i

2008

RESERVE BANK OF ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK

Reserve Bank of Malawi Bank Reserve

Bank Supervision Department REPORT ANNUAL ANNUAL 2008 2008 annual report

Reserve Bank of Malawi Bank Supervision Department

2008 ANNUAL REPORT

3 2008

7 9 23 23 23 23 24 24 24 24 24 24 25 25 25 25 25 11 11 11 11 11 12 12 12 12 13 13 15 17 18 18 21 11 23 23 11 ANCE 2008 PERFORM TOR MENT IN 2008 VISION DEPART KING SEC ONDITIONS AND BAN THE REPORT THE GOVERNOR Requirements and Proper” “Fit - Enhancement of Action and Corrective - Enforcement Bank Resolution and Statutory Management- Problem Duties of External- Additional Auditors Returns - Submission of Periodical of Responsibilities Transfer - - Asset Analysis - Asset - Liability Analysis - Revised minimum Referencing - Credit THE BANKING SUPER Introduction Off-Site Surveillance Examination On-Site Licensing ReviewCompliance Review of Banking Sector Legislation Bill Bureau Reference Credit under Liquidation Bank Malawi Limited on Finance Update and Staff Development Training Inflation Rates Exchange RatesInterest Balance of Payments Sector Developments Recent Financial Ownership Structure of the Banking and Sector of the BankingPerformance Sector AdequacyCapital QualityAsset Profitability Liquidity W OF ONOMIC C VIE GE FROM

CROEC TIVITIES OF A C RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK

PART II PART A M MESSA I PART Table of Contents of Table AN OVER Domestic Product Gross 2008 annual report ent

2008 m 27 27 27 27 27 29 29 29 30 30 31 31 33 33 34 34 35 36 37 38 39 epart 27 35 27 d ion s i v uper s

k Ban VISION BLES TA Directives in force during 2008 in force Directives Introduction Banking Effective for Supervision Principles Core The Risk Based Supervision Supervision of Discount Houses SupervisionConsolidated Basel II (AML/CFT)Terrorism Activities Money Laundering of Financing and the Combating Preventing Challenges of the Supervision and Prospects Function Structure of Bank SupervisionOrganisational Institutions Banks and Other as at 31 December 2008 of Commercial Financial Register banks in 2008 Branch network for etc rating categoryNumber of banks per CAMEL as at December 2008 AL RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Appendix 1 APPENDICES STIC STATI of Balance Sheet: Liabilities Composition of Balance Sheet: Assets Composition of Balance Sheet: Deposits Composition Adequacy: in Capital Trends of IncomeComposition Selected Statement: Items Profitability: Selected Ratios Quality:Asset Liquidity: Appendix 2 Appendix 3 Appendix 4 Appendix 5

PART III PART ISSUES IN BANK SUPER CURRENT 4 5 2008 Capital, Asset Quality, Management, and Liquidity Earnings, management and funds Quality, Asset Capital, Discount House Continental Malawi Limited ECOBANK FDH Bank Limited Discount House Limited First Bank Merchant First Stability Institute Financial Malawi Government Bank International Commercial Limited Technology Information Limited Company and Finance Leasing Stock Registered Local Bank Malawi Savings NBS Bank NEDBANK Malawi Limited Non-performing Overdraft Opportunity International Bank of Malawi Reserve Bank of Malawi Risk Based Supervision Risk Management Programmes Return on Asset Return on Equity Bank Malawi Limited Standard

RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK CAMEL CDH ECOBANK FDH BANK FDH FMB FSI GOVT ICB INDEBANK IT LFC LRS MSB NBM NBS NEDBANK NPL OD OIBM RBM RBS RMP ROA ROE BANK STANDARD LIST OF ABBREVIATIONS AND ACRONYMS ABBREVIATIONS LIST OF 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 6 7 2008 (Dr) Perks Ligoya Perks GOVERNOR

therefore filled in the Bank Supervision filled in the Departmenttherefore in the necessary provide to bank also continued The training year. regard With to fill the selected staff to identified. skills gap the shortcomingsto in the legal and regulatory framework, the Bank Supervision Department supervise continued to using the existing analysis and onsite offsite banks through to the process However, regulatory framework and Directives. continued in earnestyear financial sectorreview laws in the harmonisation and included under review with existing and that our supervisionto ensure new financial sector laws is enhanced. made it me once again thank all stakeholders who have Let our supervisorypossible for - its responsi function discharge to I am confident that all stakeholders will find bilities effectively. this report and useful. both informative - -

n compliance with sectionBanking 54 Act,of the I am pleased to present the I 2008 Bank Supervision to inform the public on aim of the report is Annual Report. The developments and majorBank activities Supervision of theDepartment 2008. during the year of one of the most pro the unfolding saw calendar year That nounced financial crisis in history that started the United from of America, States Europe, the United Kingdom to and spread the Malawi banking However, of the world. and the rest Asia non-performing earnings and lower strong sector registered econ- The assets which made our banking stable. sector more with macro-economic rate, at an unprecedented grew omy and stable characterised inflation rate, indicators a low by ReserveThe Bank of Malawi rates. and interest exchange in a banks operate in ensuring that Malawi’s vigilant remained the Bank adopted During the year, and prudent manner. safe supervisionthe risk-based with the aim of methodology assessed adequately ensuring that all risks banks are affecting Inand managed. start-up addition, the minimum capital for that banks the banking ensure to sector was raised in order with favourably and financial institutions in compare Malawi and It the neces- down other banks in the region will also lay sary the smooth implementation of Basel II for foundation for set aside a capital charge since banks will be expected to marketoperational risk, and risk. credit in addition to the supervisionNotwithstanding, function still faced several terms staff complement was not enough in of The challenges. the demands of the market. meet adequately numbers to Fur ther, banks continued to introduce new and more complex complex new and more introduce banks continued to ther, products such as internet and mobile banking that required not highly specialised skills among our supervisors. However, to inad- that much needed training due receive all staff can resources. financial equate Another challenge was the regulatory banks framework for some of circumvent To revision. requiring which is outdated, the to a phased approach the Bank adopted these challenges, Some criticalwere vacancies of additional staff. recruitment RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK MESSAGE FROM THE GOVERNORTHE FROM MESSAGE 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 8 9 2008 Tobias S Chinkhwangwa Tobias EXECUTIVE DIRECTOR, SUPERVISION OF FINANCIAL INSTITUTIONS

banking was during Another milestone the year business. of the in the review the Department’s active involvement Financial ServicesBanking Sector specifically the legislation, Banking the Bill, Reference Act Amendment Bill and the Credit DepartmentThe also drafted the Market Bill. Disclosure Bureau Guidelines which are Governance and Corporate Directive comments and then issued for be circulated expected to a summary III of the reportin 2009. Part gives major of the undertakenactivities that were as specific projects or under a Assistance. Technical me take this opportunityLet thank senior management to of the Reserve the valuable support Bank of Malawi for and the Department to its guidance given while discharging like the various thank I would to stakeholders Further mandate. in our service a vital role particularly played delivery, who have for their financial institutions, banks and other the commercial best practices to - as enshrinedcooperation and adherence the banking for in the various and guidelines issued directives It in the supervision hope that our vigilance my is of the sector. banking industry confidence and promulgate will continue to public trust in the sector.

