Mwalimu Sacco, officially registered as Mwalimu National Savings and Credit Co-operative Society, could be facing collapse after a bank it bought in 2014 sank into multi-billion losses.
During its annual general meeting held in March 2021 at the Bomas of Kenya, the media was kicked out even as emotions ran high over the state of Spire Bank, whose core capital currently stands at negative Ksh2.63 billion.
Spire Bank (formerly Equatorial Commercial Bank), in a period of five years, has recorded a cumulative loss of Ksh8.4 billion, wiping out all the shareholder funds to negative Ksh1.8 billion.
The bank is 75 percent owned by Mwalimu Sacco, which was bought in 2014 from Sameer Park investor Mr Naushad Noorali Merali.
The teachers under Mwalimu Sacco forked out Ksh2.4 billion to buy the lender, despite several warnings from auditors and red flags that indicated that the lender was almost dead.
For instance, Co-operative Alliance of Kenya warned that the due process was not followed in acquistion of the lender. But why would the managers of Mwalimu Sacco listen at a time they were going to make history as the first Sacco in East Africa to own a bank?
Ernst and Young, in a probe commissioned by Mwalimu Sacco, also flagged the transaction, but the drive by ambition was stronger.
The deal was closed on December 31, 2014, amid several warnings.
Fast forward to the current financial standing of the bank. 96 percent of the borrowers have defaulted on their loans with the total non-performing loans hitting a high of Ksh2.4 billion.
According to its recent financial report, net loans and advances to customers have dropped to Ksh2.5 billion from Ksh3.3 billion, the worst record for any bank in Kenya.
In the last one year, Nation reports that the Bank has lent only Ksh90 million as compared to more than Ksh4 billion it lent in 2016.
Its balance sheet contracted by 25 per cent to Ksh5.1 billion year-on-year, primarily due to loan attritions, maturities in government securities and accumulated losses.
On the other hand, net loans and advances declined by 23 per cent, or Ksh756 million, to Ksh2.5 billion between 2019 and 2020.
Since 2016, the lender has been appointing a new CEO every year. Mr Tim Gitonga who was the CEO in 2016 was replaced by Mr Norman Ambunya in 2018.
In 2019, Mr Onesmus Muia replaced Mr Ambunya. Mr Muia did not oversee things for long, as he was edged out in favour of the current acting managing director Brian Kilonzo.
The change of guard every year has not worked so well, with its liquidity ratio shrinking to 7.6 per cent in the year ended December 2020, against the minimum statutory ratio of 20 per cent.
The bank is now operating on the red with a negative core capital of negative Ksh2.63 billion. This means that the bank requires capital injection of Ksh3.63 billion to be compliant.
The Central Bank of Kenya (CBK) has not pulled the plug for the lender after Mwalimu Sacco issued a letter of goodwill.
In a bid to save the bank and the sacco, the sacco chairman Mr Wellington Otiendo wants the members to buy the remaining 25 percent stake from Mr Merali, then sell the 100 percent ownership to a new investor.
The plan was to get rid of the loss-making lender, but the plan seems to have hit a snag. No investor has showed up to buy the struggling lender, which has now become a going concern.
A going concern is a business that might not survive another year.
Spire Bank Insurance Brokerage was to be retained by Mwalimu Sacco under Mwalimu Holdings Ltd.
A year after the resolution and with no hope, Mwalimu Sacco has an option of letting the lender sink or inject more capital. Either way, it will leave the pockets of the giant sacco dented.