Equity Acquires Teachers-Owned Spire Bank
Equity Bank has signed an Assets and Liabilities Purchase Agreement with Spire Bank to acquire certain assets and liabilities.
Equity signed with Spire Bank Limited an Assets and Liabilities Purchase Agreement for the acquisition of certain assets and liabilities of Spire Bank Limited.
Dr. James Mwangi, Group Managing Director and CEO, announced Equity Group’s decision during the partnership signing ceremony on Monday.
He stated, “We feel honored to extend a hand of partnership to teachers with whom we have had a long and strong relationship.
This transaction is based on Equity’s plan to promote the post-COVID economic recovery.
Equity Bank Kenya Limited acquires approximately 20,000 deposit customers holding approximately KES 1,322 million in deposits in this transaction.
Similarly, Equity Bank Kenya is expected to acquire approximately 3,700 loan customers with outstanding loan balances reported at a net carrying value after statutory loan loss provisions of KES 945 million by Spire Bank in its unaudited half-year financial statements as of 30 June 2022.
“With the 20,000 teachers who we will be inheriting from Spire bank, Equity will become home to over 100,000 teachers spread throughout the country and accessing our services through our branches, our agent network and digital banking channels.”
Mwalimu Sacco, which controls Spire Bank, would pay an additional Sh1.7 billion to Equity to satisfy liabilities.
According to insiders, Equity will save money by accepting teachers’ deposits and has the strength to reclaim Spire Bank’s bad books.
The premier lender would assume assets and liabilities totaling just under Sh900 million and Sh1.3 billion, respectively.
Mwalimu Sacco will be responsible for the Sh500 million difference, staff fees, claims, and litigations totaling Sh1.7 billion.
“Currently Equity processes a total monthly remittance of Kshs 1.8 billion in teachers’ salaries.
Equity is the second top-tier bank to acquire a struggling institution in pursuit of new development opportunities, following KCB’s recent acquisition of the National Bank of Kenya (NBK).
The Central Bank of Kenya (CBK) has agreed to provide financial backing for the purchase to prevent the lender’s failure and the subsequent banking crisis that saw three banks failed in a matter of months just five years ago.
Patrick Njoroge, governor of the Central Bank of Kenya, informed members of parliament that he had not yet contemplated placing the institution in receivership, and he was hopeful that the bank might recover.
He stated receivership was the last choice since it posed the risk of pronouncing the teachers’ savings and credit cooperative society (SACCO) unviable and shareholders in the financial industry, preventing their future participation in the sector.
Equity Acquires Teachers-Owned Spire Bank
"43,000 teachers have borrowed loans valued at Kshs 33 billion with a monthly repayment of Kshs.800 million.
As a lender of last resort, the governor may face criticism for denying Spire Bank a similar sum through a long-term loan to recapitalize operations.
Due to its financial difficulties, Spire Bank has been unable to access capital from other financial institutions.
The bank has been pleading with its principal shareholders, Mwalimu Sacco and the CBK, for additional funding to enable them to cover expenses and recover losses.
At the beginning of this year, Mwalimu Sacco CEO Kenneth Odhiambo informed MPs that Spire Bank had asked for a long-term, interest-free loan from the CBK to recover. However, the CBK denied the bank’s request.
The CBK has been providing up to Sh1.3 billion in short-term financing through Reverse Repo (Repurchase Agreements), which is insufficient to revive the lender.
"Equity is home to over 24,000 ECDE institutions, primary schools, and over 4,000 secondary schools.” Said Njoroge.
After pouring billions of shillings into the bank over the years, the instructors have been compelled by SACCO regulations to restrict their exposure.
A parliamentary investigation revealed that the Sacco Societies Regulatory Authority (Sasra) prevented Mwalimu Sacco from injecting further funds into the bank after the lender was purchased from the late Naushad Merali for Sh2.4 billion in 2015.
Mwalimu Sacco has provided financial assistance to Spire Bank following the accumulation of Sh9 billion in losses, including a Sh3.4 billion conversion of teachers’ savings into Equity.
The regulator intervened to prevent additional hemorrhaging after Sacco acknowledged that its bank and real estate investments caused cash flow restrictions.
Should the Equity agreement fail, Mwalimu Sacco will have to return to the drawing board amid a political change to settle the Spire Bank issue.
Spire Bank has investigated more than seven potential acquisitions, including a local bank that verified interest in the lender’s good books and teachers’ membership. Still, the regulator has rejected the majority of bidders due to credibility and conflict of interest concerns.
Spire Bank has attempted a turnaround based on lower costs, loan recoveries, and conversion of shareholder deposits to Equity, notwithstanding the uncertainty surrounding its future.
The bank reduced its net loss for the first half of the year by 21 percent, to Sh403 million, despite restricted lending due to insufficient capital and delayed resolution through the sale of the bank or the identification of a strategic investor.
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It decreased its losses from Sh512.8 million in June of the previous year due to aggressive cost-cutting efforts that reduced interest and operational expenses.
The conversion of Sh3.4 billion deposits to Equity reduced interest expenditures from Sh221 million to Sh85 million while operating expenses decreased by 7.0% to Sh470 million.
Due to inadequate capital ratios, the teachers’ bank has been unable to lend, and its loan book has shrunk from Sh2.3 billion to Sh1.7 billion.
Due to the deposit-to-equity conversion, the bank whose capital ratios are below the minimum CBK criteria has experienced an improvement in its core capital from negative Sh4.1 billion in June of last year to negative Sh1.7 billion now.
The bank’s nine-member board has also undergone significant turnover, leaving some positions empty.
In March last year, two board members, former chair David Wachira and Wycliffe Osoro, resigned, while Christine Sabwa left in August.
Equity Acquires Teachers-Owned Spire Bank
