KSh1.7 billion (US$14.12m).
The bank whose capital ratios are below the mandatory CBK requirements has, however, seen an improvement in its core capital from negative KSh4.1 billion (US$34.05m) in June last year to currently negative KSh1.7 billion (US$14.12m) due to the deposit to equity conversion.
The bank has also witnessed a high turnover on its nine-member board that has left some seats unfilled.
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