Kenya’s smallest bank will wind up banking operations in a deal that transfers most of its business to Kenya’s second-largest bank, by market share.
A notice by Spire Bank states that all its depositors, except its main shareholder, will become customers of Equity Bank Kenya. Spire had 20,000 depositors, with about 3,700 loan customers and an equivalent of Kshs 1.32 billion of deposits will be transferred to Equity along with loans worth Kshs 945 million.
Equity term the transaction as “immaterial” to their group financial statements as it only adds 0.25% to their deposits now at Kshs 522.7 billion, but which will ensure that Spire customers enjoy uninterrupted banking services. Spire will pay Equity a cash amount, estimated at Kshs 468 million, to bridge the difference in the loans and the deposits transferred.
As per the agreement, Spire will cease offering bank services and deal with its creditors and staff. Spire’s parent, the Mwalimu National Sacco, has over Kshs 60 billion in assets but will walk away from the ill-advised venture into banking – that never made a profit from when it was acquired as Equatorial Commercial Bank – confident that the exit decision is in the best interests of its customers and stakeholders.
Spire Bank shareholders will hold an extraordinary general meeting at the end of November 207 to approve an increase in bank capital that has been eroded by recent losses at the bank.
At the November 27 EGM, shareholders will approve the creation of 100 million new shares, worth Kshs 500 million that will be allocated to Equatorial Commercial Holdings. Kenyan banks are to have a minimum core bank capital of Kshs 1 billion, and as at June 2017, Spire’s capital was down to Kshs 1.6 billion and the bank had a half-year loss of Kshs 307 million coming on the back of a 2016 loss of Kshs 967 million. Spire had Kshs 13 billion assets, Kshs 6.4 billion loans, and Kshs 7.6 billion deposits as at June 2017. But interest income and total income at the half-year was sharply down from that in June 2016 which could point to their performance trend for the end of 2017.
In 2015, Mwalimu SACCO one of the country’s largest credit societies bought out and rebranded the former Equatorial Commercial Bank as Spire. Equatorial had itself been formed from a merger between Southern Credit and Equatorial banks in 2010.
Mwalimu SACCO has Kshs 37 billion in assets and Kshs 3 billion profit in 2016 and has over 70,000 members as owners. This is the second bank capital injection by Mwalimu at Equatorial after another with the buyout. The shares will be allocated among Equatorial Commercial Holdings which owns 98% of Spire bank has shareholders including Mwalimu National Holdings (75%), Yana Towers (10%), A.H. Butt (8%), Yana Investments (6.75%, and who also own 11% of CBA) and N.N. Merali (0%).
There’s a moratorium on new banks licences, but still a lot happening in the ownership suites.
- Bank M (of Tanzania) has bought out and rebranded (the former) Oriental Commercial Bank.
- Sidian Bank: Centum bought out and rebranded (the former) K-Rep bank.
- Spire Bank: Mwalimu SACCO bought out and rebranded (the former) Equatorial Commercial bank.
Who’s Hanging On
- Chase bank now reopened, but yet to resume lending. An ownership decision is expected soon (process being managed by KCB)
- Credit bank: Discussions are ongoing about a sale to FEP Holdings
- Imperial bank (assets will be assessed and managed by NIC bank)
Who’s on the Way Out
- Dubai bank (proceeding into liquidation)
- Giro bank which has been bought out by I&M bank.
- edit The CFC brand as CFC Stanbic Bank and CFC Stanbic Holdings (i.e group) becomes Stanbic Bank Kenya and Stanbic Holdings PLC respectively – this comes about nine years after their merger of CFC and Stanbic banks.
EDIT: Jan 27: The Government has ordered an inquiry into Mwalimu National Sacco’s bid to acquire Equatorial Commercial Bank. The Commissioner of Co-operatives has appointed an inquiry team report to him following a protest by the Co-operative Alliance of Kenya (CAK)
Last week, Mwalimu SACCO became the majority shareholder of Equatorial Commercial Bank (ECB), acquiring 51% of the bank for Kshs 1.6 billion (~$18 million). The acquisition was cleared after no objections were received from the Central Bank of Kenya (CBK), Competition Authority of Kenya (CAK) and Sacco Societies Regulatory Authority (SASRA). There was another objection, but not from any of the regulators, who were aware of the issues raised.
Mwalimu with Kshs 24.5 billion of assets (2013), acquired the stake in ECB, the country’s 27th largest bank (Kshs 15 billion) which has been boosted by an earlier merger with Southern Credit Bank. Mwalimu will have three (3) seats on the board of ECB, but the Society is not converting into a bank nor merging with ECB. Due diligence of the financial and legal processes was done by Ernst and Young and Mose & Mose Advocates.
This comes two years after the LAPTrust, a pension scheme and the Kenya Tea Development Agency acquired a combined 22% stake in Family Bank – and LAPTrust estimated their stake was worth 1.6 billion in 2013, just two years after paying a 1/4 of that amount.
Today should see the announcement of a merger between Southern Credit and Equatorial Commercial (ECB) banks.
They are both yet to release their full year results for 2009, (have until Thursday) but this will likely be a loss year for Southern (Kshs. – 145m in 9 months) ahead of the combination of the 32nd (Southern) and 35th (equatorial) ranked banks in Kenya with combined assets of about Kshs. 9.3 billion ($120 million) – but which were not growing as fast as their smaller peers in the competitive Kenyan market with 44 commercial banks.
The Nairobi Star today reports that the reason for the merger as the need for Southern Credit to raise their capital to the Kshs 1 billion mark after a deal with foreign investors had fallen through and this amount will be the combined capital size of both banks. The article further describes this as a takeover of Southern – a bank with structures but no capital by ECB – which is a bank with capital but no structures
Elsewhere, in the Market Whisperer [offline] column of last week’s East African newspaper shoots down the justification behind a market rumour of Equity Bank’s (valued at $787 million) interest in acquiring National Bank of Kenya (valued at $133 million) as two over-capitalized banks who don’t need each other.
It notes that NBK which was restructured by the Kenya Government is in essence still a government banker beholden to government securities which account for majority of its income, rather than traditional lending while Equity is struggling to lend out its huge capital infusion and already has a (much) larger distribution and product range than NBK.