Report and Accounts 2012 RBM

Reserve Bank of Malawi Reserve Bank of Malawi Reserve Bank of Malawi Reserve Reserve Bank of Malawi Reserve Bank of

RESERVE BANK OF MALAWI

REPORT AND ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER 2012

2 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI

REPORT AND ACCOUNTS FOR THE YEAR ENDED 31ST DECEMBER 2012

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Report and Accounts 2012 RBM

Chairman Mr Charles Chuka Governor

Member Member Member Mrs. Mary Nkosi Dr. Grant Kabango Deputy Dr. Naomi Ngwira Deputy Governor, Governor, supervision Deputy Governor, Operations Economics

Member Member Member Mr. Randson Mwadiwa Mr. Ted Sitimawina Dr. Patrick Kambewa Secretary to the Treasury Secretary for Economic Planning & Development

Member Member Member Mr. Patrice Nkhono Mr. Dixies Kambauwa Member Mrs Betty Mahuka Mr. David Grimes

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MISSION STATEMENT

To ensure price and financial stability through the formulation and implementation of sound monetary and macro-prudential policies that are consistent with agreed

national strategies.

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Report and Accounts 2012 RBM

EXECUTIVE MANAGEMENT

Chairman Mr Charles Chuka Governor

Mrs. Mary Nkosi Dr. Grant Kabango Deputy Dr. Naomi Ngwira Deputy Governor, Governor, supervision Deputy Governor, Operations Economics

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HEADS OF DEPARTMENTS

Chinkono, C. Director, Internal Audit

Chitsonga, D. Director, Information and Communication Technology

Chokhotho, R. Director, Administration

Goneka, E. Director, Research and Statistics

Gundani, J. (Mrs) Director, Human Resources

Kajiyanike, M. (Ms) Director, Banking and Currency Management

Kasomphe, S. Chief of Protective Services

Mabedi, F. Director, Branch Management

Malitoni, S. General Counsel and Bank Secretary

Matambo, W. Director, Strategy and Risk Management

Mathanga, H. Director, Exchange Control

Milner J. Director, Financial Markets

Mkulichi, N. Director, Bank Supervision

Mlelemba E. Director, Non-Bank Supervision

Mseka, C. (Mrs) Director, Accounting and Finance

Tseka, R. Director, Governor’s Office and Public relations

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Report and Accounts 2012 RBM GENERAL NOTES

Separate items will not always sum to corresponding totals, owing to the rounding of figures.

The following symbols should be noted in the text and statistical annex tables.

.. Means not available - Means nil or less than one half of the significant digit shown * Means preliminary figures + Means revised figures

Copies of the Report and Accounts may be obtained without charge from: The Director of Research and Statistics, Reserve Bank of Malawi, P.O Box 30063, Capital City Lilongwe 3, Malawi. Fax: (265)-1-770593. E-mail: [email protected]

Any opinion expressed in this document should be regarded as solely that of the Reserve Bank of Malawi. The Bank wishes to express its appreciation of the co-operation and assistance from the Ministry of Finance, the National Statistical Office, financial, commercial and industrial organisations in supplying data and background material.

viii Report and Accounts 2012 RBM TABLE OF CONTENTS SECTION ONE

1.0 OPERATIONS AND PERFOMANCE OF THE RESERVE BANK OF MALAWI ...... 1

1.1 Staffing and Staff Complement ...... 1 1.2 Appointments ...... 1 1.3 Capacity Building...... 1

2.0 IMPLEMENTATION OF MONETARY POLICY DURING THE YEAR 2012 ...... 2

2.1 Introduction ...... 2 2.2 Monetary Policy Instruments and Implementation ...... 2 2.3 Monetary Policy Assessment ...... 2 2.4 Challenges ...... 3 2.5 Conclusion ...... 3

3.0 DEVELOPMENTS IN THE GLOBAL ECONOMY ...... 4

3.1 International Economic Outlook ...... 4 3.2 Emerging and Developing Economies ...... 4 3.3 The Sub-Saharan Countries ...... 5

4.0 DEVELOPMENTS IN THE MALAWI ECONOMY ...... 6

4.1 Production ...... 6 4.1.1 Agriculture ...... 6 4.1.2 Mining and Quarrying...... 6 4.1.3 Manufacturing ...... 7 4.1.4 Construction ...... 7 4.1.5 Information and Communication ...... 7 4.1.6 Financial and Insurance Services ...... 7 4.1.7 Accommodation and Food Services ...... 7 4.1.8 Wholesale and Retail Trade ...... 7 4.1.9 Transportation and Storage Services ...... 7 4.2 Domestic Consumer Inflation ...... 7 4.3 Balance of Payments ...... 8 4.2.1 Current and Capital Account Balances ...... 8 4.2.2 Exchange Rate Movements ...... 8 4.4 Money and Credit ...... 8 4.4.1 Money and Quasi-Money ...... 8 4.4.2 Money Demand ...... 9 4.4.3 Net Domestic Credit ...... 9 4.4.4 Activities of the Commercial Banks ...... 10 4.4.5 Reserve Bank of Malawi: Sources and Uses of Funds ...... 10 4.4.6 Money Market ...... 11 4.4.7.1 Government Securities Market ...... 11

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Report and Accounts 2012 RBM 4.4.7.2 Inter-Bank Money Market ...... 11 4.4.7.3 Open Market Operations ...... 12 4.4.8 Capital Markets ...... 14 4.4.8.1 Primary Share Market ...... 14 4.4.8.2 Secondary Share Market ...... 14

5.0 NATIONAL PAYMENT SYSTEMS ...... 15

5.1 Introduction ...... 15 5.2 Operational and information gathering and dissemination Issues ...... 15 5.3 Settlement System Developments and Projects ...... 15 5.4 Retail System Developments and Projects ...... 16 5.5 Oversight Issues ...... 17 5.6 Challenges ...... 17 5.7 Conclusion ...... 17

6.0 SUPERVISION OF THE BANKING SYSTEM ...... 17

6.1 On-Going Supervision ...... 17 6.2 Laws and Regulations ...... 18 6.3 Licensing ...... 18 6.4 Financial Stability and Stress Testing ...... 18 6.5 Risk Based Supervision and Basle II ...... 19 6.6 Financial Inclusion Initiatives ...... 19 6.7 Consolidated Supervision ...... 19 6.8 Deposit Insurance Scheme ...... 19

SECTION TWO

7.0 ANNUAL FINANCIAL STATEMENTS 2012 ...... 1

DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES ...... 1 BOARD OF DIRECTORS ...... 2 INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF THE RESERVE BANK OF MALAWI ...... 5 BALANCE SHEETS ...... 6 STATEMENTS OF COMPREHENSIVE INCOME ...... 9 STATEMENTS OF CHANGES IN NET AMOUNT ATTRIBUTABLE TO SHAREHOLDER ...... 10 STATEMENTS OF CASH FLOWS ...... 12 NOTES TO THE ANNUAL FINANCIAL STATEMENTS ...... 14

SECTION THREE

8.0 STATISTICAL ANNEX TABLES ...... 1

x Report and Accounts 2012 RBM LIST OF TABLES Table 1: World Output: Annual Percentage Changes ...... 4 Table 2: Percentage Changes in Terms of Trade ...... 5 Table 3: Percentage Changes in Real Output and Consumer Prices in Developing Countries ...... 5 Table 4: Monetary Survey (K'mn) ...... 9 Table 5: Commercial Banks: Sources and Uses of Funds (K'mn) ...... 10 Table 6: Reserve Bank of Malawi: Sources and Uses of Funds (K'mn) ...... 11 Table 7: Banking System Liability (K’ bn) ...... 12 Table 8: Open Market Operations ...... 13

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Report and Accounts 2012 RBM

SECTION ONE 1.0 OPERATIONS AND PERFOMANCE OF THE RESERVE BANK OF MALAWI 1.1 Staffing and Staff Complement In the year 2012, the Bank had a total workforce of 691 against 654 in 2011. However, the Bank had 21 exits in 2012 compared to 24 in 2011 due to the following reasons: deaths, expiry of contracts, resignations and terminations.

1.2 Appointments The following appointments were made during the same period: Mr. Charles Chuka was appointed Governor. Mrs. Mary Nkosi was appointed Deputy Governor, Operations Dr. Naomi Ngwira was appointed Deputy Governor, Economics. Dr. Grant Kabango, was appointed Deputy Governor, Supervision

1.3 Capacity Building The Bank realizes that the human resource is critical for the achievement of its objectives. Accordingly, the Bank continued with its efforts of building staff capacity in order to improve performance in 2012. A total of 179 members of staff attended short-term training compared to 78 members of staff in 2011. In addition, the Bank conducted 8 in-house courses compared to 3 in-house courses in 2011.

The Bank also continued to support members of staff pursuing self-initiated training. Accordingly, a total of 36 members of staff benefited from this scheme in 2012 compared to 26 members of staff in 2011. In addition, two Heads of Department attended the Management Development Programme offered by University of Cape Town.

On long-term training, the Bank awarded scholarships to Messrs Herbert Kaipa, Bruce Kasambara, Jimmy Mwenye, Elton Masibawo, George Nkosi and Miss Anna Mambiya to pursue various postgraduate courses in the United Kingdom. In addition, the Bank granted paid study leave to Mr Steve Makatchaya and Mrs Thokozani who were offered postgraduate scholarships by the Malawi Government and African Capacity Building Foundation, respectively.

Messrs Andrew Mtipende, Christopher Gumulira, Charming Nakweya, Davie Ndege, Titus Chima, Tosh Mwafulirwa, Amon Kandoje, Precious Katete, Arnold Palamuleni, Nabulambo Kilembe and Chikondi Chigamba returned home after successfully completing their postgraduate studies.

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Report and Accounts 2012 RBM 2.0 IMPLEMENTATION OF MONETARY POLICY DURING THE YEAR 2012 2.1 Introduction Implementation of monetary policy particularly in the second half of the year was geared towards stabilising inflation and the exchange rate. Devaluation of the kwacha and its subsequent floatation against major foreign currencies on 7th May of 2012 spurred the depreciation of the kwacha and runaway of inflation rate during the period under review. In order to counter the impact of the depreciating kwacha and increasing inflation rate, authorities embarked on tighter monetary policy in 2012.

2.2 Monetary Policy Instruments and Implementation In 2012, the monetary policy management framework remained that of monetary targeting. With the Bank’s operational target being the growth rate in reserve money, while specific set target continued to be on its supply side components namely; net domestic assets (NDA) and net foreign assets (NFA) of the Reserve Bank of Malawi. In order to attain monetary policy decisions, the RBM continued to use the Bank Rate as an anchor to short term interest rates and pursued its monetary policy using open market operations, discount window operations, and the Liquidity Reserve Requirement (LRR). Nearly all commercial banks were faced with serious liquidity problems due to the devaluation and subsequent floatation of the kwacha, thus an uncollateralized discount window was largely utilised to support the struggling commercial banks. This was discontinued on 30th November 2012. Consequently, banks’ recourse to the discount window sharply increased and averaged K10.3 billion per day from an average of K410.0 million observed in 2011.

