The recent resolution by the giant Mwalimu National Sacco Annual General Meeting to put up for sale the troubled Spire Bank has elicited mixed reactions, with critics offering options they argue would be in the best interest of teachers and ordinary members.

In the asset purchase agreement pending regulatory approvals by Sacco Society Regulatory Authority(SASRA) and the Central Bank of Kenya at the time of going to press, Mwalimu Sacco has agreed terms with a local large bank to liquidate its Spire Bank.The deal, according to Mwalimu Sacco Chief Executive Officer,Kenneth Odhiambo,shall see the counterparty take over loss-making Spire Bank’s assets and liabilities rather than injecting in money through an equity purchase.

Media reports attributed to the CEO indicate the AGM resolved that they quietly exit the scene without the Sacco incurring extra expenses on a bank has zero value.

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But critics opine that by taking over Spire Bank’s assets and liabilities, Mwalimu Sacco will have to pay the big buyer billions of shillings to make up for the difference in assets and liabilities.Spire Bank’s liabilities exceed its assets.

With offers trickling in from willing buyers-including a group of local tycoons loaded with Murang’a old money ahead of the March 30 deadline, it is felt that the bank should have been sold as a going concern, an arrangement that would see teachers retaining a reserve equity as they wait to recoup their lost investment.

This model, it is argued, would best serve the interest of the ordinary teacher and member of Mwalimu Sacco mirroring transactions of Jamii Bora Bank,National Bank, Chase Bank and Fidelity Bank. In retrospect, all these transactions were structured on a going concern basis.Having retained the services of independent transaction advisor NCBA Capital, NCBA’s investment banking affiliate last year, some say Mwalimu Sacco had better let Spire Bank’s licence sold to a private party on a going concern basis.

From NCBA Capital’s findings and guidelines,taking the asset purchase route would see Mwalimu Sacco incur nearly Sh2 billion to complete the transaction with a large local financial institution.

It then transpired that a going concern transaction would see tear potentially benefiting from a consideration.Having spent nearly Sh5 billion to acquire the lender from deceased business tycoon Naushad Merali,Spire Bank has cumulatively lost Sh4 billion over a five-year period.

Mwalimu Sacco paid Merali Sh2.4 billion in a controversial 2015 transaction to acquire a 75 percent stake in Spire Bank, going on to buy the remaining 25 percent shareholding in November 2020.Apart from the bank, teachers shall also be offloading other loss-making ventures including the Kisaju housing project and two parcels of land estimated at Sh300 million.

The cooperative made another Sh3.4 billion deposit which it could not withdrew without sinking the bank.To help the bank survive, teachers agreed to convert the deposit into a credit line for the lender.They also issued a letter of support to regulators promising they would not let the bank collapse only to yield many years of loss-making, effectively dr resources from the bank and its owners and sinking it in negative core capital.

Spire Bank had as of September 30 a negative core capital of Sh3.4 billion rendering it Sh4.4 billion short of compliance.The bank’s financial woes date back to 2016 when Merali made Sh1.7 billion cash withdrawal only days after selling the lender to Mwalimu Sacco sparki chain of fallouts and leading to panic withdrawals and near-collapse.

Desperate to shore up its capital,the bank had breached all minimum capitation adequacy ratios stipulated by the Central Bank,with Merali’s unprecedented cash withdrawal accounting for 20 percent of the Sh8.5 billion deposits.

Mwalimu Sacco National Chairman, John Ochieng’,was recently quoted saying that the scheduled Spire Bank sale is part of their turnaround plan involving offloading of loss-making venture major local suitor has been conductint due diligence ahead of the intended transaction.

Mwalimu SACCO plans to liquidate loss making spire bank by the end of the month after unnamed local financial institution showed interest.

Mwalimu SACCO chief executive officer Kenneth Odhiambo confessed that the move will see them exit the banking business following a decision that was also ratified during the annual delegates meeting held on Saturday.

“During the meeting, we looked at issues in terms of business model where from the current strategy ans set up, identify some of those areas we can reengineer and be able to generate more value to our money” said Odhiambo, who spoke in Mwalimu Sacco offices in Nairobi.

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Apart From troubled Spire Bank, other issues raised include investments in subsidiaries dealing in asset management and risk insurance brokerage that the Sacco is currently undertaking a resolution mechanism in terms of dealing with it.

The Senate Committee on Finance and Budget investigated the transaction last year seeking to know why teachers seemed to have been duped into an investment that failed Io generate revenue

The board blamed the controversial Sh3 billion sale of the troubled Spire Bank to Mwalimu National Sacco (MNS) on Naushad Merali for withdrawing all of his deposits amounting to Sh1.7billion im-mediately he sold his shares in the bank.

The CEO said yesterday that the board has already initiated discussion with a local entity in terms of how the assets and liabilities of the bank can be taken up.

We engaged a local entity and we have made progress in terms of engaging transaction advisors, cleared their work and done due diligence and the other entity has also engaged the transaction and legal advisors well cleared their work,” assured Odhiambo.

He also said they have held a meeting with the principal personalities interested in Spire bank and are now good to go in terms of concluding on the agreement

Our approach was to protect the depositors’ interest so that we have a quiet exit, you know financial service industry is very sensitive and if you do not protect the depositors’ interests and manage it in a way that does not preserve some confidence, it may have a contagion effect on the Sacco,” he explained.

