As big brands in Kenya’s banking sector scale their operations, Equity Bank has inked a deal with Mwalimu National Sacco troubled subsidiary, Spire Bank.
The transaction will see Equity Bank Kenya take up Kes.1.3 billion worth of deposits in the beleaguered lender as well as a total of Kes.945 million in loans after provisions from roughly 3,700 borrowers.
Equity Group is expected to seal the partial purchase of assets and liabilities of Spire Bank on 30th November. Depositors at the tier III lender will in turn become Equity bank customers at the close of the transaction in two months’ time.
“With the 20,000 teachers who we will be inheriting from Spire Bank, Equity will become home to over 100,000 teachers spread across Kenya accessing our services through our branches, our agent network and digital banking channels,” Equity Group CEO, Dr James Mwangi, said.
Back in 2015, as Mwalimu Sacco sought fresh income streams, the cooperative overstretched itself buying the now-beleaguered Spire Bank for Kes2.4 billion from late businessman Naushad Merali.
Just a few days after the transaction, however, Mr Merali withdrew Kes1.7 billion from the lender, setting off a chain of liquidity issues that have been bedeviling the bank since then and which Equity now expects to smooth out, and hoist Spire Bank back to profitability.
As a trade-off for discarding a loss-making entity, Mwalimu Sacco has consented to a Kes1.7 billion payment to Equity Bank to cover employee costs, claims, litigations, and other liabilities.
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Thus, in sum, Equity Group will incorporate a firm with around Kes900 million in assets and Kes1.3 billion in liabilities which the top-tier lender will work to shake off down the road.
Equity’s deal with Mwalimu Sacco has the backing of the Central Bank of Kenya (CBK) which refrained from placing Spire Bank under receivership early this year, with CBK Governor Dr Patrick Njoroge terming insolvency an act of last resort with the risk of erasing teachers’ hard-earned savings and deposits.
Appointing a receiver for Spire Bank would have caused a far-reaching impact on Mwalimu Sacco which has incurred billions over the years trying to prop up its cash-strapped subsidiary, including a Kes3.4 billion conversion of teachers’ deposits into equity.
“We take this partnership as our gesture of gratitude and an opportunity to deepen our relationship with the teaching fraternity by ensuring that they continue to enjoy uninterrupted access to banking services. We commit to work with Mwalimu Sacco to achieve their dreams of a Front Office Services Activities (FOSA),” explained Dr Mwangi.
In April this year, cooperatives industry watchdog Sacco Societies Regulatory Authority (Sasra) barred Mwalimu Sacco from injecting a further Kes2 billion into the troubled Spire Bank to preserve the micro lender’s finances and expedite the search for a buyer.