elcome to the 2008 Annualthe Bank Report Supervision for Department. In

the year 2008 the Reservethrough Bank its of Bank Malawi Supervision carried outDepartment several activities.is prepared Thisin line report withBanking section Act, 541989 of whichthe to submit a report of Supervision Department requires the Bank its activities to the Minister of Finance. W RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Part I of the report provides the general macro-economic I of the reportPart provides and banking sector performance In assessment. the period the registered 2008 the Malawi economy ended December, domestic product at 9.7 per gross real with growth fastest 8.6 per cent in the previous to cent comparing favourably to increased Annual inflation slightly period. corresponding MalawiKwacha The in 2007. 8.0 per cent 8.7 per cent from against strengthened US dollar, stable against the remained and the British Sterling and weakened against the the Euro at 15.0 per cent. fixed remained Bank rate The Japanese yen. bankingThe with the performance stable, sector remained of the banks characterised high profitability on the backdrop by and satisfactory non-performingof low provisions low loans, bankingThe be sector continued to capital adequacy ratings. banks. two commercial by dominated the major activities carried II provides Part the Bank out by Supervision DepartmentThe Department. continued to conduct surveillance off-site examination of the and on-site DepartmentThe carried full scope out five banking sector. with two of the banks examined as pilot examinations, on-site supervisionprojects using the new risk-based methodology entry to the Reserve regard by into adopted With Bank. the banking the Minister saw of Finance the year system, commence two successful applicants to issuing licences to AN OVERVIEW REPORTTHE OF A view of part of the Blantyre financial district most of the banks under RBM supervisionrepresented. where are 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK MACROECONOMIC CONDITIONS AND 2008 SECTORBANKING PERFORMANCE 10 11 2008 Balance of Payments Balance Interest Rates Interest

the local unit staged an impressive performance with regard regard with performance impressive an staged unit local the The the year. throughout and the British Pound the Euro to cent, per 27.4 and cent per 4.4 by strengthened kwacha Malawi at trade to pound, British the and euro the against respectively, at December, and MK202.6042 per pound as MK198.4424 per euro of the weakening currencies of these a result was largely This 2008. crisis. financial global the of wake the in Dollar, US the against the Malawi kwacha per cent against 18.8 weakened by However, 2008, of end the at yen per MK1.5565 at trading yen, Japanese the other against strengthening continued latter’s the of back the on currencies. hard against the local currencyIn appreciated the SADC sub region, With both the South kwacha. African rand and the Zambian 21.8 per cent by the local unit appreciated the rand, respect to it Similarly, 2008. of close the at rand per MK15.0173 reach to kwacha 20.8 per cent against the Zambian by trade to appreciated 2008. of end the by MK0.0291 at The country’s balance of payments, as measured by the change by as measured country’sThe balance of payments, register a to improved in net international reserves, significantly a deficit of MK4.4 billion in surplus of MK10.4 billion from record performance impressive substantial longThe was due to 2007. year. the during received inflows official external term a balance of MK134.2 billion capital account recorded The were MK64.6 billion in 2007. Notable increases to compared In 2008 interest rates remained stable as the bank rate remained as the bank rate stable remained rates In 2008 interest lending base average banks’ Commercial cent. per 15.0 at fixed the 19.6 from marginally dropped was 19.25 per cent, having rate interest in plunge sustained The 2007. in registered figure cent per by private access credit years has spurred in the last five rates MK3.65 billion by an all-time high of to grew This sector players. 2008. December 2008 in billion MK168.7 to amounted subscriptions bill Treasury of MK154.7 billion in 2007, indicating that in 2008 a total from of 9.0 per cent compared rate at a lower subscriptions increased Bills yields depicted aTreasury with 25.7 per cent in 2007. the in liquidity higher-than-normal to due trend downward 11.33 averaged tenors 273-day and 181-day 91-day, The market. compared respectively, cent per 11.53 and cent per 9.97 cent, per The 2007. in cent per 14.45 and cent per 14.32 cent, per 14.24 to all-type close at 10.94 per cent at the 330 basis points to yield lost end of 2008. gross gross Exchange Rates Exchange Inflation Gross Domestic Product Gross

his chapter provides a description the of macroeconomic conditions, recent

T developments ownership in and the sector structure and financial lastly, of 2008. banking sector in the the sector, performance banking of the RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK The Malawi Kwacha exchange rate performed rate Malawi Kwacha exchange The variably against of major trading partnerscurrencies in 2008, reflecting both Malawi kwachaThe remained domestic and global developments. at year the closing Dollar, States United the against stable fairly hand, other the On 2007. to compared as dollar per MK140.5997 per 8.7 per to by 0.7 per centage points increased Annual inflation rate in prices increase in 2007 - due to 8.0 per cent cent in 2008 - from market. global the on prices food and commodities energy of of account on cent per 10 below remained rate inflation Annual contained which market local the on availability food increased rate. stable exchange relatively inflation and the food money with 2008, in expansionary were developments Monetary the reflecting cent, per 33.1 of average an by increasing supply in money supply rate growth The in economic activity. growth domestic Net 2007. in registered cent per 36.9 than lower was the monetary was the major contributor to credit expansion as it to Credit in money supply. explained 59.8 per cent of the growth assets foreign net while cent per 19.9 contributed sector private had a contractionary of 8.2 per cent on monetary effect growth. sector government the from mainly arose credit in expansion The monetary from emanated assets foreign net the in drop the while authorities. Despite the reigning global financial and economic crisis, real crisis, economic and financial global reigning the Despite to compared 2008 in cent per 9.7 by grew (GDP) product domestic cent per 6.0 the above considerably is rate The 2007. in cent per 8.6 Development and Growth Malawi the in stipulated target annual growth strong from in GDP resulted growth The (MGDS). Strategy fertiliser government’s to owing sector agriculture the in recorded rains favourable with coupled programme, subsidy seed and Other sectors tobacco. that for especially prices, and good crop construction, manufacturing, were growth strong experienced services. and financial/insurance information/communication MACROECONOMIC CONDITIONS AND BANKING 2008 SECTOR PERFORMANCE 1 PART 2008 annual report ent

2008 m epart d ion ------s i 93.8 97.1 41.2 22.5 84.0 60.1 100.0 100.0 40.16 v Foreign uper s

k Ban 1 ------6.2 2.9 58.8 77.5 16.0 39.9 Local 100.0 100.0 100.0 100.0 59.84 Ownership and Structure of the Banking Sector

hands to establish a credit referencing unit. Efforts unit. been have referencing a credit establish hands to service the tendering for and draftingmade towards enabling the Kenya, Botswana, in operates currently which Africa, CRB law. the provide to tender the awarded been has Zambia, and Uganda Bill was drafted with the aim Bureau service. Reference A Credit for of Cabinet approval Bill awaits The the service.of regulating Parliament. by enactment

The bankingThe highlysector in Malawistill small and remains is commercial largest two the by dominated is it as concentrated comprised sector the 2008, December of end the at As banks. banks: commercial were these of Eleven institutions. fourteen Bank, Merchant Bank, NBSNational Bank of Malawi, Standard First Malawi NEDBANK Malawi Limited, Limited, INDEbank Bank Limited, ECOBANK Malawi, of Bank International Opportunity Bank, Savings Bank), FDH Bank and International Commercial(formerly Loita Bank. banks represented and deposits of the twolargest Assets banking total the of respectively, cent, per 56.2 and cent per 61.8 sector as at end 2008. and – Leasing sectorThe one leasing company also includes Continental - houses discount two and Company Finance company leasing The Discount House. Discount House and First a However, bank. commercial a of subsidiary owned wholly a is products under divisions within leasing number of banks offer banks holds equity One of the major stakestheir structures. both in owns it where firm and an insurance company a stock-broking direct Over the years, 75 per cent and 26 per cent respectively. has system financial the in ownership and control government privatisation and public offer. reduced through been significantly one in ownership cent per 100 has still government Currently, depicts below structure of banks in per the ownership Table bank. centage terms as at 31 December 2008. ------Govt 100.0 wnership O

Recent Financial Sector Sector Financial Recent Developments eferencing

FDH Bank LFC OIBM MSB ECOBANK NEDBANK INDEbank NBS FMB CDH Standard FDH NBM ICB Name of Bank evised minimum capital requirement evised minimum capital RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK FDH Bank and FDH are owned by a financial holding company, FDH Holdings which is owned by Kingdom Financial Holdings of Zimbabwe, TF Mpinganjira Trust and Life Assurance Trust and Old Mutual Life TF Mpinganjira Financial Holdings of Zimbabwe, by owned FDH Holdings which is Kingdom a financial holding company, by owned FDH Bank and FDH are Ownership Structure Company (Mw) Limited in the ratio 40.16%, 39.84% and 20% respectively. (Mw) in the ratio 40.16%, 39.84% and 20% respectively. Limited Company