“The progress is gone to almost the tail end so we are waiting for the two regulators to now okay in what we have agreed and move on with that,” he added.

On Mwalimu asset management, which is dealing with investments in real estate like Kisaju, he said measures were discussed in terms of in-flows of the asset properties like sell them off and have the money transited to members. Mwalimu Sacco has a membership of over 106,000.

“This year, we are looking at the economy rebounding in terms of growth…the asset base last year was about Sh61 billion and want to move it by another Sh35 billion this year. We are looking at a situation where we grow our loan books because that is the most key asset we have and leverage on technology” the CEO said.

Apart from liquidating Spire Bank, emerging issues from the delegates included having more investments offloaded so that the money can come back to the Sacco.

They also want to channel new cash into credit in a move that would increase their loans to total asset ratio to about 80 per cent which would excite revenue generation and enable them retain more surpluses to build on institutional capital.

In partnership with Kenya Mortgage Refinancing Company (KMRC), Mwalimu National Sacco has rolled out affordable housing mortgage scheme at competitive pricing.

According to the Sacco, the Board approved roll out of the product through a refinancing scheme for purchase of residential houses at Kisaju Park as phase one (1) of the implementation of mortgage lending solution to all the Sacco Members.

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Mortgage FEATURES

Eligibility criteria for the housing mortgages

The eligible property to secure the loan must either be:

1. Owner occupied.

• Title residential properties
• Free–standing or apartment .
• Properties occupied by close relatives of owner.

2. “The title must be free from any delinquencies and encumbrances.
3. The maximum mortgage loan limit will be Ksh.4 Million.
4. The tenure of the collateral: Full ownership and if Leasehold with a minimum of 40 years to expiry of the lease.

The New loan product takes effect immediately in all Mwalimu National FOSA branches through the Business Loans officers.

For more details visit www.mwalimuinational.coop and our FOSA branches countrywide.

Before closing the deal with the controversial businessman, Mwalimu sacco top officials were warned by several agencies.

The Co-operative Alliance of Kenya, an umbrella of more than 14 million members of the cooperative movement, was among the first agencies to flag the transaction on grounds that due process was not followed.

Later,  audit firm Ernst and Young, in a probe commissioned by Mwalimu Sacco itself ahead of the acquisition, also raised its own reservations on the deal. Shibutse and his team however had made up their minds.

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Senate On A Rescue Mission To Save Teachers’ Savings From The Sinking Spire Bank

On 31^ST December, 2014, Merali smiled all the way to the bank after the sacco made the payment for his bank.

The deal has now come to haunt teachers, as the reality of what they paid for hits. Various attempts to find a buyer for the struggling lender have been in vain.

Borrowers have defaulted by a record 96 per cent, which means that nearly everyone who has borrowed from the bank has defaulted. Its latest financial results released last week show that its total non-performing loans rose to Sh2.4 billion, against net loans and advances to customers of Sh2.5 billion, having shrank from Sh3.3 billion. No bank in Kenya has sunk to this level of defaults.

After six years of losses, the bank did not have any money left to give to new borrowers. Insiders say it lent less than Sh90 million, the whole year, compared to more than Sh4 billion it lent in 2016.

Its balance sheet contracted by 25 per cent to Sh5.1 billion year-on-year, primarily due to loan attritions, maturities in government securities and accumulated losses. Its net loans and advances declined by 23 per cent, or Sh756 million, to Sh2.5 billion between 2019 and 2020.

The Tier Three bank has also been replacing its CEOs every year, in what has made the lender a graveyard of the careers for banking executives, who have to deal with immense turnaround pressure from teachers on one hand, and meet the stringent Central Bank regulations on the other hand.

The senate finance committee has opened a probe into the state of spire bank and the risk it poses to the savings of teachers across the country. The committee was determined to save teachers’ huge savings with spire bank, from sinking.

When Mwalimu Sacco bought shares with spire bank, the bank was at the verge of collapsing due to accrued bad loans. At one point, in an effort to restore its image, Mwalimu Sacco wanted to exit spire bank since the bad loans had adversely affected the initially admirable shape of Mwalimu Sacco.

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Mwalimu Sacco is planning to have complete control of Spire Bank upon the exit of one of its partners, businessman Naushad Merali. This is a decision that the Senate finance committee arrived at during a meeting on 1^st December 2020.

Central Bank Governor, Patrick Njoroge, has so far confirmed that Mwalimu Sacco has filed a change in ownership that will see it own all the shares of spire bank limited.

“They will now be owned 100 per cent by Mwalimu Sacco. This will strengthen them in the move towards the new normal. We think that this is a new dawn for this institution,” Njoroge told the Senate Finance Committee.

Need To Inject More Money

With the new move, Mwalimu Sacco will have to pump more money into the bank. Spire bank has been struggling even to lend money to clients and has successively recorded untold loses semi annually. The share holder capital of spire bank has been eroded seriously and all it sincerely needs currently is a strategic investor, who can unsparingly pump the capital it so much needs to run its operations. Mwalimu Sacco should therefore prepare for a very uneasy task ahead, should it take full control of spire bank.

“Spire Bank has a legacy problem, when they were acquired they had very many bad loans, that tag has stayed with it, it’s been limping through the period,” said Njoroge.

The senators expressed their fears that spire bank might collapse any time soon, yet several teachers have involuntarily contributed a share capital of ksh. 20,000 by virtue of being members of Mwalimu Sacco.