The Monetary Policy Committee (MPC), responsible for formulation of monetary policy held six meetings in the year 2012. The MPC made three upward adjustments to the Bank rate during the year under review with the last adjustment effected on 3rd December 2012 to peg the Bank rate at 25.0 percent compared to 13.0 percent in 2011, meanwhile Liquidity Reserve Requirement remained unchanged at 15.5 percent in 2012 from the preceding year. The authorities embarked on tight monetary policy in 2012 to stabilize the kwacha in order to anchor inflation expectations.

2.3 Monetary Policy Assessment The country’s economy in 2012 was largely characterized by an unstable exchange rate due to scarcity of foreign exchange vis-à-vis high demand. In addition, scarcity of food supplied triggered inflation pressures in second half of 2012. The economy grew by 1.9 percent in 2012 from a growth of 4.3 percent in the preceding year. The slowdown was mainly due to a contraction in the agriculture and manufacturing sectors, as well as a significant slowdown in wholesale and retail trade activity. The economy is expected to rebound to a growth rate of 4.6 percent in 2013.

Inflationary pressures mounted in 2012 as headline inflation averaged 21.3 percent in 2012 compared to an annual average of 7.6 percent in the preceding year. This was the highest annual average inflation outcome in 11 years. Pressure on prices continued to mount throughout the year as inflation in December 2012 closed at 34.6 percent from 10.3 percent in January 2012. Inflationary pressures in 2012 emanated from pass through effects of the 49. 0 percent devaluation, Automatic Fuel Pricing Mechanism (APM), rising housing and electricity costs and sporadic shortage of maize supplies towards the end of the year in some parts of the country especially the southern region. These developments coupled with increasing money supply weighed negatively on the stability of economic environment in 2012.

Major policy interventions included the Malawi kwacha devaluation and floatation in May 2012; this was done to address entrenched balance of payments imbalances in the country. The Bank rate was revised upwards to contain inflationary pressures which were experienced in the second half of the year. Subsequently, the rate closed the year at 25.0 percent. 2 Report and Accounts 2012 RBM

2.4 Challenges The monetary policy implementation was largely affected by continued depreciation of the kwacha which was compounded by the liquidity problems in the banking system. In addition, the supply side pressures on inflation also compromised the efficacy of monetary policy. Furthermore, the relatively high proportion of currency in circulation relative to deposits made it difficult for instruments to tap liquidity from the market. This outturn posed a visible challenge to the authorities to adequately manage monetary policy.

2.5 Conclusion The RBM undertook bold steps in 2012 to align the exchange rate to market fundamentals and consequently abandoned a managed exchange rate policy for a floating exchange rate policy. In light of exchange rate and inflation rates instabilities, the RBM continued to pursue tight monetary policy. Within the harsh realities of the international economies such as the financial stress in the euro area that in turn retarded growth in the emerging economies, compounded with the continued depreciating of the kwacha and supply driven inflation pressures, monetary policy performed relatively well in 2012.

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Report and Accounts 2012 RBM

3.0 DEVELOPMENTS IN THE GLOBAL ECONOMY 3.1 International Economic Outlook The global economy expanded by 3.2 percent in 2012, compared to 4.0 percent in 2011 and 5.2 percent in 2010. Spill overs from the debt crisis in Europe weighed negatively on activity and confidence. The modest growth in 2012 was largely on account of the Euro zone economic crisis that in turn retarded growth in the emerging and developing economies. The poor performance of the Japanese economy coupled with lower than projected growth rates in the US and the United Kingdom also contributed to modest expansion of the global economy in 2012. The gradual global recovery is expected to continue, however with considerable variations in growth rates across countries. Improvement in financial conditions, in face of accommodative monetary policies is likely to support economic activity in 2013. The April 2013 IMF World Economic Outlook (WEO) indicates that global economic activity is projected to grow by 3.3 percent in 2013. Global inflation had been increasing steadily on an annual basis since August 2012 after having declined earlier in the year. This pattern in headline inflation was largely explained by underlying developments in energy prices. Annual inflation rates increased in many emerging markets, with the exception of China.

Table 1: World Output: Annual Percentage Changes 2006 2007 2008 2009 2010 2011 2012 2013

World Output……………………. 5.0 5.2 3.0 -0.6 5.2 4.0 3.2 3.3 Advanced Economies…………… 3.0 2.7 0.6 -3.4 3.2 1.6 1.3 1.2 United States……………………. 2.9 2.1 0.4 -2.6 3.0 1.8 2.2 1.9 Euro Area………………………. 2.8 2.7 0.7 -4.1 1.9 1.4 -0.6 -0.3 Japan……………………………. 2.4 2.3 -0.7 -6.3 4.4 -0.6 2.0 1.6 Sub-Saharan Africa……………………… 9.6 10.6 7.6 7.0 5.3 5.3 4.8 5.6 Developing Asia……………….. 5.8 6.2 5.4 1.8 9.5 8.1 6.6 7.1 Middle East and North Africa………………. 5.8 6.2 5.4 1.8 4.3 3.5 4.0 4.8 Source: I.M.F World Economic Outlook

3.2 Emerging and Developing Economies Growth for the region was revised downwards for the year 2012 compared to previous WEO projections. The region was estimated to grow at 5.1 percent in 2012 down from 6.4 percent recorded in 2011. This largely reflects worsening external demand mainly due to Euro area economic crisis coupled with the meltdown in the domestic demand in key the emerging economies. Growth in developing Asia moderated at 6.6 percent in 2012 from 8.1 percent in 2011. Weaker demand from advanced economies as well as domestic markets slowed economic activity in the emerging economies. Nonetheless, growth in the Middle East and North Africa, particularly among the oil exporters, is estimated to rise sharply in 2012 before moderating in 2013, mainly on the back of the recovery in Libya. The unemployment levels fluctuated in the emerging and developing economies, and remain very high in countries that were hit by the crisis especially Central and Eastern European (CEE) economies, but relatively low in most parts of developing Asia and Latin America.

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Table 2: Percentage Changes in Terms of Trade 2006 2007 2008 2009 2010 2011 2012 Advanced economies…………………...... -1.3 0.5 -2.4 4.0 -1.2 -1.8 -1.1 Other emerging and developing countries 3.4 0.5 3.3 -5.9 2.6 4.1 -0.2 Middle East and North Africa...... 6.0 1.9 13.9 -18.3 12.4 14.8 0.5 Sub-Saharan Africa...... 9.1 3.2 7.7 -12.2 10.5 8.5 -1.6 Fuel exporters…………………………...... 9.2 2.8 15.7 -22.3 15.8 15.6 0.9 Non-fuel exporters……………………...... 0.5 -0.5 -1.6 2.3 -1.9 0.0 -0.6 Source: I.M.F World Economic Outlook

3.3 The Sub-Saharan Countries Sub-Saharan Africa is estimated to grow by 4.8 percent in 2012, representing 0.5 percentage points decrease from the region’s growth rate in 2011. Growth for the region remained relatively stable since 2010, reflecting the region’s weak linkage to the financial system of the advanced economies, with exception of South Africa. Weak demand for South Africa’s commodity exports from the Euro area and pay strikes in the mining sector heavily affected the South African economy. As a result the South Africa’s economy is projected to expand by 2.5 percent in 2012, below most estimates of potential growth, largely because of strong linkages with Europe. Meanwhile, growth in the oil-exporting economies is projected to remain high at 7.1 percent in 2012; increased oil production in Angola will expand its GDP by 8.4 percent in 2012. In Nigeria, non-oil GDP growth will moderate with the softer external environment and tighter macroeconomic policies, but a slight rebound in oil output will keep overall GDP growth above 7.0 percent in 2013. Output growth in Cameroon is expected to strengthen this year and next year, with the non-oil sector being supported by major public investment projects and measures to boost agricultural productivity. The region’s low-income economies face varying outlooks. In Ethiopia, growth is projected to decelerate moderately in 2012 and 2013, reflecting weaker external demand and an increasingly constrained environment for private sector activity. In Kenya, tight monetary conditions have slowed consumption, but construction activity and corporate investment remain buoyant and will support an acceleration of growth to 4.7 percent this year and 5.8 percent in 2013.

Table 3: Percentage Changes in Real Output and Consumer Prices in Developing Countries Real GDP Consumer Prices 2009 2010 2011 2012 2009 2010 2011 2012 Middle East and North Africa……………. 2.0 3.9 3.5 5.2 8.3 6.5 9.2 10.7 Oil Importers ………………………….. 1.4 4.6 4.7. 4.6 8.9 5.5 7.5 9.5 Oil Exporters…………………………… 2.2 6.6 6.0 7.1 9.4 11.4 9.7 9.7 Sub-Sahara Africa……….……. 1.3 5.0 5.3 4.8 10.5 7.4 9.3 9.1 Emerging Asia……………………….…… 5.0 9.3 8.0 6.6 2.7 5.6 6.4 4.5 China……………………………………… 8.5 10.3 9.3 7.8 -0.1 3.3 5.4 2.6 Source: I.M.F World Economic Outlook and Sub-Saharan Economic Outlook

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Report and Accounts 2012 RBM 4.0 DEVELOPMENTS IN THE MALAWI ECONOMY 4.1 Production Real economic activity in 2012 grew by 1.9 percent compared to 4.3 percent in 2011. The slowdown was mainly due to a contraction in the agriculture and manufacturing sectors, as well as a significant slowdown in wholesale and retail trade activity. The economy is expected to rebound to a growth rate of 4.6 percent in 2013.

4.1.1 Agriculture Agricultural output contracted by 2.9 percent in 2012 against a growth of 6.3 percent in 2011. The slowdown was mainly due to a decline in tobacco production as a lot of farmers pulled out on account of poor prices fetched in 2011. Production estimates for cotton, maize and groundnuts were also revised downwards. Agricultural activity is projected to grow by 5.0 percent in 2013 due to a projected rebound in tobacco production as more farmers are expected to grow the crop on account of high prices fetched in 2012 and also because government is up-scaling programme for crops such as cotton, rice and pulses.

Tobacco Tobacco output in 2012 dropped to 79.8 million kgs from 237.2 million kilograms in the preceding year representing a decline of 66.3 percent. The notable decrease in tobacco production was attributed to the pulling out of a lot of tobacco farmers due to the poor tobacco prices fetched in 2011 as well as adverse weather conditions. Most of the farmers switched to other crops like maize and cotton. Tobacco prices however, improved to an average of US$2.23 per kilogram compared to US$1.24 per kilogram in 2011. The improved tobacco prices were the result of the low tobacco output which fell below the tobacco merchants requirements. Consequently, tobacco prices were driven upwards through forces of demand and supply.

In spite of the favourable average prices, total earnings from tobacco declined to US$177.8 million in 2012 compared to US$293.7 million realised in the previous year. The outlook for 2013 appears to be more promising as more farmers have ventured into growing of tobacco, and output is expected to be nearly double that of 2012.

Tea Tea production during 2012 dropped to 42.4 million kgs, a 9.9 percent decrease from 47.1 million kgs recorded in the preceding year. This was attributed to adverse weather conditions, particularly the early ceasing of rain last season that affected crop development. The tobacco industry is also facing a declining supply of labour as the people are preferring other kinds of work in urban areas. Although tea output is expected to increase to 45 million kgs in 2013, this is still below highs of 52.6 million kgs and 51.6 million kgs attained in 2009 and 2010 respectively, reflective of declining labour supply. In addition, since it takes five to six years for a new tea plantation to begin yielding returns, many potential investors in the tea industry are avoiding to start new estates but are just buying existing estates in the country, and therefore tea hectarage is not increasing.