1 Credit R Credit towards risk assessment and preparation credit In improve a bid to joined have RBM and Malawi of Association Bankers the II, Basel R other and banks for capital paid-up minimum the revised RBM The houses) discount and companies (leasing institutions financial Malawi million Kwacha equivalent of US$1.5 the prevailing from the Malawi of US$5.0 Kwacha equivalent and US$750,000 to In addition, all existing million and US$1.5 million respectively. was capital paid-up whose institutions financial other and banks were respectively, million, MK250 and million MK850 than less current the on Based requirement. new this meet to required paid-upnumber of licensed banking the aggregate institutions, the actual was total capital should be MK9.6 billion. However, paid-up the banks two in that fact the reflecting billion, MK5.6 are there Nonetheless, minimum. revised the than less was capital meet this requirement. no indications that banks will be unable to into earnings retained their of part convert to resolved banks Most new The requirements issues. of bonus way paid-up capital by take on 1 January effect 2009 and existing banking are institutions Thus date. the effective a moratorium of 18 months from given toto 30th June 2010 up banks and other financial institutions have capital requirement. minimum comply with the revised recorded in net government transfers and drawings sub-accounts and drawings transfers in net government recorded The respectively. billion, MK22.6 and billion MK85.5 of tune the to in mostly direct investment, country foreign sizable also received account position current the On the other hand, sector. the mining of that from 2008 in billion MK86.0 of deficit a to worsened corresponding from deficit emanated The MK65.4 billion in 2007. accounts, services and trade merchandise the in deterioration in imports higher growth than in exports. which registered 12 13

2008 Asset Growth % Growth Asset 25.0 30.0 20.0 15.0 10.0 0.0 5.0 1V 111 2008 11 Asset Growth Rate Asset Growth 1 The balance sheet of the banking balance sheet The MK184.1 sector totalled 41.8 per of a growth Decemberbillion as at 2008, representing quarter-The billion as of December MK129.8 2007. cent from in total rate growth on-quarter a progressive analysis reveals a decelerated quartersassets betweenfirst three the before had been 8.2 per rate growth The in the fourth quarter. growth per cent and 2.0 per cent in the first, cent, 9.2 per cent, 17.6 and fourth third quartersecond, respectively. the quarterly illustrates below figure The balance sheet position December 2008. 2007 to March from rate and its growth Period and interbank placements made up Stocks Registered Local RBM Bills, Bills, Treasury 111 2007 Balance Sheet Growth 11 GrossTotal Assets GrossTotal 1 70.0 50.0 90.0 Asset Analysis Asset Performance of the Banking of the SectorPerformance 190.0 170.0 150.0 130.0 110.0 2007 to MK27.5 billion as at 31st December2007 to 2008. as at 31st December 2007. the second largest portfolio at MK58.9 billion. These assets registered a growth of 41.3 per cent from MK41.7 billion. of 41.3 per cent from a growth assets registered These portfoliothe second largest at MK58.9 billion.

Gross Total Assets - MK’billion - Assets Total Gross

• MK16.9 billion as at the end of December 26.1 per cent from by and balances with other banks and RBM increased Cash • MK56.2 billion 45.9 per cent from up by were asset portfolio, and advances at MK81.9 billion, constituting the largest Loans • comprising Securities and investment, • MK6.3 billion. MK4.8 billion to of 30.4 per cent from an increase Other assets recorded RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Reflective of the balance sheet total, all balance sheet items registered significant growth on thegrowth December 2007 position. significant registered all balance sheet items Reflectivetotal, of the balance sheet Selected below: key highlighted assets are Figure following, illustrates the banks’ quarterly December 2007 to 2008. March from balance sheet composition the banks’ illustrates following, Figure During the year 2008, the bankingDuringthe year industry generally remained the derived from This stable and its performance buoyant. stable inflation, stable macro-economic - low environment agricultural, and growing rate falling , exchange construction, manufacturing and service industries that performance year’s The banking fuelled demand for products. is characterised the backdrop of low high profitability on by and satisfactorynon-performing provisions low loans, capital rate a growth registered local economy The adequacy ratings. 5 on the number of banks Appendix to of 9.7 per cent. Refer rating category. per CAMEL 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 14 15 2008 1V 1V 111 111 Cash and Due from Banks Loans and advances Total 2008 Other Liabilities Deposits Total 2008 11 11 1 1 1V 1V 111 111 Structure Asset 2007 2007 Liability Structure 11 11 1 1 Other Assets Other Secutities and Investments Liabilities to Other Banks Capital Total 0.0 0.0 80.0 60.0 40.0 20.0 80.0 60.0 40.0 20.0 100.0 140.0 120.0 100.0

Liability Analysis

MK’billion MK’billion

RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK The banking industry’s major liabilities were deposits and capital. Bank deposits totalled MK131.5 billion at the close of the year, MK131.5 billion at the close of the year, banking Bank deposits totalled The deposits and capital. industry’s major liabilities were at MK27.5 billion (MK17.6 billion in MK94.4 billion while bank capital stood of 39.4 per cent from an annual growth registering bankingThe international from industry the RBM and lines of credit December liabilities from 2007). also utilised interbank loans, Bank.World banks and the lending institutions such as the Development Bank of South Africa (DBSA), parent As depicts figure the main liability the composition of deposits. overleaf illustrates structure of banks while that following The of sheet exposure off balance Excluding time and demand deposits. the main components of the deposit structure are shown, liabilities of the bankingMK20.1 billion, total MK156.7 billion. to sector amounted 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 16 17 2008 . The The . 3 1V 111 Foreign Currency Denominated Deposits Demand Deposits 2008 11 (or supplementary (or capital). 2 1 1V Structure of Deposits Structure 111 2007 11 1 Savings Deposits Savings Time Deposits 0.0 50.0 40.0 30.0 20.0 10.0

Capital Adequacy Capital MK’billion

RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Assessment of capital adequacy factors financial condition of the institution; ability and quality Assessment among others: level of management of capital and the overall takes account the following into Predominantly comprises revaluation reserves, general provision, hybrid debt capital and other subordinated debt. debt capital and other subordinated hybrid comprises reserves, general provision, revaluation Predominantly 2 to address emerging needs for additional capital; nature, trend, volume of problem assets and the adequacy of allowances for probable losses; balance sheet composition, including the nature losses; balance sheet composition, including the nature probable assets and the adequacy of problem for volume of allowances trend, additional capital; nature, needs for emerging address to off-balance sheet activities; by concentration risk quality of earnings and risks with non-traditional activities; and the assets, associated and strength and amount of intangible risk represented including support capital markets and access to of capital, and other sources provided growth; as past experience as well in managing growth, of dividends; prospects and plans for reasonableness company. a parent by 3 figure below illustrates the bank’s core capital, total capital, supplementary capital position as well as core and total capital ratios. supplementarytotal capital ratios. total capital, and well as core capital, capital position as core the bank’s illustrates below figure representing respectively at MK18.6 billion and MK23.9 billion stood capital and total core at December 2008, the banks’ As This the December of MK12.2 and MK15.5 billion respectively. 2007 level of 52.8 per cent and 55.5 per cent from growths The namely ICB and FDH Bank. fresh capital injection NEDBANK,ECOBANK and new entrants, in MSB, of profits, was reflective per cent and 21.5 16.8 15.5 per cent and 19.6 per cent to from improved industry capital ratios therefore and total aggregate core MK111.9 MK79.0 billion to assets from in risk weighted increases has been attained despite feat above The per cent respectively. the banking risk assumption. On the whole, credit industry from originating billion, largely capitalised. is well Capital plays a crucial role in any bank as it provides the source of funds and serves the source It absorb as a cushion to losses. as it provides bank is one of in any a crucial role plays Capital set of financial soundness soundness and is also one of the elements in the core in assessing a bank’s the factors considered paramount importance it is of this reason, banking that the For industry Inindicators. times. capitalised at all assessing is well individual banking minimum capital ratios for on capital which prescribes international requirements the RBM follows capital, earnings year and current retained premium, share capital (comprising paid-up capital, core is categorised into Capital institutions. capital and tier II which is the sum of core total capital, and profits) The minimum core capital ratio and total capital ratio to risk capital ratio to based assets is 6.0 per cent and 10.0 per cent respectively and total capital ratio minimum core The 2008 annual report - ent

2008 m epart 20.0 d ion s i v uper s

k Ban 15.0 . In assessing asset quality, the . In assessing asset quality, 4 2008 10.0 MK’ billion MK’ 0.0 2007 0.0 Composition of the Income Statement 1 Outgoing Expenses Net Interest Income Non-Interest Income Total Interest Income Total Total Interest Expenses Total Profitability Asset QualityAsset

