Inside Politics

Merali to blame for financial problems facing Spire Bank

Thursday, April 29th, 2021 00:00 |
Industrialist Naushad Merali allegedly withdrew Sh1.7 billion in 2016. Photo/PD/FILE

Lewis Njoka @LewisNjoka

Industrialist Naushad Merali has been fingered for the financial troubles bedevilling Spire Bank after it emerged he withdrew Sh1.7 billion in 2016, shortly after selling 75 per cent of his shares in the bank to Mwalimu National Sacco.

This was followed by panic withdrawals by other depositors who feared they would lose access to their deposits should the bank collapse, leaving the bank in a weak financial position.

As of September 2020, deposits stood at Sh4.8 billion down from Sh14.3 billion in 2014.

Spire Bank is now fully owned by Mwalimu National Sacco having acquired 75 per cent from Merali in 2015 at a cost of Sh2.4 billion and the remaining 25 per cent in November last year at an undisclosed amount.

“Merali withdrew Sh1.7 billion in 2016,” said Mwalimu National Sacco chairman, Wellington Otiende.

Licking its wounds

Currently, the bank is in a weak financial position and is not fully compliant with some of the requirements by the Central Bank of Kenya, according to the bank’s Managing Director, Brian Kilonzo.

“We have a capital shortfall which needs to be rectified. The bank is not compliant in terms of capital ratios,” he said.

The two spoke when they appeared before the Senate Committee on Finance and Budget to shed light on the matter.

Now Mwalimu Sacco is licking its wounds as it tries to auction properties to boost its liquidity ratio and recover from losses from defaulters.

The lender is estimated to have more than 100 liquidation cases pending in court against defaulted loans.

“The bank has close to Sh1 billion assets being recovered by way of auction sales of collaterals,” said the lender said in its annual report.

It is these revelation that irked senators who termed Merali’s move as near criminal. “The health of the bank could have been predicated on the huge deposits there by Merali.

This is quasi-criminal. We need to have a thorough investigation of the auditors who conducted that due diligence” said Bungoma Senator, Moses Wetang’ula.

His views were echoed by nominated Senator Farhiya Hajji who said, the fact that there was only one big depositor and a few others should have come out as a risk during the audit.

Similarly, nominated Senator Roselyn Nyamunga, wondered how one depositor was allowed to withdraw all the resources leaving the bank struggling.

Ernst & Young carried out the financial health due diligence for Mwalimu National Sacco prior to acquiring the bank while Mose and Mose law firm carried out the legal bit of due diligence.

To shore up its financial position, Spire Bank is in talks with four strategic investors and hopes to have brought onboard an investor by the end of this year, according to the bank’s chairman, David Ndegwa.

He, however, pointed out that securing an investor was not easy with three earlier prospects having quit the negotiations midway.

The move to acquire the remaining 25 per cent ownership of the poorly performing bank last year was widely seen as an attempt to make it easier to woo strategic investors. “These negotiations have proven to be extremely difficult,” said Ndegwa.

Giving loans

During the meeting, Mwalimu National Sacco allayed fears that the investment in Spire Bank had crippled it, saying it was giving loans totalling to between Sh70 million and Sh130 million daily.

This was in addition to paying Sh625 million in salaries. The sacco refuted claims that it borrowed Sh6 billion from DTB Bank to invest in the troubled instiution, saying the amount was to refinance an earlier loan with KCB Bank which charged an annual interest rate of 13 per cent compared to DTB’s 11.25 per cent.

“Mwalimu National Sacco is financially sound. We paid rebates to our members in March at the rate of 9.3 per totalling to over Sh3 billion,” Otiende said.

Spire Bank initially operated as Equatorial Commercial Bank, prior to its acquisition and eventual rebrand by Mwalimu Sacco.

Mwalimu Sacco’s acquisition of Spire bank had been opposed by various agencies until they gave their approvals in 2014.

The giant teachers’ Sacco finally edged out business tycoon Naushad Merali from the bank in a share-purchase deal deemed as the ticket for attracting deep pocketed investors with much-needed resources and expertise to turn around the loss-making third-tier lender.

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