4.1.2 Mining and Quarrying Mining and quarrying activity grew by 18.7 percent in 2012 after contracting by 4.5 percent in 2011. The strong growth is a result of an improvement in the availability of fuel as well as increased demand for quarry stones following the recovery of the construction industry. Mining and quarrying activity is projected to grow by 14.0 percent in 2013 on account of an expected increase in production of coal, quarry stones and lime in response to projected growth in manufacturing, agriculture and construction.

6 Report and Accounts 2012 RBM 4.1.3 Manufacturing Activity in the manufacturing sector declined by 6.4 percent in 2012 compared to a marginal growth rate of 1.6 percent in 2011. The slump reflected challenges of intermittent power supply and shortages of foreign exchange and fuel that were more evident in the first half 2012. The decline in agricultural production has adversely affected manufacturing since a significant proportion of the country’s manufacturing constitutes agro-processing. Manufacturing activity is projected to rebound by 8.1 percent subject to an improved agricultural outturn.

4.1.4 Construction Construction activity recovered in 2012 and registered a firm growth of 10.5 percent compared to a decline of 2.4 percent in 2011. The improved performance was due to the resumption of public works that were put on hold due to fuel and foreign exchange shortages. The expected Vale constructs projection and rehabilitation of the M1 road and Zomba-Blantyre road will also contribute significantly to the industry’s performance. Construction activity is expected to expand by 9.5 percent in 2013.

4.1.5 Information and Communication Information and communication activity grew by 11.9 percent in 2012 compared to 10.3 percent in 2011 due to increased subscription and expansion of network coverage by mobile phone and internet service providers. The sector is projected to grow by 7.9 percent in 2013.

4.1.6 Financial and Insurance Services Financial and Insurance services grew by 5.9 percent in 2012 compared to 10.0 percent growth in 2011. The slower growth is attributed to upward adjustment in lending rates that affected the capacity for firms and individuals to access credit.

4.1.7 Accommodation and Food Services The hospitality industry grew by 3.5 in 2012 compared to 0.4 percent registered in 2011. The growth is explained by an improvement in patronage of hotels and resorts. Nevertheless, the growth was still on the lower side on account of a decline in purchasing power of the general public due to the weakening of the kwacha against other currencies and the resultant inflation. Hospitality services are projected to grow by 4.4 percent in 2013.

4.1.8 Wholesale and Retail Trade Wholesale and retail trade growth decelerated to 2.9 percent in 2012 from 3.5 percent growth in 2011. This was the result of the erosion of disposable incomes as was the case for the hospitality industry. Foreign exchange shortages during the first half of 2012 also affected importation of fuel which constitutes a significant proportion of the wholesale and retail trade in Malawi. In 2013, the industry is expected to recover to a growth of 4.0 percent.

4.1.9 Transportation and Storage Services Transportation and storage services expanded by 4.8 percent in 2012 compared to 2.7 percent growth rate in 2011. The growth is attributed to easing of fuel shortages which translated into increased passenger and cargo service industries. The industry is projected to grow by 5.3 percent in 2013 in tandem with projected movements in related sectors of construction.

4.2 Domestic Consumer Inflation Inflationary pressures intensified in 2012 as headline inflation averaged 21.3 percent for the year compared to an annual average of 7.6 percent in 2011. This was the highest annual average inflation outcome in 11 years. Pressure on prices continued to mount throughout the year as inflation in December 2012 closed at 34.6 percent from 10.3 percent in January 2012.

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Report and Accounts 2012 RBM The significant rise in inflation is largely attributed to the 49.0 percent devaluation of the kwacha in May 2012 and the subsequent floatation of the local currency. Consequently, the kwacha weakened continuously throughout the year and this had a high inflation pass through to virtually all sub- components of inflation due to the high import content of inputs for manufacturing and services. Price pressures also arose from an unprecedented rise in domestic food prices largely due lower agricultural output as well as logistical hurdles in shipping maize to deficit areas in the southern region.

Urban inflation averaged 25.2 percent in 2012 compared to averages of 9.7 percent in 2011 and 9.0 percent in 2010 whereas rural inflation rose to 19.0 percent in 2012 from an average of 6.4 percent in 2012.

4.3 Balance of Payments 4.2.1 Current and Capital Account Balances The country’s overall balance of payments position, as measured by the change in net foreign assets of the banking system, recorded a surplus of K6.3 billion (US$25.3 million) in 2012, an improvement from a deficit of K17.0 billion (US$108.7 million) registered in the preceding year. The improvement was largely due to the resumption of donor grants and loans in 2012.

The current account balance is projected at negative K224.8 billion (US$902.5 million) in 2012 compared to a deficit of K116.3 billion (US$742.8 million) recorded in 2011. This was explained by a worsened trade balance to minus K308.8 billion (US$1.2 billion) due to depreciation of the Malawi kwacha in 2012 compared to minus K195.3 billion (US$1.2 billion) in the preceding year. Exports nominally improved to K365.5 billion (US$1.5 billion) in 2012 from K240.9 billion (US$1.5 billion) in 2011 on account of the loss of value of the kwacha. The value of imports stood at K645.1 billion (US$2.7 billion) in 2012 from K414.8 billion (US$2.6 billion) recorded in 2011. The increase was largely on account of exchange rate losses.

The capital account balance is estimated at K79.7 billion (US$319.9 million) in 2012 compared to K98.7 billion (US$630.9 million) in the preceding year. The decline was due to a decrease in general government capital transfers in 2012 compared 2011. However, the financial account balance slightly improved to K55.3 billion (US$346.2 million) during the year under review from K54.2 billion (US$222.1 million) in the previous year. This outturn was largely explained by an increase in foreign direct investment (FDI) in 2012 compared to 2011.

4.2.2 Exchange Rate Movements The kwacha remained relatively stable against the US dollar and traded around K167 per US dollar between January and May 2012. On 7th May, 2012, the kwacha was devalued by 49.0 percent to K250 per US dollar and was subsequently floated with view of allowing the kwacha to reflect macroeconomic fundamentals. Since the flotation of the kwacha, the local currency has continuously weakened against the US dollar and closed 2012 at K335.12 per US dollar compared to K163.75 in end December 2011. The continued depreciation is attributed to low foreign exchange sources against a backdrop of high demand. The kwacha weakened by 114.7 percent against the pound sterling and traded at K541.93 per pound as at end December 2012 from K252.44 per pound in the preceding year. Similarly, the kwacha depreciated by 108.7 percent against the euro, 85.0 percent against the Japanese yen, 97.3 percent against the South African rand and 103.1 percent against the Zambian kwacha.

4.4 Money and Credit 4.4.1 Money and Quasi-Money During the year 2012, broad money supply (M2) increased by K72.1 billion (22.9 percent) to K386.4 billion compared to a growth of K86.2 billion (35.7 percent) in the preceding year. The slower growth 8 Report and Accounts 2012 RBM rate in 2012 reflects effects of the tight monetary policy stance undertaken by the Reserve Bank of Malawi (RBM) during the year. Net domestic assets increased by K43.3 billion whereas net foreign assets grew by K28.8 billion during the year under review.

4.4.2 Money Demand The K72.1 billion rise in M2 largely arose from an accumulation of K46.0 billion in foreign currency denominated deposits coupled with revaluation gains resulting from weakening of the kwacha. Demand deposits increased by K45.3 billion whilst notes and coins in circulation rose by K13.1 billion during the year under review. Time and savings deposits, however, declined by K32.3 billion in 2012 as economic agents drew down their deposits to settle foreign obligations.

4.4.3 Net Domestic Credit Net domestic credit rose by K43.6 billion to K378.8 billion in 2012 from K311.7 billion recorded in 2012. The outturn was attributed to private sector credit which grew by K44.3 billion whereas credit to the parastatals and the central government declined by K666.6 million and K83.6 million, respectively. Gross credit to the private sector increased to K218.9 billion in 2012 from K174.5 billion recorded in 2011. This faster growth reflected largely the effects of the devaluation on outstanding foreign currency denominated loans as well as accrued interest on outstanding credit due to significant jump in lending rates in 2012. In terms of sectoral distribution, commercial and industrial sector loans increased by K18.4 billion whereas personal loans grew by K9.2 billion. Foreign currency denominated loans rose by K7.9 billion whilst loans to the agriculture sector and real estate sector recorded annual increases of K5.8 billion and K1.7 billion, respectively.

Net credit to government declined marginally to K140.6 billion as of end-2012 from K140.7 billion in 2011. Net credit extended by the commercial banks declined by K7.6 billion which was partly offset by a K7.5 billion growth in net credit to government extended by the monetary authorities. The decrease in commercial banks net claims on the central government to K30.2 billion in 2012 from K37.8 billion in 2011 was attributed to maturity of K10.7 billion Treasury bills that was partly offset by issuance of K3.3 billion Treasury notes as well as accumulation of K156.3 million government deposits.

Government’s net indebtedness to monetary authorities increased by K7.5 billion to K110.4 billion in 2012 from K102.9 billion recorded in 2011. This development was a result of uptake of K25.8 billion Ways and Means advances, depletion of K11.6 billion government deposits, and outright purchase of K2.0 billion Treasury notes. This was somewhat offset by a K31.9 billion reduction in outstanding Treasury bills stock by RBM.

Table 4: Monetary Survey (K'mn) End Period Balances Changes During Period 2009 20102011 2012 2009 2010 20112012 A. Net domestic Credit 1. Credit to government (i+ii)……… 113,453.7 90,582.2 140,693.2 140,609.6 29,598.2 -21,855.9 45660.6 -83.6 i. Monetary Authorities……….. 85,745.5 72,514.6 143,634.5 139,568.1 29,040.1 13,230.9 30,414.1 7,512.2 ii. Commercial Banks………….. 27,708.3 18,067.7 37,764.6 30,168.7 558.1 -7,185.2 15,246.5 -7,595.9 2. Credit to statutory bodies………… 6,239.3 4,662.4 20024.0 19,069.5 196.0 -1577.0 15,361.7 -666.6 3. Credit to private sector (gross)….. 95,043.6 121,632.5 174,538.0 218,866.4 26,900.2 26,588.9 29695.5 44,328.5 B. Narrow Money (M1) 81,900.3 102,112.2 163,962.2 222,365.1 11,303.6 20,211.9 38,768.9 58,402.9 4. Currency outside banks……….… 27,493.1 31,848.3 42,251.0 55,377.5 2,231.9 4,355.2 11,588.0 13,126.5 5. Private sector demand deposits…. 54,407.1 70,263.9 121,711.2 166,987.6 9,071.7 15,856.7 27,180.9 45,276.4 C. Quasi-money1…………………….. 92,131.0 101,785.8 150,368.5 164,070.6 23,085.4 10,632.7 43,851.2 13,702.0 D. Money Supply (M2) (B+C)…….. 174,032.2 203,898.0 314,330.7 386,435.6 34,388.9 30,847.6 82,620.0 72,104.9 E. Net Foreign Assets -2,276.8 20,376.8 2,589.9 31,406.4 -21,943.9 22,419.9 -18,381.6 28,816.6 6. Monetary Authorities……………. -9,678.1 8,076.1 -8,840.4 -19,957.7 26,079.7 17,520.5 -16,916.5 -11,117.3 7. Commercial banks……………….. 7,401.3 12,300.7 11,430.2 51,364.1 4,135.8 4899.4 -1,465.2 39,933.8 Source: Reserve Bank of Malawi 1Time, savings and foreign currency deposits of the private sector with commercial banks

9

Report and Accounts 2012 RBM 4.4.4 Activities of the Commercial Banks Commercial banks’ resources in 2012 rose by K105.2 billion to K478.2 billion from K373.0 billion realised in 2011. The increase was observed across all categories with the private sector contributing K56.9 billion. Unsectored liabilities rose by K21.8 billion whereas the capital account grew by K14.8 billion mainly reflecting profits and retained earnings realised by the banks during the year under review. Official sector deposits also increased by K2.3 billion during the year under review, following receipt of budgetary support from development partners.