At a minimum the following are looked are at: adequacy of risk distribu of underwriting identification practices; a minimum the following administration practices, and appropriateness - At level, soundness of credit standards, RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Earnings play a very critical role in funding the bank’s growth prospects, strengthening capital and giving it a competitive edge. edge. it a competitive capital and giving strengthening prospects, growth Earnings a very play funding the bank’s in critical role after billion tax of MK8.6 2007 and profit MK25.5 billion for bankingThe up from income of MK31.8 billion industry gross recorded MK15.1 billion to up from income which went of interest income was as a result in gross increase The (MK6.0 billion in 2007). MK9.9 billion in December MK13.2 billion in December, 2007 to from income which increased MK18.6 billion and non-interest MK15.8 billion in 2008. MK13.2 billion in 2007 to cent from 19.7 per by expenses increased interest non 2008. On the other hand, for 2007 and 2008. a composition of the income statement gives below figure The tion, severity, and trend of problem, classified, restructured, delinquent, and nonperforming assets; adequacy of the allowance for probable losses; diversification of the and investment portfoinvestment delinquent, and nonperforming of the loan and restructured, losses; diversification for probable assets; adequacy classified, of the allowance of problem, and trend tion, severity, lios; extent of securities underwriting and practices; counterparties to activities ability and exposure of management to in trading activities; procedures, adequacy policies, of loan and investment of volume and nature and including the timely identification and collection assets; adequacy systems; and management information of problem its assets, administer of internal properly controls documentation exceptions. credit 4 Asset quality of NPLs and adequacyAsset level the of the banking by of provisions is measured system

RBM employs the Asset Classification Directive as a major guide. Risk Management Guidelines, the Directives on Large Exposure Exposure Large on the Directives as a major guide. Risk Classification Directive Guidelines, Management the Asset RBM employs (MK56.2 billion in and advances at MK81.9 billion Ratio also used in the assessment. Loans Currency are Lending and Foreign (MK1.9 MK2.6 billion banks. to portion the highest exposure the largest December 2007) constituted of bank assets and presented a slight portfolio, 3.2 per cent of the loan represented This adjudged non-performing. billion in December 2007) of these were viewgraphical of asset quality the ratios. two give indicator below figures The on the 2007 ratio of 3.4 per cent. improvement 18 19

2008

ROE (Percentage) ROE Net Interest Margin (%) Margin Interest Net 0.0 0.0 50.0 16.0 40.0 15.0 14.0 30.0 20.0 13.0 12.0 10.0 11.0 1V 1V 111 111 ROE 2008 2008 11 11 Efficiency 1 1 Period Period 111 111 ROA 2007 2007 11 11 is measured by ROE During by some and ROA. the period the two is measured under review ratios showed 5 Net interest Margin on Equity Return on Assets, Return Efficiency Margin, Ratio Interest Net 1 1 53.0 52.0 51.0 4.0 5.0 4.9 4.8 4.7 4.6 4.5 4.4 4.3 4.2 4.1 49.0 48.0 50.0

ROA (Percentage) ROA Efficiency Ratio (%) Ratio Efficiency Earnings assessment takes into account: quantity, quality, sources trends and stability of earnings; exposure to market risk such as interest rates and foreign exchange rates; level of expenses and level rates; exchange and stability market and foreign to rates earnings; trends of exposure risk sources such as interest quality, Earnings assessment takes account: quantity, into RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK After a 1.9 per cent dip in net interest margin from 13.9 per cent to 12.5 per cent between December cent to 13.9 per the NIM 2007 and June 2008, from margin cent dip in net interest a 1.9 per After fairy has remained albeit decreasing. stable expenses as a operating one expresses The commonest efficiency measure used to in the banking methods are industry. Various average efficiency The ratio an industrial with bank. an efficient benchmark income, of 55 per cent signalling per centage of total below. as shown the year over as at December 49.8 per cent and has been improving was ability support earnings to retained capital through improvement in the banking industry’s performance as depicted below. Thus all banks, except for two new entrants, recorded recorded two new entrants, for except all banks, Thus in the banking industry’simprovement performance as depicted below. remarkable duringyear ended December 2008. the profits 5 Profitability performanceProfitability 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 20 21 2008 1V 111 2008 11 was 53.4 per cent, slightly declining on the 2007 was 53.4 per cent, slightly 7 in order to meet their liquidity meet their to such as obligations in order 6 1 Liquid Assets to Total Deposits and Short -Term Liabilities Deposits and Short -Term Total Assets to Liquid Period 1V 111 2007 11 1 Liquid Assets to Total Deposits Total Assets to Liquid Liabilities Term Short Liquid Assets to Deposit and Liquidity 70.0 50.0 40.0 60.0

(%) Percentage RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Banks are required to maintain adequate liquidityadequate maintain manage it properly and to required Banks are deposit withdrawals and maturing liabilities in the normal course of business. As at December 2008, total liquid assets amounted liquid assets amounted at Decembermaturing and 2008, total As deposit withdrawals in the normal liabilities of business. course liquidityThe ratio year. MK56.5 billion held in the previous MK74.8 billion from to position of 56.5 per cent largely on account of an entrenched grip on lending in preference to money market to securities whose on lending in preference grip entrenched on account of an largely position of 56.5 per cent the industry However the regulatory been falling. liquidity it was above position was generally sound as benchmarkyields have of to December 2008. 2007 in liquidityMarch the trend ratios from shows below figure The 30.0 per cent. Liquid assets to deposits and short Liquid assets to term liabilities. Liquidity assessment takes into account: adequacy of liquidity sources compared to present and future needs and the ability Liquidity meet liquidity its operations or affecting and future to assessment takes needs without adversely account: adequacy present into to of liquidity compared sources 7 condition; availability of assets readily convertible to cash without undue loss; access to money markets and other sources of funding; diversification of funding sources; degree of reliance on short- of degree money convertible markets of funding sources; cash without undue loss; access to condition; availability of funding; diversification to of assets readily and other sources and stabilitywith prudential liquidity of funds; trend of deposits; compliance sources limit; impactterm, volatile of other risks like on liquidity; credit capability identify, properly management to of and contingency systems management information funding plans. policies, liquidity of funds management strategies, and control position, including effectiveness monitor, measure, 6 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban

RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK

ACTIVITIESTHE OF BANKING SUPERVISION 2008 IN DEPARTMENT 2 PART 22 23 2008 Licensing board; off-site; and cannot be identified recommendations; and surveillance.off-site

• the quality bank management and the of Appreciate • that otherwise corrective action Identify areas require • examination findings and up on previous Follow • and policies; regulations Monitor with laws, compliance • for Confirm accuracy submitted and figures of returns by a valid licence issued by have purpose banks to The of requiring banking the into entry control to is Malawi of Bank Reserve the allowed are players proper and fit only that ensuring by system ultimate The country. the in business banking conduct to public the and depositors of interests the protect to is objective bank failures. and help minimise the probability of future banks, two licensed Malawi of Bank Reserve the year, the During Commercial International and Limited, Malawi Ecobank namely Bank (ICB) Malawi. 2008 bank) was licensed in March, (formerly Loita ECOBANK bank Loita in shares of cent per 73.0 of acquisition following Incorporated (ETI). at the end of As Transnational ECOBANK by December 2008, ETI while Loita 86.6 per cent shares owned held 13.4 per cent. International Partners Capital (LCPI) a bankingICB Malawi was granted in June 2008 and licence the general public in Decemberopened to 2008. ICB Malawi In 2008, the Department carried full scope on-site out five pilot projects following were of these Two examinations. supervisorythe adoption of risk-based methodology by the Reserve embraced both the Bank of Malawi. Having examination and reporting skills one the pilot cases, from examination was done using the new comprehensive on the examined other twoThe banks were methodology. conducted earlier in as they were approach traditional CAMEL DepartmentThe adoption of the new method. before the year inspectionsalso conducted of premises in line a number of the Bankingwith S25 (d) on Premises Act and the Directive newInspection branches the opening of eighteen following accredited bankingby All these branches were institutions. bankingfor met necessary business having security and banking suitable for business. infrastructure requirements activities activities On-Site Examination Examination On-Site Off-Site Surveillance Off-Site Surveillance Introduction safe and sound manner;safe examination entails supervisoryentails examination and processes 8

