Why Senate links tycoon Merali to the troubles of Spire bank

The Senate Finance and Budget Committee investing businessman Naushad Merali has unearthed alarming details about his role in the collapse of Spire Bank. The Committee found that actions by Merali before and after the sale of the bank he once owned to teachers represented in the Mwalimu National Sacco was criminal.

The investigations which are focusing on the root cause of the bank’s financial woes that have left it at the brink of a total collapse come as the teachers rush to complete payment for their 25% stake which were owned by the tycoon.

The management of Mwalimu National Sacco confirmed that the sinister move by Merali to withdraw his deposits led to the  financial woes the bank is currently facing.

“Merali had huge deposits which he withdrew in 2016 to the tune of Ksh.1.7 billion. In the aftermath, there were panic withdrawals from customers given what happened to Imperial and Chase banks,”Mwalimu Sacco Chairman Wellington Otiende told the committee.

Bungoma Senator Moses Wetangula accused Merali of taking away the money which would have been used to cloud the true financial health of the bank to hide in his businesses even after audit by Ernst & Young recommended otherwise.

“Once can say that due diligence on the financial health of the bank could have been substantially predicated on deposits held including Merali’s. If Merali goes on and withdraws the money leaving the bank as a hollow shell, this is quasi criminal,” Wetangula said.

Senator Charles Kibiru who leads the committee echoed Wetangula as he pressed bank and Sacco officials over the poor state of the bank which he attributed to the change of ownership.

“It is surprising that all over sudden, after Merali sold his shares, we have a situation where you as the bank are looking for a strategic investor. Is it that due diligence was not done?” he asked.

Teachers bought the bank back in 2014 at a Ksh.2.4 billion taking up a 75 stake but it has been making huge losses in six year including in December 2020 when it returned a Ksh.1.3 billion loss. The loss was three times wider than Ksh.472 million negative earnings in 2019.

They are now keen on abandoning the bank which has eaten up their initial investment savings  in Mwalimu National Sacco which sunk to negative Ksh.8.4 billion from six years of accumulated losses.

Spire Bank Chairman David Ndegwa claims they are shopping for potential investors to lift the lender but the numerous woes are dimming their chances of recovery.

“Negotiations have proved to be extremely difficult. Three potential investors have for instance exited even after giving us timelines. We are hoping to meet someone serious who is willing to fulfill prudential guidelines before the end of the year,” he said.

Merali’s actions have left the interest expenses by Inspire now exceeding it’s earnings from lending activities while loan defaults are equal to the bank’s entire loan book. Punishment is also looming from the Central Bank of Kenya (CBK) as the bank’s capital and liquidity ratio continues to fall in breach of regulatory provisions.