The commercial banks invested the bulk of their resources amounting to K49.4 billion in the foreign sector. On the domestic front, K44.3 billion of the commercial banks resources was in form of financing of private sector activities. Unsectored assets and commercial banks’ deposits at the Reserve Bank of Malawi recorded respective annual increases of K14.8 billion and K4.7 billion, in 2012. Meanwhile, commercial banks’ claims on the central government and the parastatals declined by K7.4 billion and K666.6 million in 2012, respectively.

Table 5: Commercial Banks: Sources and Uses of Funds (K'mn) End Period Balances Changes during period 2009 2010 2011 2012 2009 2010 2011 2012 A Sources of Funds Private sector…………………… 142,854.1 167980.8 266,686.2 323,556.6 30,725.8 26,108.6 70,921.7 56,870.4 1. Official Sector Deposits1 …. 5,013.3 10,113.5 12,039.4 14,303.8 51.5 2,644.8 -818.3 2,264.4 2. Borrowing from the RBM ------3. Foreign Borrowing………… 3,966.8 1,577.6 6,039.6 15,508.0 -201.5 -2,389 4,444.6 9,468.5 4. Capital Accounts…………….. 32,757.4 39,908.2 54,911.6 69,719.7 7,525.0 7,150.8 9,752.7 14,808.1 5. All other liabilities2 ………….. 20,656.1 25,586.9 33,354.3 55,128.3 2,410.9 6,404.3 2,583.3 21,774.0 6. Total (1+2+3+4+5)………….. 205,247.8 245,166.9 373,031.1 478,216.4 40,511.6 39,919.2 86,884.0 105,185.4 B. Uses of Funds I. Domestic credit to: 7. Private sector gross)………… 95,043.6 121,632.5 174,538.0 218,866.4 26,900.2 26,588.9 29,695.5 44,328.5 8. Statutory bodies (gross)…… 5,261.3 3,963.3 20,024.0 19,357.4 1,190.7 -1,297.9 16,060.7 -666.6 9. Central Government (gross) 29,036.6 24112.3 44,410.4 36,970.9 -821.8 -4,924.2 14,317.9 -7,439.5 238,972.5 275,194.8 60,074.0 36,222.3 10. Sub-total (7+8+9+10)……… 129,341.5 149,708.2 2 27,269.1 20,366.7 II. Deposits with Reserve Bank plus currency in banks……………... 20,620.4 21,849.6 37,280.8 42,000.5 10,199.3 1,229.2 13,270.9 4,719.7

III. Foreign assets………………… 11,368.2 13,878.3 17,469.8 66,872.0 3,934.3 2,510.1 2,970.4 49,402.3 IV. All other assets2 ……………… 43,917.7 59,730.9 79,308.0 94,149.1 -891.2 15,813.1 10,559.6 14,841.1 V. Total (I+II+III+IV)…………… 205,247.8 245,166.9 373,031.1 478,216.4 40,511.6 39,919.2 86,884.0 105,185.4 Source: Reserve Bank of Malawi 1Central government, statutory bodies and local authorities 2Including inter-bank accounts

4.4.5 Reserve Bank of Malawi: Sources and Uses of Funds In 2012, the resource base of the Reserve Bank of Malawi (RBM) expanded by K56.3 billion to K253.5 billion from the previous year’s position of K197.2 billion. Foreign sector deposits grew by K55.4 billion due to revaluation gains of foreign liabilities after the devaluation of the kwacha. Commercial banks’ deposits accounted for K26.9 billion of the accumulated resources whereas notes and coins in circulation contributed K13.1 billion. Meanwhile, unsectored liabilities of the RBM and official sector deposits recorded respective annual decreases of K26.9 billion and K12.1 billion in 2012.

The RBM used K43.7 billion of its accumulated resources to boost its investments in the foreign sector. Unsectored assets also grew by K16.7 billion of which K11.6 billion were fixed assets. RBM’s net lending to the central government declined by K4.1 billion in 2012, representing the net effect of maturity of K6.0 billion Treasury bills and outright purchase of K2.0 billion Treasury notes. 10 Report and Accounts 2012 RBM

Table 6: Reserve Bank of Malawi: Sources and Uses of Funds (K'mn) End period balance Changes during period 2011 2012 2011 2012 1st half 2nd half Year 1st half 2nd half Year A. Sources of Funds i. Private sector: 42,251.0 55,377.5 6463.4 5124.6 11588.0 19272.9 -6146.4 13,126.5 1. Currency outside banks………… 42,251.0 55,377.5 6463.4 5124.6 11588.0 19272.9 -6146.4 13,126.5 ii. Official sector deposits: 40,206.0 28,061.6 4258.5 5749.5 10008.0 -12158.8 14.3 -12,144.6 2. Statutory bodies………………… ------3. Central Government……………. 40,206.2 28,061.6 4258.5 5749.5 10008.0 -12158.8 14.3 -12,144.6 4. Sub-total (1+2+3)….…………… 113,426.0 141,260.4 7512.2 18298.1 25810.3 16019.7 11814.7 28,834.4 iii. Banks: 5. Currency in banks………………. 11,251.4 15,636.0 -831.5 3207.9 2376.4 411.6 3973.0 4,384.6 6. Deposits in Reserve Bank………. 19,717.4 42,185.2 -2378.1 4218.0 1838.0 8494.0 13973.9 22,467.8 7. Capital reserves and all other liabilities1 ……………… 433,291.8 16,399.3 -9346.2 6414.6 -2931.6 -6229.8 -20662.7 -26,892.6 8. Foreign Liabilities 40,491.3 95,876.0 1456.9 1567.4 3024.3 25988.9 29396.8 55,384.7 iv. Total (4+5+6+7+8) ……………. 197,209.1 253,535.6 -377.1 26280.1 25903.0 35778.8 20549.7 56,326.5 B. Uses of Funds i. Domestic credit (gross):…………. 143,635.7 139,569.2 17156.6 22596.7 39753.3 41440.3 4506.8 -4,066.5 1. Statutory bodies……………….. - - -699.0 0.0 699.0 0.0 0.0 - 2. Central Government2 ………….. 143,634.5 139,568.1 17396.2 23066.8 40463.0 21531.6 -25598.1 -4,066.5 3. Commercial Banks…………….. 1.2 1.2 459.4 -470.0 -10.7 19908.7 19908.7 0.0 ii. Foreign assets (gross)…………….. 31,151.2 74,852.8 -12200.0 -1733.2 -13933.2 -8578.7 52280.3 43,701.5 iii. All other uses…………………….. 22,422.2 39,113.5 -5333.7 5416.5 82.8 2917.2 13774.2 16,691.4 iv. Total………………………….… 197,209.1 253,535.6 -377.1 26280.1 25903.0 35778.8 20547.7 56,326.5

Source: Reserve Bank of Malawi 1 Including allocation of special drawing rights in the IMF, International Agencies and other foreign banks 2 Ways and Means advances plus holding of Local Registered Stocks and Treasury Bills

4.4.6 Money Market Treasury Bills subscriptions to auctions conducted during the year amounted to K141.77 billion compared to a volume of K212.82 billion registered in 2011, representing a year-on-year decline of 33.38 percent. During the year, a total of K191.20 billion worth of Treasury Bills were issued of which K73.83 billion was issued on the primary market and K117.37 billion through conversions of Ways and Means advances. This issuance compares with a sum of K270.82 billion issued in 2011 which consisted of K105.31 billion issued through weekly auctions while K165.51 billion through Ways and Means conversion. In addition, there were maturities worth K213.22 billion during the same period compared to a total maturity of K232.21 billion in the preceding year. Accordingly, in 2012 there was a net maturity of K22.02 billion worth of Treasury bills. Liquidity shortages in the banking system in the post May 2012 period accounted for the reduced subscriptions and issuances. As a result, the stock of Treasury bills stood at K155.03 billion at the end 2012.

4.4.7.1 Government Securities Market In the year 2012, average yields rose across all tenors. The 91 and 182 tenors averaged 14.25 and 9.04 percent, respectively. This compares with respective average yields of 6.59 percent and 6.81 percent registered in the previous year. Thus the two tenors gained 7.66 and 2.23 percentage points, respectively. The longest tenor in 2012 was the 364 day tenor following the phasing out of the 273 day tenor at the end of 2011. Therefore, during the year under review, the longest tenor averaged 17.62 percent while in 2011 the 273 day tenor averaged 7.28 percent. Overall the all type yield in 2012 averaged 15.19 percent in comparison to an average of 6.89 percent in 2011.

4.4.7.2 Inter-Bank Money Market The banking system during 2012 was sufficiently liquid during the first quarter and became critically tight during the remainder of the year. This followed the devaluation and subsequent floatation of the local 11

Report and Accounts 2012 RBM currency against the major foreign currencies that was effected on 07 May 2012. The last quarter, nonetheless, showed moderate improvements. Consequently, banks’ recourse to the discount window sharply increased and averaged K10.28 billion per day from K410 million observed in 2011. In tandem with liquidity developments in 2012 and the bank rate adjustments that were implemented in the review year, the interbank market rate gained 19.40 percentage points and closed the review period at 26.45 percent.

Table 7: Banking System Liability (K’ bn) 2007 2008 2009 20102011 2012 Daily Average Total Reserves 11.39 15.50 21.03 23.49 33.43 40.20 Daily Average Required Reserves 9.33 13.29 18.97 22.64 26.90 33.97 Daily Average Excess Reserves 2.06 2.22 2.06 0.89 6.52 6.24 Daily Average Inter-bank Borrowing 0.79 1.43 2.74 2.48 2.10 2.79 Daily Average Discount Window Trading 1.30 1.49 1.19 2.28 0.41 10.28 Inter-bank Market Rate (End Period) 9.40 8.11 8.45 10.58 7.05 26.45 Source: Reserve Bank of Malawi

4.4.7.3 Open Market Operations The bulk of market operations in 2012 were geared towards supporting the market with liquidity following the devaluation and subsequent floatation of the local currency. Net discount window accommodation and repo operations supplemented net government injection of K73 billion by injecting a further K32.2 billion and K3.6 billion respectively. The injections were, nonetheless, partly countered by withdrawals from net forex operations (K75.3 billion) aimed at supporting the market and net sale of securities (K16.5 billion) that were especially geared at countering inflation pressures. Overall, about K17 billion was injected into the financial system.

