Senate probes Naushad Merali’s role in Spire Bank downward spiral


Senate probes Naushad Merali’s role in Spire Bank downward spiral
Billionaire Businessman Naushad Merali PHOTO | COURTESY

In Summary

  • According to the Committee, actions by businessman before and after the sale of the bank he once owned to teachers represented in the Mwalimu National Sacco raise questions on criminal culpability.
  • Teachers bought Spire Bank, then the Equatorial Commercial Bank in late 2014 at a Ksh.2.4 billion taking up a 75 stake in the lender.What has followed since the purchase of the bank has been six years of losses.
  • Spire Bank has eaten up teachers’ initial investment in the lender with shareholder funds sinking to negative Ksh.8.4 billion from six years of accumulated losses.
 

The Senate Finance and Budget Committee have called for a probe on Naushad Merali’s role in the downward spiral of lender Spire Bank.

According to the Committee, actions by the businessman before and after the sale of the bank he once owned to teachers represented in the Mwalimu National Sacco raise questions on criminal culpability.

The push to uncover the source of the banks’ woes which has left it staring at total collapse come even as teachers move to complete the buyout of a 25 per cent minority stake in the bank by the businessman.

The managers of Mwalimu National Sacco conceded to sinister moves by Merali in the aftermath of the Sacco’s purchase of the bank which they link to Spire’s current funding shortfalls.

“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,” said Mwalimu Sacco Chairman Wellington Otiende in a virtual meeting with the Senate Committee on Wednesday.

Bungoma Senator Moses Wetangula, a member of the Senate Committee, suspects deposits by the businessman would have been used to cloud the true financial health of the bank in spite of the conduct of due diligence including by audit firm Ernst & Young.

“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,” he said.

The Committee’s Chairman Senator Charles Kibiru raised similar questions as he pushed Mwalimu Sacco and Spire Bank officials on the bank’s sudden woes following 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 posed.

Teachers bought Spire Bank, then the Equatorial Commercial Bank in late 2014 at a Ksh.2.4 billion taking up a 75 stake in the lender.

What has followed since the purchase of the bank has been six years of losses which have pushed the bank to the edge of the abyss.

In the financial year ending in December 2020, Spire Bank returned a Ksh.1.3 billion loss, a loss three times wider than Ksh.472 million negative earnings in 2019.

Interest expenses by the bank now topple earnings from lending activities while loan defaults at the financial institution are now equal to the bank’s entire loan book.

Moreover, the bank stares at the wrath of the Central Bank of Kenya (CBK) with its capital and liquidity ratio falling further in breach of regulatory provisions.

Teachers are now keen on disposing the bank which risks eating up their savings and investments in Mwalimu National Sacco.

For instance, Spire Bank has eaten up teachers’ initial investment in the lender with shareholder funds sinking to negative Ksh.8.4 billion from six years of accumulated losses.

The management of the bank says it has been engaging potential investors to lift Spire from its knees.

Nevertheless, Spire Bank Chairman David Ndegwa admits the investor on-boarding process has encountered numerous obstacles putting in limbo the recovery of the ailing bank.

“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.

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