This archive report was first published on 29 April 2021.
On April 29, 2021, the Central Bank of Kenya (CBK) and auditors EY found themselves at the center of a controversy surrounding the acquisition of Spire Bank by Mwalimu National Sacco in 2016.
According to reports, top shareholders withdrew billions of shillings from Spire Bank immediately after its acquisition, weakening the lender's capital base and precipitating its current liquidity challenges.
Spire Bank's Chairman, Wellington Otiende, revealed that billionaire Naushad Merali withdrew Sh1.7 billion from the bank in 2016, while other customers also made large withdrawals, further weakening the bank's financial base.
When questioned about the due diligence process, Otiende stated that Mwalimu Sacco contracted legal firm Mose and Mose to conduct due diligence on the bank's shareholding and EY to examine the financial stability.
However, Senators raised questions about whether proper due diligence was done, and why the regulator and EY allowed the deal to proceed despite the large withdrawals.
Spire Bank officials revealed that the lender has cycled through four auditors over the past four years, including EY at the time of the deal, which was also advising Mwalimu Sacco.
With the bank's total assets standing at Sh6.5 billion and liabilities at Sh7.3 billion, the lender's liquidity ratio is a mere six percent, far below the CBK's statutory 20 percent.
Spire Bank's Acting Managing Director, Brian Kilonzo, acknowledged the capital shortfall and stated that the search for a strategic investor has been ongoing for two years, but was disrupted by the coronavirus pandemic.
The board chairman, David Ndegwa, revealed that the lender has received three commitments in the recent past but investors failed to commit funds at the last minute.