12 Report and Accounts 2012 RBM

Table 8: Open Market Operations

(K’bn) (Net operations supplying 2007 2008 2009 2010 2011 2012 liquidity +) Net Government Operations (+=injection) -2.96 42.74 58.33 37.84 11.33 73.00 Government deficit excluding grants 0.70 31.22 36.48 -10.42 14.05 57.39 Revenue 140.95 170.91 224.43 328.09 254.81 298.81 MRA 89.15 107.58 142.52 225.87 198.54 225.60 Other, not including grants 51.80 63.33 81.91 102.21 56.27 73.21 Expenditure 141.65 202.13 260.91 317.67 268.86 356.20

Net Government Domestic Borrowing -3.66 11.52 21.85 48.25 -2.72 15.61 TB issues 101.78 121.35 142.81 107.28 99.28 77.96 TB maturity 98.12 132.87 164.66 155.53 96.55 93.57

Net Forex Operations -16.74 -40.14 -66.70 -48.56 -10.71 -75.32 Sales 32.81 83.45 124.69 60.38 63.97 105.53 Purchases 16.07 43.31 57.99 11.82 53.26 30.21

Net OMO -5.25 -11.04 35.73 22.57 5.86 19.29 Injections 188.57 253.65 316.60 672.93 66.52 2,662.60 RBM bill maturities 7.79 22.61 3.74 0.00 0.00 0.00 Maturity of 3-YR RBM bond 0.00 0.00 0.00 0.00 5.33 0.00 Purchase of securities 0.00 4.98 6.08 3.83 1.95 26.77 Maturity of OMO T-bills 0.00 0.00 0.00 0.00 7.63 0.00 Discount window accommodation 145.72 113.83 200.67 601.81 16.74 2,617.32 Repo maturities 35.06 112.23 106.11 67.30 34.87 18.51 Withdrawals 193.82 264.69 280.87 650.36 60.66 2,643.31 RBM bill issues 9.20 22.72 0.00 0.00 0.00 0.00 Issue of Monetary Policy TBs 0.00 4.31 0.00 0.00 0.00 0.00 Issue of RBM Bond 0.00 4.27 0.00 0.00 4.24 0.00 Sale of securities 0.00 0.00 0.00 2.99 7.03 43.31 Maturing Discount window 145.51 112.58 198.16 589.12 16.79 2,585.09 accommodation Repos 39.11 120.81 82.71 58.25 32.60 14.91

Net Operations -24.95 -8.44 27.36 11.85 6.47 16.97 Source: Reserve Bank of Malawi

13

Report and Accounts 2012 RBM

4.4.8 Capital Markets 4.4.8.1 Primary Share Market There was no new stock listed on the local bourse during the review period. The number of counters on the Malawi Stock Exchange remained at fourteen (14).

4.4.8.2 Secondary Share Market During the year, a total of 667.1 million shares valued at K4, 000.0 million were transacted in 1004 deals compared to 1,595.0 million shares that exchanged hands for a turnover of K1, 911.8 million in 1457 deals in the preceding year. The Malawi All Share Index (MASI) closed off 646.09 points higher at 6,015.51 points from 5,369.42 points recorded at the opening of the review period representing a year on year increase of 12.0 percent. During the same period in the corresponding year, the MASI closed off at 4,953.09 points.

The increase in MASI is attributed to the lift in the Domestic Share Index (DSI) which increased from 4,238.39 to 4,725.51 points representing a year on year increase of 11.5 percent and the Foreign Share Index (FSI) which registered a 59.6 percent increase from 535.42 points to 854.67 points during the review period.

The movement in FSI is attributed to a price increase on the foreign listed Old Mutual Plc. (OML) from K426.00 to K680.00 while the DSI moved on account of share price gains on domestic counters despite share price losses on MPICO Limited (MPICO), Sunbird Tourism (SUNBIRD) and Telekom Networks Malawi. Market capitalisation registered a year on year increase of 109.7percent and closed off at K3, 562.3 billion compared to K2,681.0 billion recorded in the preceding year. This was due to price increases despite a reduction in total number of shares in issue from 23,352.8 million to 22,457.3 million. The reduction in the number of shares in issue is a result of a restructuring process in the Old Mutual Plc group whose float on the MSE dropped from 5.77 million to 4.87 million. In the corresponding year, market capitalisation stood at K1, 278.5 billion.

14 Report and Accounts 2012 RBM 5.0 NATIONAL PAYMENT SYSTEMS

5.1 Introduction During the period under review authorities continued with activities aimed at further reforming and maintaining the country’s national payment system (NPS) infrastructure. As a result there was increased stakeholder collaboration in the NPS reform activities. As a lead institution in NPS modernisation efforts, the Reserve Bank of Malawi (RBM) intensified its coordination efforts to attain set milestones in the on- going reform projects notably the implementation of the National Switch and the Automated Transfer System (ATS) and Central Securities Depository (CSD) Projects. RBM’s reform agenda was done in collaboration with the National Payments Council (NPC), the Bankers Association of Malawi (BAM), the World Bank, Government of Malawi and other stakeholders for the success of the reform undertakings.

Other activities undertaken during the review period included commencement of local settlement for VISA card transactions, facilitation of training workshops for the Malawi Interbank Transfers and Settlement System (MITASS) users and, lastly routine oversight activities.

5.2 Operational and information gathering and dissemination Issues The RBM continued to publish various reports aimed at highlighting progress on national payments reform activities to stakeholders. Notable reports included; Malawi’s Country Specific Payments System Progress Report to the SADC Committee of Central Bank Governors (CCBG) which was released in March 2012 whereas the Annual National Payments System Report for 2011 was published in June 2012. In addition, various issues of the country’s Financial Stability Reports for 2012 highlighted progress in other key reform issues pertaining to the NPS infrastructure.

In a bid to improve efficiency as well as reduce systemic risks in MITASS, RBM conducted MITASS User Training Workshops in July and August 2012. MITASS users from both the central bank as well as the commercial banks participated in the training workshops.

On the ATS and National Switch Projects, the RBM continued to provide updates to stakeholders through various organs of the National Payments Council. Besides providing timely feedback, RBM continued to share most of the information on the projects with both business and technical officers from commercial banks. In line with this, an ATS/CSD Stakeholder Sensitisation Workshop was held in July 2012. Similar awareness meetings/forums continued to take place throughout the review period.

5.3 Settlement System Developments and Projects

5.3.1 Availability and Utilisation of MITASS Overall MITASS1 availability for the period under review was 96percent. This represents a 2 percent decline from the rate recorded in 2011/2012 (i.e. 98percent). This was due to technical problems at MALSWITCH2 which resulted into one day loss of business in MITASS transactions. However, system utilization increased from 69.4percent in 2011 to 81percent recorded in 2012. The increase was attributed to a rise in discount window transactions as a result of the liquidity squeeze experienced by most banks in the country. This was after a tight monetary policy that was adopted by the authorities following the floatation of the local currency in April 2012.

5.3.2 Automated Transfer System (ATS) Project

1 The Malawi Interbank Transfers and Settlement System (MITASS) is the country’s RTGS system, owned and operated by RBM 2 Technical management of MITASS is outsourced to the Malawi Switch Centre (MALSWITCH) 15

Report and Accounts 2012 RBM A 2008 study by the World Bank and IMF on the country’s financial sector revealed several weaknesses in the NPS infrastructure. The study was carried out under the Financial Sector Assessment Program (FSAP). To address the weaknesses, the study made several recommendations that resulted in the formation of the Financial Sector Technical Assistance Project (FSTAP). FSTAP has 7 components, one of which relates to national payments reforms i.e. implementation of an Automated Transfer System (ATS), Central Securities Depository (CSD) and the National Switch.

The ATS is a system with integrated facilities that are capable of clearing and settling all interbank electronic payments irrespective of value or level of urgency. Once implemented, the ATS will have the following components:

i. Real Time Gross Settlement (RTGS) This feature will be used for real time settlement of large value and time critical interbank transactions. Basically, it will replace the current RTGS system supplied by Perago.

ii. Automated Clearing House (ACH) Besides supporting automated clearing and truncation of cheques, this module will provide netting facilities for a range of other low value (retail) electronic fund transfers such as direct debits and credits. It will also be capable of processing bulk payment such as salaries. In this regard, the ACH component of the ATS has more capabilities than the current Electronic Cheque Clearing House (ECCH) solution provided by Sybrin. The RTGS and ACH modules of the ATS will run on one platform and be supplied by one vendor unlike at present where these two features run on separate platforms and also supplied by different vendors.

iii. Central Securities Depository (CSD) The CSD will be a new component to the national payments, clearing and settlements infrastructure. It will have an integrated primary trading (auction) module that will be linked with the RTGS function of the ATS. This will facilitate the electronic settlement of primary issues of government securities, RBM’s open market operations and inter- bank money market operations. The integration of the CSD to the ATS will therefore allow for the attainment of straight through processing (STP) and delivery versus payment (DvP) principles. It is expected that the attainment of STP and DvP coupled with increased capabilities of the ACH will reduce transaction processing costs incurred by banks.

5.3.2.1 Progress on the ATS & CSD Project System Functional Specifications and Request for Proposals (RFP) were formulated with the assistance of the World Bank Consultant. The RFP was floated to the market and a vendor to supply the ATS and CSD, Montran Corporation has since been identified. A project Kick-Off Workshop was organised on 19th November 2012 where all banks and other stakeholders were invited. Implementation of the system was therefore expected to commence in January 2013 with the information requirements gathering exercise by Montran. This exercise is pertinent to the design of the system and all stakeholders would therefore be involved. It is expected that the ATS and CSD Project will be implemented by December 2013

5.4 Retail System Developments and Projects 5.4.1 National Switch Project Just like the ATS, The National Switch project is being implemented with resources from the World Bank under the FSTAP.

16 Report and Accounts 2012 RBM Once implemented, the National Switch will enable the interoperability of auto-teller machines (ATMs) and point of sale devices (POS) that are owned and /or operated by various financial institutions in the country. Ultimately, the National Switch will be interfaced with the ATS for settlement of interbank obligations arising from ATM and POS transactions.

Currently, both technical and financial evaluation of bids has been finalised. However, the preferred vendor will only be known once the relevant procurement procedures with the World Bank have been concluded. It is expected that the switch will be rolled out by the end of 2013.

5.4.2 Domestic Settlement of VISA card transactions The Malawi National Net Settlement Service (MANNSS) became into effect in November 2012. Under this agreement, RBM became the domestic settlement agent for VISA card transactions. Daily operations of the MANNSS are guided by the Settlement Operating Procedures that define the scope, procedures and responsibilities of all stakeholders.

5.5 Oversight Issues As overseer of payments system in Malawi, RBM carried out onsite bilateral meetings with MITASS participants in October 2012. The meetings focused on ways of mitigating operational and settlement risks as well as promoting efficiency not only in MITASS but the entire payments infrastructure. Going forward, it is hoped that banks’ performances, especially with respect to reduced settlement defaults, will improve.