• carrying that banks are Ensure out their activities in a On-site Off–site analysis is the assessment of the financial performance performance financial the of assessment the is analysis Off–site returns prudential using institution an of condition and on ratios prudential quantitative Key banks. by submitted are liquidity and earnings quality, asset adequacy, capital bench with compared are These analysis. for computed and positions industry as well as relevant, where ratios, mark and laws with compliance banks’ Inaddition, time. over trends is analysis financial off-site full A assessed. also are regulations each of condition financial the determine to quarterly done and identification early of aim the with institution licensed analysis is alsoThe in the institution. correction of problems of examinations on-site during use for flags red raising at aimed institutions. the 2008 in industry banking the of assessment Off-site The previous the over performance in improvement an revealed capital in improvement of account on largely was This year. profitability. and performance quality asset better position, funds and liquidity for ratings lower were there However, as ratings bank of summary provides 5 Appendix management. at December 2008. The period witnessed a number of activities. The under review of the performance included desk analysis These of banking selected licensed institutions, visits to on-site institutions, the bankinglicensing of new into entrants policy system, and other on-going and development reviews supervisory some of these highlight to attempts chapter This issues. activities during 2008. the year carried out at the bank’s premises, usually involving examination usually involving premises, carried out at the bank’s and professional technical, bank’s the of assessment books, of with compliance and risk contain to resources organisational done be can approach examination The regulations. and laws depending on the issues to or limited ad hoc, full scope, through be examined. is conducted to: the exercise Among other reasons, ACTIVITIESTHE OF BANKING SUPERVISION IN 2008 DEPARTMENT RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 2 PART 2008 annual report ent

2008 m epart d ion s i v equirements equirements uper s

uditors ction k roper” R roper” Ban esolution and Statutory esolution and Statutory dditional Duties of External A roblem Bank R roblem P Management Statutory management involves assessing a bank that establish whether it can be to is experiencing problems salvaged and restored to normal operations before any receivership and liquidation considerations can be made. The inclusion of the statutory management requirement will ensure that banks that can be restored to normality at a reasonable cost other than being placed under receivership outright.The draft Bill has also outlined the enforcement actions and remedial measures the RBM can undertake to resolve problems in banks. Such measures include cease and monetary a person directing orders desist orders, penalties, affiliated with a bank to cease such an affiliation and closure Bill furtherThe powers of the banking provides institution. additional issue various where the RBM to directives to remedial measures can be outlined as the RBM deems fit. A The Bill empowers the Reserve Bank to require external especially adequacy their findings, of present to auditors provisions for bad debts, prior to publishing the annual accounts.The incorporation of this requirement in the Bill is to ensure that banks have adequate provisions for bad debts before the accounts are published to minimise the event of overstating the profitability of the banking system. P and “Fit of Enhancement The Bill extends“fit and proper” requirements beyond the board and executive management to include shareholders drivers of banking the ultimate who are entities. “fitproper” and that In addition, the Bill also requires when an individual should apply continuously requirements is This bearers. proper conduct of office to ensure is in office unlike in the current Act where such requirements are only office. into is being appointed applied when the individual A and Corrective Enforcement The current Act does not adequately provide for enforcement and corrective action to be taken when a bank violates provisions of the Act.The Bill therefore seeks to enhance corrective action so as to encourage in the marketcompliance among players imposing both by administrative and monetary penalties to non compliant players. Furthermore, the Bill empowers the Reserve Bank higher on-going prescribe of Malawi to capital than the required minimum for a banking institution if the RBM considers the risk profile for such an institution to be high. excessively

Review of Banking Sector Legislation Compliance Review Compliance inadequate provisioning; inadequate reporting; of Foreign breach to crunch leading global credit to Ratio. Currency Lending

• of non-performing recognition assets and Late • start newly licensed banks to planning by Poor • Liquidity and squeeze; • unconfirmed syndications arrangements due Failed

In 2008, the Department the Banking review continued to Act, an exercise that commenced in 2007.The key objective of reviewing the Banking Act is to enhance legislation governing banking operations and to empower Reserve and superviseregulate effectively Bank of Malawi so as to the banking industry will in Malawi. If the law passed, facilitate orderliness in the banking industry. Additionally, the law will promote sound management, competence and integrity of those entrusted with the task of running banking entities. It is also hoped that enactment of the Banking Act Amendment Bill will enhance consumer trust and confidence in the banking industry. On the part of the regulatory and supervisory it authority, is anticipated that enactment of the Bill will enhance the Reserve Bank of Malawi’s ability to ensure the existence at all times, of a stable, sound and conducive banking environment for all stakeholders. In a nutshell, the Banking Act Amendment Bill seeks to strengthen various areas of regulation and supervision including: The compliance review process involves monitoring monitoring involves process compliance review The of the adherence to operations of licensed institutions laws, policies, directives and regulations. Based on the 2008 off-site and on-site analysis, there was general compliance with Reserve cases of Isolated Bank of Malawi Directives. non-compliance were however noted in liquidity reserve requirement (LRR), Foreign Currency Lending Ratio, Asset Call Classification and Submission of Reports Directives. non compliance included: for major reasons The is a wholly owned subsidiary of ICB Financial Group Holdings, Holdings, Group subsidiaryis a wholly owned of ICB Financial Banking of banks in the ICB company the holding Group in 2003. incorporated in Switzerland RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 24 25 2008 members 9 Training and Staff Development and Staff Training

of staff most of whom were exposed to a number of training initiatives in bank supervision locally, regionally and acquisition, maintenance ensure is done to This beyond. supervisoryand non-erosion of the requisite skills. Members of staff attended the following courses, seminars, workshops during and attachments year: Risk; the Credit Risk Technology Bank Management; Banking Electronic and Market Supervision in Financial (IT Examination); Leadership Integrity (Money Laundering); Risk Management; Risk Based Supervision; Team Building; Financial Soundness Indicators; Financial Institution Analysis; Interest Rate Risk and Stress Standards; International and Auditing Accounting Testing; Anti-Money Laundering. the Department courses, In the above addition to was represented at the highest level at the Leadership Seminar Toronto the by African was organised which Regulators for Centre for Leadership in Financial Supervision held in enhancing leadership, SeminarThe targeted Pretoria. management and decision making skills for Supervisors. Further, the Department utilises the FSI Connect.This is a web based information resource and learning facility for bank supervisors worldwide which was developed by the Stability Institute. Financial During the year, the Department had seventeen During the year, that the liquidators complete payment to all bona fide depositors, most of whom were paid during the year 2008. Further, all terminal benefits of former employees of the ReserveThe of Malawi Bank continued paid. bank were to investigate blocked accounts that were suspected to have been used in foreign exchange malpractices. Some had unblocked investigations after thorough accounts were revealed that the accounts were normal. ReserveThe a claim of Bank of Malawi also submitted Bank (Malawi) of the Finance the curatorship expenses for now under liquidation.The claim was made in line with the consent order that was signed between the Reserve Bank of Malawi and the shareholders of the now defunct in had brought matter The Malawi Bank of Limited. Finance a different legal debate on the ineligibility of the Reserve Bank of Malawi to make such a claim and a different legal opinion ensued on the matter.The Reserve Bank of Malawi will continue to engage with the liquidator to resolve the matter amicably. eturns eriodical R esponsibilities Update on Finance Bank Malawi Bank Malawi on Finance Update under Liquidation Limited Credit Reference Bureau Bill Bureau Reference Credit

ransfer of R ransfer Four members of staff joined the department members of year. in the second half of the Four

Bank Supervision Department the monitor continued to liquidation process with a strong emphasis in ensuring 9 The DepartmentThe also participated in the drafting of the provide Bill which if enacted would Bureau Reference Credit for the regulation and supervision of credit reference main objectiveThe of the Bill business in Malawi. bureau would be to collect and disseminate credit information enable bankingon households and entities to institutions make decisions on the creditworthiness lending informed of borrowers. A suitable CRB Unit was already identified and the enactment awaiting the Bill. of its operations are Under the existing Act, certain operational activities of the Reserve Bank have to be sanctioned by the Minister of Finance before they are executed.These include endorsement of new licences, replacement of licences due loss of licence or change of trading of name, change to premises.The Bill proposes to transfer such operational responsibility to the Reserve Bank, thus allowing the and maintaining the on developing Minister concentrate to sectoral policy. In view of the substantial amendments to the existing Banking Act, the recommendation to Parliament is to it with the Banking Act and replace the entire Act repeal Amendment Bill.The Bill has also been drafted in such a way that it is highly interlinked with the Bill 2009 (proposed umbrella law for the financial sector) to the extent that it can only be effective as a law if the latter is also operational. T Submission of P Submission An essential element of banking supervision is the ability of the Supervisor to supervise the banking group on a consolidated basis, adequately monitor and apply prudential norms all aspects to of the business conducted by the group.This requires that the Reserve Bank monitors the performance of a bank’s subsidiaries, affiliates, associates or holding company. Unlike the current Act, the proposed the Reserve to periodic power call for Bank to Bill gives returns of a bank’s group of companies for purposes of in line with Basel Core is This supervision.consolidated Banking Effective Supervision. for Principles RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban

RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK

CURRENT ISSUES IN BANK SUPERVISION ISSUES IN BANK CURRENT 3 PART 26 27 2008 Consolidated Supervision Consolidated

Consolidated supervision provides a structured framework group-widefor assessment, ensuring that all risk exposures of a bank belonging to a banking or group are taken into account, whether the risks arise in the bank itself, or in a parent, subsidiary or affiliate of the bank. Sector Programme Assessment the Financial Understandably, (FSAP) undertaken by the International Monetary Fund and theWorld Bank in 2007 recommended, among other The supervision. the introduction of consolidated things, report noted that the laws in Malawi do not provide for consolidated supervision of banking organisations.The law is also silent on the regulator’s authority to supervise activities It of locally incorporatedoverseas banks. further noted that while sections 26, 27 and 28 of the Banking Act Bank of Malawi.Treasury Department monitors operational aspects the Bank Supervision of the discount houses while Department monitors governance and other prudential supervision a gap in the oversight creates and calls This issues. for a strengthening of the off-site surveillance and on-site been discount houses have Further, examination functions. subject not liquidity to reserve were mobilising deposits but after the Reserve Bank of Malawi until recently, requirements developed Operational Guidelines for discount houses which became effective in June, 2008. the ReserveNoting the uniqueness of discount houses, Bank sought technical assistance from the IMF East toAFRITAC examine the operations of discount houses in order to ascertain the nature and characteristics of their expected MissionThe was therefore business activity. and on policy advise the regulation to to issues relating supervision of discount houses and where necessary make recommendations for changes to the regulatory and supervisory framework including amendments to relevant and guidelines. regulations laws, The Mission visited Malawi from 3rd to 7th November, 2008. supervision is no off-site Mission that there The revealed conducted by the Reserve Bank of Malawi on discount houses. Reserve MissionThe for also made recommendations Bank of Malawi to improve on information pertaining to profitability, interest rate risk and credit risk for discount houses. Further it was recommended that RBM should also obtain data on MissionThe is expected back counterparty details. credit next year to finalise therecommendations. Thus discount enable to information furnish to more houses will be required Bank Supervision Department to effectively carry out offsite surveillance and onsite examinations. risk 10 . The RBM also RBM also The . 11 Supervision Houses of Discount Risk-Based Supervision The Core Principles for Effective Effective for Principles Core The Banking Supervision Introduction

RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK RBS was officially launched on 9 January by the 2009 DeputyGovernor of RBM. Two pilot examinations were conducted and July 2008 in March pilot examinations were Two CURRENT ISSUES IN BANK SUPERVISION IN BANK ISSUES CURRENT

There are currently two discount houses operating in Malawi. These discount houses present unique features in the market in that they are registered under the Banking Act 1989 but banks. from their product range and services different are Discount houses are currently jointly supervised by the Treasury and Bank Supervision Departments of the Reserve Pursuant to adoption of risk-based supervision (RBS) by activitiesthe RBM in 2007 several ensued in 2008 towards eventual implementation of the new supervisory approach. The activities included reviewing risk management programmes (RMPs) from banks, holding walk-through presentations on RMPs by banks, conducting bank-wide presentations to give feed back to banks on generic observations conducting on their submissions, pilot The Basel Core Principles (BCPs) provide a benchmark for assessing the quality of supervisory systems.The RBM is committed to ensuring full compliance with the BCPs. Following a self compliance assessment and that of theWorld Bank/IMF as part Sector Assessment of the country’s Financial Programme (FSAP) in 2007, Malawi was found to be largely CP4 (Transfer of except compliant with a majority of the BCPs Significant Ownership); CP5 (Mergers & Acquisitions); CP12, (CountryTransfer & Risk); CP13, (Market Risk Capital Charge); and CP24, (Consolidated Supervision). Full compliance with the BCPs is expected after enactment of the Financial Sector Bills in 2009 whose review continued in 2008. Guidelines on how to evaluate mergers and acquisitions are also expected to be drafted in 2009 with technical assistance from Financial Corps (FSVC). ServicesVolunteer This chapter focuses on current issues as well as projects that were undertaken Technicaland Assistance that was received by Bank Supervision Department in the year 2008.The chapter ends by describing prospects and challenges facing the Bank Supervision Department. issued guidelines on the effective preparation of RMPs. preparation issued guidelines on the effective based examinations, drafting the RBS examination manual the official launch of RBS for and preparing 11 10 3 PART 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 28 29 2008 Prospects and Challenges of the Prospects and Challenges Supervision Function

RBM as the regulatory and supervisory authority of the financial system in Malawi has a pivotalrole in shaping policies, activities and practices acceptable for the soundness of the banking Its industry. commitment and practices in this regard remain unchanged against ever-increasing expectation from the industry. Some initiatives such as training, periodic and ad hoc scheduled meetings and forums at various levels concluded in 2008, are testimony to this aim of meeting the demands. Meanwhile the RBM has lined up several preparatory activities towards implementation of Basel II. Against this background, supervision is faced with a number of surmountable challenges such as inadequate number of supervisors and a lack of appropriate skills in some risks and platforms that banks operate in. Chief in this area is IT-based with or without linkagesservices, and online, to remote both utility companies, which are on the increase at the moment. With banks predominantly building micro credit based portfolios whose characteristics and risks are significantly supervisors to the markto be up different, with also need necessary skills in this area. Department to identify shortfalls in its AML/CFT regime. weaknesses; the following among others, reportThe noted, no reporting of suspicious transactions’, no proper customer obligations AML/CFT of awareness and no identification recommended reportThe therefore banks. commercial by that Reserve Bank of Malawi should introduce AML/CFT On-site Examinations and also conduct AML/CFT workshops to inform the banking industry of its obligations. From the recommendations made the Department will receive technical assistance from theWorld Bank which will facilitate the introduction of AML/CFT On-site examinations. A full report of the assessment can be accessed on Eastern and Southern Africa Anti Money (ESAAMLG) Laundering Group website – www.esaamlg.org. The Department continued to participate at the National AML/CFT committee meetings.The committee helps in the AML/ to regard agencies with of the different coordination CFT issues. It also provides a platform for discussing complex money laundering cases. DepartmentThe build capacity to also continued in AML/ CFT through providing AML/CFTTraining to its members of workshops/form of of attendance The training was in staff. training sessions and e-learning through conferences, Tutorials. Stability Institute On-line Financial

on of sub committees of Reference Terms the Preparedness for of Reference Terms to help develop a concept paper for Consolidated (AML/CFT) Activities Preventing Money Laundering Money and Preventing Terrorism of Financing the Combating Basel II 12 Committee Committee each Pillar one nominate each institution to and requested person as a member of the National Steering in 2009, be formed to Committee the key preparatory be Basel II to activities for the National Steering by and adopted deliberated in 2009 Committee

•. the RBM Basel II Preparedness Reconstituted • Drew •. Drafted • Informed all banking institutions of the development • Initiation Document Drafted a Project that outlines East AFRITAC is the collaborative venture between IMF, recipient countries and bilateral and multilateral donors with the strategic goal of strengthening the institutional capacity goal of strengthening of African donors with the strategic countries and multilateral and bilateral recipient between IMF, venture is the collaborative East AFRITAC 12 countries in designing and implementing their Millenniumcountries in designing Development Goals and poverty-reduction supported and financial policies sound macroeconomic by strategies,

