MPs query odd withdrawal before sale of Merali’s bank

Mwalimu Sacco's buyout of Spire Bank in 2016 was briefly halted by the Commissioner of Cooperatives who accused the Sacco of failing to get consent from members prior to making the decision. [Wilberforce Okwiri, Standard]

The Central Bank of Kenya (CBK) and auditors EY are on the spot following reports that top shareholders withdrew billions of shillings from Spire Bank (formerly Equatorial Commercial Bank), immediately after its controversial acquisition by Mwalimu National Sacco.

Sacco Chairman Wellington Otiende yesterday told the Senate Committee that the withdrawal of huge deposits, including one by billionaire Naushad Merali, weakened the capital base of the troubled lender, precipitating its current liquidity challenges.

“When Merali was still part of the bank, he had huge deposits there which he withdrew in 2016 to the tune of Sh1.7 billion,” said Otiende. “Coupled with what happened at the Imperial Bank Ltd and Chase Bank, there was some sort of panic. There were also withdrawals from customers and this weakened the financial base of the bank,” he said.

Mr Otiende was appearing before the Committee on Finance and Budget alongside Spire Bank’s top managers, including Acting Managing Director Brian Kilonzo and Board Chairman David Ndegwa, to shed light on the financial challenges currently facing the lender.

The executives were hard-pressed to explain whether proper due diligence was done, with Senators raising questions as to why the regulator and EY okayed the deal.

According to Otiende, the sacco contracted legal firm Mose and Mose to conduct due diligence on the bank’s shareholding and EY to look into the financial stability.

The managers were also asked to explain how the transaction was allowed to proceed amidst the withdrawal of such large sums of deposits.

“One can say the due diligence on the financial health of the bank could have been substantially predicated on the deposits they held which included Meralis,” said Bungoma Senator Moses Wetang’ula. “If within no time Merali withdraws his money and leaves the bank as a shell, this is quasi-criminal.”

Spire Bank officials revealed the lender has cycled through four auditors over the past four years, including EY at the time of the deal, and which was also advising Mwalimu Sacco.

“Most of the questions we are asking should be answered by CBK because there are a lot of evasions,” said Senator Rose Nyamunga. “The fact that there was one major depositor should have come up as a risk to EY in their due diligence.” 

Data from Spire Bank’s latest financial results indicate the lender’s total assets stand at Sh6.5 billion by March 31 last year against Sh7.3 billion in liabilities. This gives the lender a liquidity ratio of six per cent, far below CBK’s statutory 20 per cent.

“We have a capital shortfall which needs to be rectified and to ensure the bank is compliant,” said Mr Kilonzo. “From what we published at the end of the year, it shows that the bank is not compliant in terms of capital ratios.”

He said the search for a strategic investor has been ongoing for two years but was disrupted by the coronavirus pandemic.

The board chairman said the lender has received three commitments in the recent past but investors failed to commit funds at the last minute. Ndegwa said the bank has four potential investors lined up and a deal could be reached by the end of the year.

Mwalimu Sacco bought 51 per cent shareholding in 2016 at Sh1.6 billion in a deal fraught with controversy.

Financial Standard
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