5.6 Challenges The key challenge in the quest for national payments reform remains that of the absence of an NPS Act. In its absence, stakeholders have continued to rely on service level agreements and bilateral and/or multilateral agreements in line with the country’s law on contracts. However, during the period under review, the RBM has continued consulting the government to expedite submission, and, hence, subsequent enactment of the draft NPS Bill by the legislature by end of 2013.

5.7 Conclusion Increased collaboration between RBM and other stakeholders has been key to the success of several NPS reform initiatives undertaken during the period between January 2012 to December 2012. Progress has been made in both the ATS and National Switch Projects. At the same time, Malawi started settling domestically all its Visa card transactions.

However, absence of an NPS Act remains the major drawback in the quest for payments system reform initiatives in the country. It is expected that the draft NPS Bill will be enacted by the end of 2013.

6.0 SUPERVISION OF THE BANKING SYSTEM The Reserve Bank of Malawi, through its arm of Supervision, strives to ensure a safe and sound financial system conducive for macro-economic stability. To achieve this, the Central bank employs various financial sector laws, regulations, and directives, that define a framework for acceptable market conduct. The Supervision function is subdivided into three specialized departments of Bank Supervision, Micro Finance and Capital Markets, and Pensions and Insurance. Below is a brief of the major activities that were undertaken by the function during the year 2012.

6.1 On-Going Supervision Bank supervision continued to monitor the financial condition of the banking system through onsite examinations and continuous offsite surveillance. During the year ended December 2012, the Department produced all required offsite quarterly reports, and other auxiliary reports in support to this function. From the reviews, the banking industry's performance remained good and the system sound, despite some

17

Report and Accounts 2012 RBM shocks. Primary of the shocks to the industry was a liquidity squeeze experienced during the last three quarters of the year. This led to high deposit concentrations and growth in non performing assets.

Based on the Risk Based Supervision methodology, the Department conducted three full scope prudential on-site examinations of NBS Bank, Malawi savings Bank and Standard Bank. The department furthermore conducted five targeted (limited scope) prudential examinations at Opportunity Bank of Malawi, Malawi Savings Bank, FDH Bank, Ecobank and NBS Bank. From the reviews, Credit risk and Liquidity risk remained areas of concern.

Three AML/CFT full scope on site examinations were conducted at Malawi Savings Bank, International Commercial Bank and Indebank. Besides general compliance with some AML/CFT requirements, it was clear that banks were yet to conduct comprehensive AML/CFT risk assessment of their operations as per requirement. Further, the Department continued with enhancement of the AML/CFT framework, with focus on Anti - Money Laundering Guidelines, Anti - Money laundering Penalties, and Directive on Customer Due Diligence. The AML/CFT National Risk Assessment process was launched with support from the World Bank, which seeks to improve understanding of Money Laundering/Terrorist Financing risk and vulnerability.

6.2 Laws and Regulations The department published two Financial Services Regulations on Supervisory Levy for Banks and Agent Banking during the year 2012. The Supervisory Levy for Banks regulation was a review of the earlier regulation, and realignment with the Financial Services Act 2010. The Agent banking regulation is however a new regulation, which provides for agent banking as a delivery channel for offering banking services in a cost effective manner. Under this regulation, a bank or deposit taking microfinance institution (DTIs) wishing to conduct banking business through an agent (agent banking) is required to obtain prior written approval from the Registrar. Six directives, which were previously reviewed and realigned to the new financial sector laws, were also gazetted during the year 2012. The directives include; the Annual Audits directive, Asset Classification directive, Capital Adequacy directive, Prudential Liquidity Requirements directive, Submission of Information directive, and the Record Keeping directive. An amendment of the Credit Reference Bureau Act was also initiated in the year. Proposed amendments hinge on need to include a specific provision that makes it mandatory for participating institutions to submit credit information to all licensed credit reference bureaux.

6.3 Licensing The department did not receive any application for banking license during the review year. However CDH Investment bank, which was licensed in 2011, commenced its operation in the year. The bank had previously operated as a discount house.

An evaluation of the general operations of each licensed institution indicated general compliance with the financial sector laws, policies, directives and regulations. Notwithstanding this, few instances of non- compliance were reported in some bank, and the concerned institutions were warned and/or alerted to regularise the positions. In other cases, monetary penalties were imposed.

6.4 Financial Stability and Stress Testing Bank Supervision Department is a member of the Reserve Bank of Malawi Financial Stability Taskforce, which is mandated to assess financial stability issues in Malawi. Presently, the Department is in the process of building capacity in the area of stress testing to enhance the off-site surveillance tools, and also feed into the financial stability analysis reports. Stress testing guidelines have been developed and are expected to be issued to banks, which provide guidance on development of respective banks' stress testing 18 Report and Accounts 2012 RBM frameworks. Pilot stress testing exercises are however still ongoing, and results presented to banks biannually.

6.5 Risk Based Supervision and Basle II The first independent assessment of the Risk Based Supervision (RBS) framework was conducted since its adoption in 2009, with assistance from the IMF East AFRITAC. The findings indicated commendable progress towards moving from compliance based supervision to RBS by the Reserve Bank. The mission nevertheless, identified shortfalls relating to the use and maintenance of some RBS tools such as Institutional Profiles, Risk Matrices and Scope Memorandum. It further underscored the need to strengthen the quality of financial analysis in quarterly off-site reports.

The preparatory process towards Basel II implementation in 2014 remains ongoing. Capacity building for both supervisors and banks dominated the year, with several Basel II trainings conducted. The trainings focused on Credit risk, Operational Risk, Liquidity risk, Internal Capital Adequacy Assessment Process (ICAAP) and Stress Testing. The department further worked on reviewing the Pillar I and Pillar II guidelines, which have been issued to the market for further review and comments. The guidelines are expected to be formally issued to the market during the first half of 2013. A second Quantitative Impact Survey was also conducted based on the June 2012 and September 2012 data; preliminary results indicate that most banks' capital ratios are likely to fall short of the regulatory minimum under Basel II requirement.

6.6 Financial Inclusion Initiatives Agent banking regulations were gazetted during the year, after thorough consultative meetings with stake holders to solicit input on the regulations. The regulations provide for agent banking as one of the channels for offering banking services in a cost effective manner to the unbanked population. As a starting point, Malawi has adopted a bank based agent banking model, and progression to the non bank based model is to come in due course. Prior to gazetting of the regulations, two banks had been granted approval to roll out agent banking on a pilot run, and a follow up assessment is to be carried out in 2013.

TNM money was another initiative spearheaded during the year. This is a phone based payment system involving a mobile phone company, a bank and agents. The applicant (TNM) is now piloting the product while awaiting formal regulatory approval. It is hoped that the scheme will also go a long way in supporting Government’s Financial Inclusion Agenda.

6.7 Consolidated Supervision With technical assistance from the IMF East AFRITAC, the department benefited from an attachment of two officers to the South African Reserve Bank on Consolidated Supervision. The mission aimed to build capacity towards implementation of consolidated supervision in Malawi. Going forward, reviews of the Banking Act and Financial Services Act are expected, in order to embrace all aspects of consolidated supervision in our laws. The department is further expected to develop prudential requirement of group capital, with a view to enhance assessment of risks for banking groups.

6.8 Deposit Insurance Scheme Subsequent to formulation of the Concept Paper on Deposit Insurance Scheme (DIS) in 2011, the Department embarked on sensitization meetings with market players on DIS. The meetings involved commercial banks, microfinance institutions and Government; with all stake holders showing support for the establishment of a Deposit Insurance Scheme in Malawi. As part of the preparatory process, officials from the Department and the Ministry of Finance went on study tours on Deposit Insurance Schemes in Nigeria and Kenya. The visits aimed to appreciate the establishment and design features of an effective Deposit Insurance Scheme for Malawi's benefit. So far, a Task Force has been constituted to spearhead the setting up of a Deposit Insurance Scheme, and its terms of Reference have been drawn and approved by RBM Executive Management and Ministry of Finance. 19

Report and Accounts 2012 RBM

SECTION TWO

7.0 ANNUAL FINANCIAL STATEMENTS 2012

DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES For the year ended 31 December 2012

INTRODUCTION The directors present the Reserve Bank of Malawi (‘‘the Bank’’) consolidated and separate annual financial statements for the year ended 31 December 2012.

This report addresses the performance of the Bank during the year under review.

These consolidated and separate annual financial statements have been prepared on a going concern basis taking cognizance of the unique aspects relating to some of the Bank’s functions as stipulated under the Reserve Bank of Malawi Act, 1989 as well as the Bank’s relationship with the Government of Malawi.

The consolidated and separate annual financial statements have been prepared by management in accordance with International Financial Reporting Standards (IFRSs) in all material respects. They include full and responsible disclosures and are based on appropriate accounting policies which have been applied consistently and which are supported by reasonable and prudent judgments and estimates. The integrity and objectivity of the data in these annual financial statements are management’s responsibility. Management is responsible for ensuring that all information in this report is not inconsistent with the annual financial statements.

These consolidated and separate annual financial statements have been audited by independent auditors, Deloitte (Malawi) and Deloitte & Touche (Johannesburg, South Africa), who were given unrestricted access to all financial records and related data, including minutes of the meetings of the Board and the Board Audit Committee.

NATURE OF BUSINESS The Reserve Bank of Malawi is the Central Bank of the Republic of Malawi, created and regulated by the Reserve Bank of Malawi Act, 1989. The principal objectives of the Reserve Bank of Malawi are: (a) to issue legal tender currency in Malawi (b) to act as banker and adviser to the Government (c) to maintain external reserves so as to safeguard the international value of the currency (d) to implement measures designed to influence the money supply and the availability of credit, interest rates and exchange rates with the view to promoting economic growth, employment, stability in prices and a sustainable balance of payments position (e) to promote a sound financial structure in Malawi including payment systems, clearing systems and adequate financial services (f) to promote a money and capital market in Malawi (g) to act as lender of last resort to the banking system (h) to supervise banks and other financial institutions (i) to collect economic data of the financial and other sectors for research and policy purposes and (j) to promote development in Malawi.

EXPORT DEVELOPMENT FUND LIMITED (EDF) The Export Development Fund Limited (EDF) was set up by the Malawi Government through the Reserve Bank of Malawi with major objective being to ensure that Malawi’s vast export potential and business opportunities are exploited in order to generate the much needed foreign exchange for the country. In pursuance of this major objective, EDF will (a) serve as a pool of financial resources for 1

Report and Accounts 2012 RBM export diversification and growth (b) offer insurance to exporters against payment risks (c) refinance participating financial institutions (d) provide guidance in export-related activities (e) encourage production and value addition for exports (f) generate foreign exchange as well as create employment (g) provide guarantees and financial services and products to persons involved in export trade.

RESERVE BANK OF MALAWI DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES (Continued) For the year ended 31 December 2012

Export Development Fund (EDF) Limited was registered as a limited liability company on the 6th of February 2012. The company was registered with a share capital of K500, 000,000 (Five Hundred Million Kwacha) divided into 500,000,000 shares of K1.00 (One Kwacha) each. Further to this, additional paid in capital of K600,000,000 was injected by the Bank in EDF bringing the total investment in EDF to K1,100,000,000. At the moment, Reserve Bank of Malawi has 99 equity in EDF. However, it is expected that other stakeholders; commercial banks and other financial institutions, will take over such that the Bank would no longer have the controlling shares in the company. The Bank therefore has control over EDF and its results have been consolidated in the year reflected as “group” in the financial statements and notes to the financial statements.