The DepartmentThe continued with its efforts in building up an the In this regard, in the banking regime sector. AML/CFT Department, in conjunction with the Ministry of Finance through the Financial Intelligence Unit, coordinatedWorld a Bank Mutual Evaluation in March 2008.The evaluation exercise involved an assessment of the banking industry through a review of existing laws/directives and interviews with officialsfrom banks. The evaluation helped the The RBM resumed its commitment to commence this To last quarter on Basel II in the preparations of 2008. effect, RBM Senior Management committed and allocated funds in the Department’s 2009 budget towards preparations for Basel II Implementation. thisTo effect, the Department activitiescarried in December 2008: out the following empower the issuance of directives on prudential standards, the directives issued so far have not imposed consolidated supervision.With the growing background of emerging complex banking group organisations in Malawi, ownership structures and cross border establishments, the assessment made a recommendation for a supervisory process to oversee ReserveThe Bank of in Malawi.bank holding companies Malawi therefore soughtTechnical a Assistance from East AFRITAC Supervision. A draft policy paper was submitted by Bank Supervision Department to Senior Management of the Reserve Bank of Malawi for adoption. However, finalisation of on the enactmentthe whole project hinges of the proposed Financial Services Bill into law as the current Banking Act the supervision for of holding structures. does not provide RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 2008 annual report ent

2008 m epart d ion 183,113 129,795 94,882 Total Capital Capital Total and Liabilities 96,605 106,539 118,549 129,795 140,501 153,464 180,566 183,113 s i v 94,882 118,229 184,113 Total Assets Total 87,626 97,209 108,139 118,229 140,501 153,464 180,566 184,113 uper s

k Ban 27,548 17,635 14,526 Capital and Capital Reserves 15,276 16,246 16,790 17,635 20,253 21,928 23,547 27,548 13,394 4,825 23,574 Other Assets 2,492 4,222 5,094 4,825 18,538 19,153 21,821 23,574 15,969 11,936 9,049 6,348 8,803 9,435 11,936 12,160 13,543 14,765 15,969 Other Liabilities 22,207 41,738 58,978 Securities and Investments 27,175 29,023 35,188 41,738 41,674 42,601 47,946 58,978 702 178 371 246 299 411 178 243 440 702 702 Interest Payable Interest 40,285 54,797 80,294 Loans and Loans Advances 39,502 46,262 48,951 54,797 54,392 68,737 76,347 80,294 ssets (MK, millions) 7,410 5,638 4,073 2,399 3,504 4,754 5,638 4,940 9,685 14,967 7,410 Due to OtherDue to Banks Cash and Due from and Due from Cash Other Banks 18,996 18,457 16,868 17,702 21,266 18,905 16,868 25,896 22,973 34,452 21,266 131,484 94,408 72,337 77,687 87,159 94,408 102,904 107,868 126,586 131,484 Deposits 66,863 verage End of Quarterverage nd of Quarter E verage RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Dec 2006 A 2007: 01 Dec 2007 2007: 02 Dec 2008 2007: 03 2007: 04 2008: 01 2008: 02 2008: 03 2008: 04 Dec 2008 Dec 2007 A 2007: 01 2007: 02 2007: 03 2007: 04 2008: 01 2008: 02 2008: 03 2008: 04 Dec 2006 Month-end the year for balance Composition of Balance Sheet: A of Balance Composition Table 2 Table Month-end the year for balance Table 1 Table Sheet: Liabilities (MK, of Balance millions) Composition STATISTICAL TABLES STATISTICAL 30 31 2008 66,864.0 94,407.7 131,483.5 29,777.9 39,331.4 Total Deposits Total 49,293.8 72,337.1 77,686.9 87,158.6 94,407.7 17,772.9 107,867.6 126,585.8 131,483.5 Total Capital Ratio Capital Total 26.0 21.6 21.6 19.6 23.6 20.9 22.6 21.5 11,777 14,288 14,521 5,954.1 7,465.6 FCDAs 9,326.5 14,491.1 13,341.1 13,428.4 14,287.6 17,772.9 18,708.2 18,096.6 14,521.0 Tier 1 Capital 1 Capital Tier Ratio 20.8 17.5 17.4 15.5 18.1 16.4 17.9 16.8 18,622 25,515 42,226 9,220.8 11,666.4 Time DepositsTime 14,654.5 20,119 20,772 25,016 25,515 29,840 27,099 35,800 42,226 Risk Weighted Weighted Risk Assets 57,385 71,022 71,488 79,061 83,098 96,671 93,269 111,903 13,462 18,565 25,921 5,813.6 8,452.1 Savings Deposits Savings 8,935.7 12,579 17,743 17,972 18,565 18,228 23,929 28,233 25,921 Total Capital Total 14,909 15,313 15,420 15,516 19,584 20,226 21,068 24,113 23,003 36,041 48,815 8,789.4 11,747.3 Demand Deposits 16,377.1 25,148 25,831 30,742 36,041 37,064 38,132 44,457 48,815 MK, millions Tier Capital Tier 11,914 12,406 12,418 12,261 15,061 15,809 16,724 18,760 dequacy

nd of Quarter E verage verage End of Quarterverage Dec 2006 Dec 2002 A 2007: 01 Dec 2007 Dec 2003 2007: 02 Dec 2008 Dec 2004 2007: 03 2007: 04 2008: 01 2008: 02 2008: 03 2008: 04 rends in Capital A in Capital rends A 2007: 01 2007: 02 2007: 03 2007: 04 2008: 01 2008: 02 2008: 03 2008: 04 RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Month-end the year for balance Composition of Balance Sheet: Deposits Sheet: (MK, of Balance Composition millions) Table 3 Table T Table 4 Table 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 32 33 2008 2569.5 5939.8 9160.7 3324.8 7293.2 10901.6 13187.0 15828.7 13187.0 11628.6 15828.7 Operating Expenses 4.2 4.9 4.8 4.3 4.8 4.7 4.9 4.4 4.7 4.8 4.8 ROA 692.4 618.9 3713.7 3713.7 3137.5 3137.5 3238.1 1593.4 1593.4 2430.2 2430.2 3137.5 3137.5 1315.7 2174.0 3238.1 Interest Interest Expenses 36.0 39.9 43.6 30.5 34.8 36.0 39.9 35.1 39.0 42.7 43.6 ROE 8005.7 8005.7 9910.3 9910.3 1580.9 4384.4 4384.4 6695.7 6695.7 9910.3 9910.3 2573.5 6101.0 9981.8 Income 13221.5 13221.5 Non-Interest Non-Interest 52.6 52.6 49.8 51.7 51.3 51.4 52.6 51.3 51.5 50.7 49.8 Ratio 3393.9 7183.9 3913.2 8057.8 Interest Interest Income 12715.3 12715.3 15148.0 15148.0 18535.7 11139.3 15148.0 12938.7 18535.7 Efficiency % 13.7 13.9 12.1 14.5 14.3 14.2 13.9 12.5 12.0 12.0 12.1 17835 4974.8 6486.7 Income 20721.0 25058.3 31757.2 11568.3 25058.3 14158.8 22920.5 31757.2 Total Gross Gross Total MK, million Interest Margin Interest

verage End of Quarterverage nd of Quarter E verage rofitability: Selectedratios Dec 2006 Table 6 Table P Month-end year for balance Dec 2006 Dec 2007 Composition of income statement:Selected items items statement:Selected of income Composition Table 5 Table Dec 2008 Month-end year for balance A 2007: 01 2007: 02 2007: 03 2007: 04 2008: 01 2008: 02 2008: 03 2008: 04 Dec 2007 A 2007: 01 Dec 2008 2007: 02 2007: 03 2007: 04 2008: 01 2008: 02 2008: 03 2008: 04 RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 2008 annual report ent

