Sasra badly let down teachers in Spire Bank deal

Tuesday, April 19th, 2022 05:30 | By

Spire Bank, a bank owned by Mwalimu National Sacco Society, teeters on the verge of collapse. It is only afloat through the grace of the Central Bank of Kenya (CBK).

It is time to ask hard questions about the deal that has seen teachers, members of Mwalimu Sacco, lose billions in cash. There must be accountability for all those involved in the deal right from the start.

Mwalimu bought Equatorial Bank from late businessman Naushad Merali in 2015 for Sh2.4 billion and renamed it Spire Bank. It has now come to light that the agreement and its aftermath were riddled with questionable dealings. These were laid bare during a meeting of the bank with the Senate Committee on Finance and Budget.

It came to light that the Sacco did not conduct due diligence on the bank before buying it. How is this even possible? Due diligence is the holy grail of investment. It is inconceivable anybody could buy a bank without conducting one.

Secondly, there were stark questions of conflict of interest. The former chief executive of Spire, Robert Shibutse, was a former employee of Equatorial Bank and other businesses owned by Merali.

State regulatory agencies had first opposed the deal, before later, inexplicably, approved it.

Thirdly, the bank’s assets were stripped before it was handed over. Its headquarters were transferred to an associate company in which it held a minority stake then.

Fourth, Merali withdrew his deposits amounting to Sh1.8 billion from the bank, just days after cashing in on the sale of his shares, triggering panic withdrawals.

An incredulous Senate committee could not believe their ears. Moses Wetang’ula, a committee member stated, “Are you telling us Merali was taking flight from a sinking ship? This is a person who first sells his shares and all of a sudden, withdraws his deposits and leaves the bank as a shell – this is quasi-criminal.”

The committee has demanded an investigation and accountability. The truth is if Kenya was a more functional economy like those in Europe or the US, people would be in jail!

The bottom line is that very tough decisions must now be made about the future of Spire. It has nowhere to turn.

An attempt by Mwalimu Sacco to pump in a further Sh2 billion was mercifully stopped by the regulator. No more euthanasia.

Mwalimu must not be allowed to put a single cent more into this bank. Besides the Sh2.4 billion it used of its member's money to buy a 75 per cent stake, it used another undisclosed sum in 2020 to buy the remaining 25 per cent. There needs to be accountability. How could the Sacco management pump more money into what was then clearly a collapsing bank?

Mwalimu converted an Sh3.4 billion of teachers' deposits into equity to boost the bank’s capital. It didn’t help.  If it can’t find a buyer, it should be allowed to die. Teachers must cut their losses and run from what has become a very toxic investment.

CBK and Sasra should form a working committee to coordinate their actions on this bank in the best interests of Mwalimu Sacco members, whose interests nobody seems interested in preserving.

The biggest issue emerging is that the regulatory institutions in the financial sector are very weak. They have little capacity to protect shareholders and the public. Just two weeks ago, Resolution Insurance sunk Sh6.6 billion of clients’ money.

The Treasury urgently needs to wake up and review the entire regulatory environment in the financial sector. There is too much laissez-faire going on there. Kenya seems to be headed back to the bad days of a daily bank collapse.

There is too much apparent winking at dubious transactions that require full investigation and accountability. The Treasury had better do something about this before the next failed institution in this sector causes a meltdown with disastrous consequences for the economy.

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