The cash-strapped Spire Bank has been surviving on emergency loans from the Central Bank of Kenya (CBK), a new report has revealed.
A report by the National Assembly’s Finance committee revealed that the bank has largely relied on support by the CBK through the reverse repo facility to keep its operations going.
Reverse repos are commonly used by CBK to advance short-term capital to businesses during cash flow challenges. They involve purchase of government securities by the CBK from commercial banks.
“In order to mitigate its liquidity constraints, the bank has been borrowing from the Central Bank of Kenya through the reverse repo to stabilise its operations,” Mwalimu National Sacco chief executive officer Kenneth Odhiambo said in a submission to the committee.
Odhiambo also disclosed that the Sacco, which has a 75 percent stake in Spire, has supported the lender over the years through conversion of deposits into equity or share capital and daily liquidity injection.
Spire’s Bank’s repo balance was Sh1.3 billion and the lender’s position at 8.91 percent against a statutory requirement of 20 per cent as at December 31, last year, underlining the gravity of the matter.
Spire Bank has been desperate to shore up its capital after breaching all the minimum capital adequacy ratios set by CBK by large margins following years of erosion through losses.
The national teachers’ Sacco pumped Sh3.4 billion into the lender in January in a bid to stabilise it.
“We direct the Central Bank of Kenya to handle the issue of Spire Bank Limited as stipulated in the law and regulations taking into consideration interests of the teachers who are the Banks main shareholders,” the committee said.
CBK has been keen to evert any bank failure considering the banking sector is yet to recover from Imperial Bank and Chase Bank crashes witnessed in 2015 and 2016, respectively.