2008 m epart d ion s i v 2 1.8 1.4 1.4 1.5 1.8 2.1 1.8 2.1 2.1 2.5 % Specific Provisions to Provisions Specific Loans Gross uper s

k 151.3 163.2 162.0 Rate Sensitive Assets / RateRate Assets Sensitive Liabilities Sensitive % 150.9 153.5 149.7 163.2 155.0 154.8 142.1 162.0 Ban 2 1.4 1.4 1.4 1.4 1.4 1.5 1.4 1.8 1.9 1.8 % Non-Performing Non-Performing Assets Total to Assets Liquid Assets to Total Deposits Total to Liquid Assets % 56.3 61.1 57.7 59.5 63.1 57.2 61.5 56.8 62.0 59.5 56.8 5 3.4 3.2 3.2 3.3 3.1 3.7 3.4 4.3 4.4 4.4 % Non-Performing Non-Performing Loans Gross to Assets Liquid Assets to Total Deposits Total to Liquid Assets Liabilities Term & Short % 59.8 55.3 57.4 56.5 60.2 52.5 55.0 53.0 55.9 56.5 53.0 40,285 54,797 81,948 81,948 78,057 70,468 55,961 54,797 48,951 46,262 39,502 MK, million Loans and Advances Loans verage End of Quarterverage nd of Quarter E verage sset Quality A 2007: 01 2007: 02 2007: 03 2007: 04 2008: 01 2008: 02 2008: 03 2008: 04 Dec 2006 Dec 2006 Dec 2007 Dec 2008 2008: 04 2008: 03 2008: 02 2008: 01 2007: 04 2007: 03 2007: 02 2007: 01 A Dec 2007 Dec 2008 RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Month-end the year for balance Table 8 Table Liquidity Month-end the year for balance A Table 7 Table 34 35 2008 Minimum Banks Ratios Capital for Limits Currency Exposure Foreign Ratio Currency Lending Foreign Institutions ReportsSubmission of Call Banks and other Financial by Institutions Banks and Financial Due Diligence for Customer Liquidity Reserve Requirement Supervisory Fees Provisioning Classification and Asset Exposures Large and Annual Audits Committee Audit Persons with Related Transactions and SeniorNew Management Directors Officials Inspection Premises

Capital AdequacyCapital Governance Guidelines on Corporate and Other Statements Disclosure of Financial Publication Draft directives and guidelines expected to be issued and guidelines expectedDraft to directives DO1-97/FX DO2-97/FXLR DO1-04/CR DO1-05CDD DO1-06/FMO DO1-06/SF DO1-06/ASCL DO2- 06/LA FX DO3- 06/DAS DO4- 06/TRP DO5- 06/IA DO1- 2008/PID Aspects of Bank Liquidity on the Prudential Statement Policy DO2-93/MCR Appendix 1 Appendix during 2008 in force Directives APPENDICES RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 2008 annual report ent

2008 m epart d ion s Admin i v uper Principal Examiner Policy & Regulatory s

k Ban Banks 4 Banks 4 Banks 4 Examiner II, Examiner I, Principal Examiner, Principal Examiner, Banks 3&4 Chief Examiner, Chief Examiner, Banks 3 Banks 3 Banks 3 Examiner I, Examiner II, Principal Examiner, Principal Examiner, Institutions Director Executive Director Supervision of Financial Banks 2 Banks 2 Banks 2 Examiner I, Examiner II, Principal Examiner, Principal Examiner, Banks 1&2 Chief Examiner, Chief Examiner, Banks 1 Banks 1 Banks 1 Examiner I, Examiner II, Senior Secretary Principal Examiner, Principal Examiner, Executive Secretary RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Organisational Structure of Bank SupervisionOrganisational Appendix 2 Appendix 36 37 2008 ffice Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre ocation of ocation Old Town, Old Glyn Jones Glyn Jones L Head O Top Mandala, Top Road, Blantyre Road, Road, Blantyre Road, Umoyo House Umoyo Victoria Avenue, Victoria Avenue, Victoria Avenue, Ginnery Corner, Victoria Avenue, Victoria Avenue, Victoria Avenue, Glyn Jones Road Stansfield House Numbers 01 821942 01 821978 01 820055 01 835703 01 822681 01 822683 01 820477 01 820102 01 820144 01 820622 01 820321 01 820233 01 820275 01 825111 01 821089 01 876222 01 875485 01 758403 01 758400 01 847901 01 820219 01 821 300 01 820 219 hone and Fax hone and Fax P 01 820360 December 2008 December

ostal ddress P Box 437 Box Box 152 Box Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Blantyre Box 358, Box Box 750, Box Box 521, Box Box 945, Box Box 521, Box A Lilongwe Box 1963, Box 1441, Box Box 1111, Box Blantyre 3 Blantyre 3 P/Bag 122, P/Bag 389, Box 32251, Box P/Bag A71, op T nstitutions as at 31 as at nstitutions fficer O Mr M Esau Mr.W Turton Mr.W Mr. M Lungu Mr. Mr. J Biziwick Mr. Mr. E Chilima Mr. Mr J.Gopalan Mr. A Kalanda Mr. Mr. C Mudiwa Mr. T. Mpinganjira T. Mr. W Chatsala Mr. Mr. G Partridge Mr. Chief Executive Chief Executive Chief Executive Chief Executive Mr. T. Oknapachi T. Mr. Mr. K Chaturvedi Mr. General Manager General Manager, General Manager, itle & Name of Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director Managing Director T Mr. J Mwanamvekha Mr. ther Financial I ther Financial Chief Executive OfficerChief Executive nstitution

First Merchant Bank Merchant First Bank Loita NBS Bank Ltd NEDBANK Malawi Ltd Malawi Ltd INDEbank MalawiLtd National Bank of Malawi Continental Discount House Ltd Continental Leasing and Finance Company and Finance Leasing Opportunity International Bank Malawi Ltd Bank Malawi Savings Name of I International International Commercial FDH Bank First Discount House Ltd First egister of Commercial Banks and O Banks of Commercial egister RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK R Appendix 3 Appendix 2008 annual report ent

2008 m 106 N/A N/A 4432 2245 1521 epart 13760 30651 No of 156410 206601 310111 179662 205382 ccounts ccounts d A ion s i v uper 85 74 14 35 23 s 134 615 803 493 519 286 296 N/A N/A

No of k Employees Ban 6 0 0 0 0 0 1 19 24 13 43 10 14 2 Ms No of AT 4 7 0 7 0 0 0 0 0 10 13 13 36 gencies 0 A 4 8 2 7 4 5 5 1 0 1 1 1 11 14 Branch Branch Network

nstitution RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK INDEbank Malawi Ltd INDEbank Standard Bank Malawi Ltd Standard NEDBANK Malawi Ltd Ltd Bank Merchant First Name of I National Bank of Malawi Ltd ECOBANK NBS Bank Ltd Opportunity International Bank Malawi Ltd Bank Ltd Malawi Savings Ltd Co and Finance Leasing First Discount House Ltd Discount House First FDH Bank Discount House Ltd Continental Bank International Commercial Branch network etc for banks in 2008 for network etc Branch Appendix 4 Appendix N/A: Information not available 38 39 2008 Y Y 0 2 1 0 7 0 0 5 5 0 LIQUIDIT LIQUIDIT 0 0 1 0 9 2 1 3 4 0 EARNINGS EARNINGS 0 0 3 0 7 GEMENT 2 0 4 4 0 GEMENT ANA ANA M M Y Y 0 0 2 8 0 0 0 5 5 0 ASSET ASSET QUALIT QUALIT 2 0 5 3 0 0 1 0 9 0 APITAL APITAL C C 0 2 4 4 0 0 0 3 7 0 G RATIN G RATIN OMPOSITE OMPOSITE rating category 2008 MEL rating December as at C C A . OF . OF Fair (3) Fair NO Fair (3) Fair NO Strong (1) Strong Strong (1) Strong Marginal (4) Marginal Marginal (4) Marginal

Satisfactory (2) INSTITUTIONS Satisfactory (2) INSTITUTIONS Unsatisfactory (5) Unsatisfactory (5) RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Comparative table for 2007 table for Comparative umber of banks per C Number of Appendix 5 Appendix 2008 annual report ent

2008 m epart d ion s i v uper s

k Ban RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK Reserve Bank of Malawi Avenue 10 Hannover 565 P O Box Blantyre (0) 1820 299/1820 444 (265) Telephone (265) (0) 1822 118 Fax For further copies of this reportFor further and/or on the functions information and activitiesof the Bank Supervision Department contact: please Director The Bank Supervision Department 40

ent

2008 m epart d ion s i v uper s

k Ban Limited Africana y Central y b

P.O. Box 631, Blantyre, Malawi 631, Blantyre, Box P.O. Photography @ Central Africana @ Central Photography Produced [email protected] www.centralafricana.com RESERVE BANK OF MALAWI ANNUAL REPORT ANNUAL RESERVE MALAWI OF BANK 42