BOARD OF DIRECTORS

The following directors served on the Board

Dr. Perks Ligoya Governor & Chairman (up to 24th April 2012) Mr. Charles Chuka - Governor & Chairman (From 24th April 2012) Mrs. Mary C. Nkosi Deputy Governor, Operations (All year) Dr. Naomi Ngwira Deputy Governor, Economics (From 2nd May 2012) Dr. Grant Kabango - Deputy Governor, Supervision (From 2nd May2012) Mrs. Betty Mahuka Member (All year) Dr. Patrick Kambewa Member (All year) Mr. Gauton Kainja Member (up to 1st May 2012) Mr. Joseph Mwanamvekha Secretary to the Treasury - Ex Officio member (up to 1st May 2012) Mr. Ted Sitima-wina Secretary for Development Planning Ex-Officio member (All year) Mr. Dixies Kambauwa - Member (From 9th June 2012) Mr. Patrice Nkhono - Member (From 9th June 2012) Mr. David Lesley Grimes - Member (From 9th June 2012) Mr Randson Mwadiwa - Secretary to the Treasury - Ex Officio member (From 9th June 2012)

2 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES (Continued) For the year ended 31 December 2012

FINANCIAL POSITION The balance sheet appears on pages 6 and 7. Total assets of the Bank increased by K91,097 million during the year. Major increases were in balances with foreign banks (K37,940m), and advances to Government (K25,442m). The increases were offset by major decrease in treasury bills (K27,556m).

Major increases in the liabilities were in borrowings (K37,528m), bankers’ deposits (K22,471m), notes & coins in circulation (K17,512m), and Allocation of Special Drawing Rights (K17,838m). The increases were offset by a decrease in Government deposits (K10,947m).

INTEREST IN CONTRACTS There were no contracts entered into during the year in which directors or officers of the Bank had interests that significantly affected the affairs or business of the Bank.

NEW INFORMATION SYSTEM During the year, the Bank replaced its legacy banking system, MIDAS with modern service oriented systems that run on a common, scalable technology platform. The web-based systems known as Oracle Flexcube Universal Banking Solution and Oracle E-Business Suite have enabled the Bank to achieve significant seamless interfacing across the enterprise. However, considering that 2012 was the year of implementation, the system brought about some challenges that led to delays in the finalisation of 2012 consolidated and separate financial statements.

Process improvements are expected in the areas of debt management, currency management, funds transfer, treasury management, clearing, bank credit and enterprise management through control of assets in functions such as inventory management, managing of payables, fixed assets management and financial control. Once resolution of post-implementation issues is completed, the integrated information will be available at high speed as these areas will complement each other and become a data source for one another.

The project was rolled out on 2nd May 2012.

GOING CONCERN The directors have made an assessment and concluded that the group will be able to continue as a going concern and it is appropriate to prepare the consolidated and separate annual financial statements on a going concern basis.

THE ROLE OF THE BOARD OF DIRECTORS The Board of Directors (“the Board”) is responsible for ensuring that management fulfills its responsibilities for financial reporting and internal control and exercises this responsibility through the Board Audit Committee (“the Committee”). The Committee is therefore qualified to review the consolidated and separate financial statements and to recommend their approval by the Board. The Committee is mandated by its Charter to meet management, and internal and external auditors.

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Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES (Continued) For the year ended 31 December 2012

THE ROLE OF THE BOARD OF DIRECTORS (Continued) The Committee evaluates the independence of the external auditors and reviews all services provided by them. The Committee has a duty to review the adoption of, and changes in accounting principles and procedures that have a material effect on the annual financial statements and to review and assess key management proposals including risk management issues and make recommendations on the same for approval. The Board considers and where necessary, approves the Committee’s recommendations.

The annual financial statements on pages 6 to 67 have been approved by the Board on 14 June 2013 and are signed on its behalf by:

______Governor and Chairman of the Board Chairperson, Board Audit Committee

4 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI

INDEPENDENT AUDITORS’ REPORT TO THE SHAREHOLDER OF THE RESERVE BANK OF MALAWI

We have audited the consolidated and separate annual financial statements of the Reserve Bank of Malawi and its subsidiary set out on pages 6 to 67, which comprise the consolidated and separate balance sheets as at 31 December 2012, the consolidated and separate statements of comprehensive income, the consolidated and separate statements of changes in net amount attributable to shareholder and the consolidated and separate statements of cash flows for the year then ended, and the notes, summary of significant accounting policies and other explanatory information.

Directors’ Responsibility for the Financial Statements The directors are responsible for preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards and the requirements of the Reserve Bank of Malawi Act, 1989, and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion In our opinion, the consolidated and separate financial statements present fairly, in all material respects, the consolidated and separate financial position of the Reserve Bank of Malawi and its subsidiary as at 31 December 2012, and of the consolidated and separate financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Reserve Bank of Malawi Act, 1989.

Deloitte Deloitte & Touche Lilongwe, Malawi Registered Auditors 24 June 2013 Per: Lito Nunes Johannesburg, Republic of South Africa 24 June 2013 5

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI BALANCE SHEETS At 31 December 2012

Group Bank Notes 2012 2012 2011 K’m K’m K’m

ASSETS

Foreign Assets

Cash and cash equivalents 6 827 827 273

Balances with foreign banks 7 67,686 67,686 29,746

Special drawing rights 295 295 70

Gold reserves 7,135 7,135 3,254

Total Foreign Assets 75,943 75,943 33,343

Domestic Assets

Cash and cash equivalents 6 1,410 210 53

Advances to Malawi Government 8 25,442 25,442 -

Loans to commercial banks 9 7,207 7,207 -

Other assets 10 13,738 13,806 10,010

Investments in Malawi Government: - promissory notes 11 29,527 29,527 1,007

- treasury notes 12 32,333 32,333 31,258

- treasury bills 13 88,251 88,251 115,807

Property and equipment 14 22,302 22,264 14,259

Intangible assets 15 1,790 1,790 1,108

Investment in Export Development Fund 16 - 1,100 -

Investment in Malswitch 17 17 17 17

Assets classified as held for sale 14 69 69 -

Total Domestic Assets 222,086 222,016 173,519

TOTAL ASSETS 298,029 297,959 206,862

6 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI BALANCE SHEETS (Continued) At 31 December 2012 Group Bank Notes 2012 2012 2011 K’m K’m K’m

LIABILITIES AND EQUITY

Foreign Liabilities

Government deposits 18 31,966 31,966 8,101 Bankers' deposits 19 22,945 22,945 3,905 Other deposits 1 1 5 Borrowings 20 61,244 61,244 23,716 Allocation of Special Drawing Rights 21 34,523 34,523 16,685

Total Foreign Liabilities 150,679 150,679 52,412

Domestic Liabilities Notes and coins in circulation 22 71,014 71,014 53,502 Government deposits - - 34,812 Bankers' deposits 19 19,244 19,244 15,813 Other liabilities 23 6,398 6,390 2,619 Ex – Gratia benefit provision 24 3,202 3,202 2,185 Other OMO Instruments 25 15,201 15,201 8,290

Total Domestic Liabilities 115,059 115,051 117,221

EQUITY Capital 19,484 19,484 19,484 General reserve fund 4,184 4,184 3,108 Revaluation reserve 8,561 8,561 6,767 Retained profit 62 - -

Special account - - 7,870 Total Equity 32,291 32,229 37,229

TOTAL LIABILITIES AND EQUITY 298,029 297,959 206,862

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Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI BALANCE SHEETS (Continued) At 31 December 2012

The annual financial statements on pages 6 to 67 were approved and authorised for issue by the Board of Directors on 14 June 2013 and were signed on its behalf by:

______Governor & Chairman of the Board Mr. Charles Chuka

______Chairperson, Board Audit Committee Mrs. Betty Mahuka

8 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI STATEMENTS OF COMPREHENSIVE INCOME For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K’m K’m K’m Income Money market operations 20,850 20,850 11,036 Banking operations 1,695 1,695 815 Interest on foreign exchange operations 176 176 188 Sundry 203 68 1,232 Property 28 28 25

Total income 22,952 22,817 13,296 Expenses General and administration expenses 13,852 13,782 11,309 Interest payable on money market operations 3,105 3,105 790 Depreciation of property and equipment 489 486 468 Other interest payable 882 882 99 Impairment of staff loans 203 203 31 Malswitch expenses 55 55 110

Total expenses 18,586 18,513 12,807

Profit for the year before foreign exchange revaluations 4,366 4,304 489

Foreign exchange revaluations Loss on revaluation of IMF facilities (43,069) (43,069) (3,043) (Loss)/gain on revaluation of other foreign exchange balances (430) (430) 2,882

(Loss)/profit for the year (39,133) (39,195) 328

Other comprehensive income

Gain on revaluation of gold holdings 3,881 3,881 518 Property revaluation surplus 1,794 1,794 2,245

Total other comprehensive income for the year 5,675 5,675 2,763

Total comprehensive (loss)/income for the year (33,458) (33,520) 3,091

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Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI STATEMENTS OF CHANGES IN NET AMOUNT ATTRIBUTABLE TO SHAREHOLDER For the year ended 31 December 2012

GROUP

General Gold reserve Revaluation Special revaluation Retained Capital fund reserve account reserve earnings Total K’m K’m K’m K’m K’m K’m K’m 2012 At the beginning of the year 19,484 3,108 6,767 7,870 - - 37,229 Total comprehensive income for the year - - - - - (33,458) (33,458) Statutory transfer of loss on revaluation of IMF facilities - - - (43,069) - 43,069 - Statutory transfer of gain on other foreign exchange balances - - - (430) - 430 - Transfer of gain on revaluation of gold holdings - - - 3,827 54 (3,881) - Statutory transfer to general reserve fund - 1,076 - - - (1,076) - Transfer to revaluation reserve - - 1,794 - - (1,794) - Promissory note issued - - - 31,802 (54) (3,228) 28,520

At the end of the year 19,484 4,184 8,561 - - 62 32,291

10 Report and Accounts 2012 RBM

STATEMENTS OF CHANGES IN NET AMOUNT ATTRIBUTABLE TO SHAREHOLDER (Continued) For the year ended 31 December 2012 BANK General Gold Revaluation Special revaluation Retained Capital reserve fund reserve account reserve earnings Total K’m K’m K’m K’m K’m K’m K’m 2011 At the beginning of the year 19,484 2,985 4,522 7,513 - - 34,504 Total comprehensive income for the year - - - - - 3,091 3,091 Statutory transfer of loss on revaluation of IMF facilities - - - (3,043) - 3,043 - Statutory transfer of gain on other foreign exchange balances - - - 2,882 - (2,882) - Transfer of gain on revaluation of gold holdings - - 518 - (518) - Statutory transfer to general reserve fund 123 - - - (123) - Transfers to revaluation reserve - 2,245 - - (2,245) - Transfers to Malawi Government - - - - - (366) (366) At the end of the year 19,484 3,108 6,767 7,870 - - 37,229

