Mwalimu Sacco is set to pay up sh510m to Equity bank, who have taken over the struggling Spire Bank following its actions to lay off all its workers.
Equity will take over the assets and liabilities of the teachers-backed lender, rather tha injecting money into the acquisition with Central Bank of Kenya (CBK) backing the deal.
Equity will be paid for the difference between the assets and liabilities, meaning that Spire Bank has zero value and teachers have lost billions of shillings after buying a majority stake in the bank from late tycoon Naushad Merali in 2014.
Mwalimu Sacco CEO Kenneth Odhiambo told the Business Daily that Sh510.7 million has been kept in an escrow account that will be used to pay Equity.
38 banks are competing in Kenya’s banking industry that has undergone several mergers and acquisitions since 2016, prompted by the collapse of three mid and small-sized lenders and a limit on commercial lending rates.
For Spire Bank, the takeover was initiated under the insolvency rule, where a quick acquisition was sought before bankruptcy and collapse.
“On an annual basis, the bank makes losses of approximately Sh1.1 billion. Its entire capital would be wiped out within the next two years, hence a more painful loss should the liquidation process stall,” said Mr Odhiambo.
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“The key prudence consideration is stopping this bleeding, which affects the sacco bottom line and denies its members the rightful return on their savings, once and for all.”
Teachers are calling for Mwalimu Sacco to divest from Spire Bank and retract their support letter after the Sacco reportedly lost billions of shillings at the bank.
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 Sh1.3 billion through Reverse Repo (repurchase agreements), which is short-term and not enough to revive the lender.
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.
Equity has bargained for a deal that will see Mwalimu Sacco, which has been the sole shareholder in Spire Bank, settle all the redundancy costs of over 100 employees who will lose jobs following the deal.