2012 At the beginning of the year 19,484 3,108 6,767 7,870 - - 37,229 Total comprehensive income for the year - - - - - (33,520) (33,520) Statutory transfer of loss on revaluation of IMF facilities - - - (43,069) - 43,069 - Statutory transfer of gain on other foreign exchange balances - - - (430) - 430 - Transfer of gain on revaluation of Gold Holdings - - - 3,827 54 (3,881) - Statutory transfer to general reserve fund - 1,076 - - - (1,076) - Transfer to Revaluation reserve - - 1,794 - - (1,794) - Promissory note issued - - - 31,802 (54) (3,228) 28,520 At the end of the year 19,484 4,184 8,561 - - - 32,229

11

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI STATEMENTS OF CASH FLOWS For the year ended 31 December 2012 Group Bank Bank Notes 2012 2012 2011 ` K’m K’m K’m Cash flows from operating activities Interest and commission receipts 22,721 22,721 12,039 Interest payments (3,987) (3,987) (889) Cash payments to employees and suppliers (13,907) (13,837) (11,419) Operating profit/(loss) before changes in operating assets 26 4,827 4,897 (269) Decrease/(increase) in operating assets: • Securities held for regulatory or monetary control purposes 26,481 26,481 (38,361) • Other short-term negotiable securities/assets (3,931) (3,999) 5,725 • Holding of Special Drawing Rights (225) (225) 174 • Loans to commercial banks (7,207) (7,207) 705 • Funds advanced to Government (25,442) (25,442) - Increase/(decrease) in operating liabilities: • Deposits from customers 11,520 11,520 11,762 • Other liabilities 4,795 4,788 2,042 • Net cash from other operating activities 222 87 1,245 • Deposits held for regulatory or monetary control purposes 6,911 6,911 (7,390) • Notes and coin in circulation 17,512 17,512 13,898

Net cash flow from operating activities 35,463 35,323 (10,469) Cash flow from investing activities Purchase of property and equipment (7,533) (7,493) (3,194) Proceeds from sale of property and equipment 54 54 4 Net cash flow from investing activities (7,479) (7,439) (3,190) Cash flow from financing activities Dividends paid - - (366) Investments made - (1,100) - Proceeds of long-term borrowings 55,366 55,366 2,965 Effects of exchange rate changes on liquid assets Revaluation of IMF facilities (43,069) (43,069) (3,043) Revaluation of other foreign exchange balances (430) (430) 2,882

Net cash flow from financing activities 11,867 10,767 2,438 Net increase/(decrease) in liquid assets 39,851 38,651 (11,221)

Liquid assets at the beginning of the year 30,072 30,072 41,293

Liquid assets at the end of the year 69,923 68,723 30,072

Liquid assets comprised of: Foreign Assets • Cash and cash equivalents 827 827 273 • Balance with foreign banks 67,686 67,686 29,746 Domestic assets • Cash and cash equivalents 1,410 210 53 Total liquid assets 69,923 68,723 30,072 12 Report and Accounts 2012 RBM

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Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS For the year ended 31 December 2012

1. General information

The main business of the Bank, which is governed by the requirements of the Reserve Bank of Malawi Act, is central banking and its related activities. The Bank’s principal place of business is Plot Number 1/16, Bwaila, Lilongwe, Malawi. The Bank had 691 (2011: 654) employees as at 31 December 2012.

2. Adoption of new and revised International Financial Reporting Standards

In the current year, the group has adopted those new and revised Standards and Interpretations issued by the International Accounting Standards Board and the International Financial Reporting Interpretations Committee of the International Accounting Standards Board that are relevant to its operations and are effective for annual reporting periods beginning on 1 January 2012.

The adoption of these new and revised Standards and Interpretations did not have a significant impact on the financial statements of the group.

2.2 Standards and Interpretations in issue, not yet effective

At the date of authorisation of these financial statements, the following Standards and Interpretations were in issue but not yet effective:

2.2.1 IFRS 7 Financial Instruments: Disclosures - Amendments enhancing disclosures about offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2013 and interim periods within those periods). 2.2.2 IFRS 7 Financial Instruments: Disclosures – Amendments requiring disclosures about the initial application of IFRS 9 (effective for annual periods beginning on or after 1 January 2015 (or otherwise when IFRS 9 is first applied). 2.2.3 IFRS 9 Financial Instruments - Classification and Measurement (effective for annual periods beginning on or after 1 January 2015 – mandatory application date amended December 2011). 2.2.4 IFRS 9 Financial Instruments – Accounting for financial liabilities and derecognition (effective for annual periods beginning on or after 1 January 2015 – mandatory application date amended December 2011). 2.2.5 IFRS 10 Consolidated Financial Statements (effective for annual periods beginning on or after 1 January 2013). 2.2.6 IFRS 11 Joint Arrangements (effective for annual periods beginning on or after 1 January 2013). 2.2.7 IFRS 12 Disclosure of Interests in Other Entities (effective for annual periods beginning on or after 1 January 2013).

14 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

2. Adoption of new and revised International Financial Reporting Standards (Continued)

2.2 Standards and Interpretations in issue, not yet effective (Continued)

2.2.8 IFRS 13 Fair Value Measurement (effective for annual periods beginning on or after 1 January 2013). 2.2.9 IAS 1 Presentation of Financial Statements - Amendments to revise the way other comprehensive income is presented (effective for annual periods beginning on or after 1 July 2012). 2.2.10 IAS 19 Employee Benefits – Amended Standard resulting from Post-Employment Benefits and Termination Benefits projects (effective for annual periods beginning on or after 1 January 2013). 2.2.11 IAS 27 Consolidated and Separate Financial Statements – Reissued as IAS 27 Separate Financial Statements (as amended in 2011) (effective for annual periods beginning on or after 1 January 2013). 2.2.12 IAS 28 Investments in Associates – Reissued as IAS 28 Investments in Associates and Joint Ventures (as amended in 2011) (effective for annual periods beginning on or after 1 January 2013). 2.2.13 IAS 32 Financial Instruments: Presentation - Amendments to application guidance on the offsetting of financial assets and financial liabilities (effective for annual periods beginning on or after 1 January 2014). 2.2.14 IFRIC 20 Stripping Costs in the Production Phase of a Surface Mine (effective for annual periods beginning on or after 1 January 2013).

The directors anticipate that these Standards and Interpretations in future periods will have no significant impact on the annual financial statements of the group except for IFRS 9 and IFRS 13. IFRS 9 will impact the recognition and measurement of all financial instruments whilst IFRS 13 will affect all fair value measurements.

3. Accounting policies

Statement of compliance The annual financial statements have been prepared in accordance with International Financial Reporting Standards.

Basis of preparation These annual financial statements are expressed in terms of the historical cost convention with the exception of certain property, gold reserves and financial instruments which are included at fair value. Historical cost is generally based on the fair value of the consideration given in exchange for assets.

Basis of consolidation The consolidated financial statements incorporate the financial statements of Reserve Bank of Malawi (RBM) and its subsidiary, the Export Development Fund (EDF). Control is achieved where the Bank has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

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Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

4. Accounting policies (Continued)

Basis of consolidation (Continued) Income and expenses of subsidiaries acquired or disposed of during the year are included in the consolidated statement of comprehensive income from the effective date of acquisition and up to the effective date of disposal, as appropriate. Total comprehensive income of subsidiaries is attributed to the owners of the Bank and to the non-controlling interests even if this results in the non-controlling interests having a deficit balance.

When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies in line with those used by other members of the group.

All intra-group transactions, balances, income and expenses are eliminated in full on consolidation.

3.7 Transactions on behalf of the Government of Malawi Certain transactions entered into on behalf of the Government of Malawi and assets and liabilities arising out of these transactions are not reflected in the annual financial statements as the group is concerned in such transactions only as an agent.

3.8 Property and equipment Land and buildings Land and buildings are accounted for under the allowed alternative treatment in IAS 16, Property, Plant and Equipment. Subsequent to initial recognition as an asset, land and buildings are carried at a revalued amount, being their fair value at the date of the revaluation less any subsequent accumulated depreciation.

Revaluations on land and buildings are performed with sufficient regularity such that the carrying amounts do not differ materially from those that would be determined using fair values at each reporting period. Surpluses on revaluation are transferred to a non-distributable reserve within equity. Deficits on revaluation are charged to income except to the extent that the deficit relates to a prior surplus transferred to the non-distributable revaluation reserve. On disposal of land and buildings, the revaluation surplus is transferred directly to retained earnings.

Properties in the course of construction for administrative purposes are carried at cost. Cost includes professional fees and any borrowing costs capitalised. Depreciation of these assets, on the same basis as other property assets, commences when the assets are ready for their intended use.

Office and residential properties are amortized on a straight-line basis at rates between 1% and 3.23% per annum. Their residual values, depreciation methods and useful economic lives are reviewed and adjusted, if appropriate, annually.

The depreciable amount of a revalued asset is based on its revalued amount.

16 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

3. Accounting policies (Continued)

3.2 Property and equipment (Continued)

Computer equipment These assets are carried at cost less accumulated depreciation, and expenditure is amortised over a three-year period on a straight-line basis. Real Time Gross Settlement (RTGS) System expenditure is amortised over a five-year period on a straight line basis. Their residual values, depreciation methods and useful economic lives are reviewed and adjusted, if appropriate, annually.

Furniture and equipment These assets are carried at cost less accumulated depreciation, and expenditure is depreciated on the diminishing balance basis over the anticipated useful lives of the assets at the following annual rates:

Furniture 10% Equipment 25%

The assets’ residual values, useful economic lives and depreciation methods are reviewed and adjusted, if appropriate, at every year-end.

Motor vehicles These assets are carried at cost less accumulated depreciation. Their useful economic life is four years and the depreciation method used is straight line. Their residual values, depreciation methods and useful economic lives are reviewed and adjusted, if appropriate, annually.

Plant and equipment These are stated at historical cost less accumulated depreciation. Subsequent costs are included in the carrying amount of existing assets or recognized as separate assets if it is probable that future economic benefits embedded in the item will flow to the group and the cost of the item can be measured reliably. Their residual values, depreciation methods and useful economic lives are reviewed and adjusted, if appropriate, annually.

Gains and losses on disposal of assets Gains and losses on disposal of property, and equipment are determined by comparing proceeds less disposal costs with carrying amount; and are included in the current year profit or loss.

3.9 Non-current assets held for sale

Non-current assets and disposal groups are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset (or disposal group) is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets (and disposal groups) classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell.

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Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

3. Accounting policies (Continued)

3.10 Impairment of property and equipment At each reporting date, the group reviews the carrying amounts of its tangible and intangible assets to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated in order to determine the extent of the impairment loss.

Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. Impairment losses are recognised as an expense immediately, unless the relevant asset is land or buildings, other than investment property, carried at a revalued amount, in which case the impairment loss is treated as a revaluation decrease.

If an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but only to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised as income immediately, unless the relevant asset is carried at a revalued amount, in which case the reversal of the impairment loss is treated as a revaluation increase.

3.5 Gold Gold purchased at the official rate at periodic auctions of the International Monetary Fund (“IMF”) is reported at fair value. Valuation gains/losses are included in other comprehensive income for the year.

3.6 Financial instruments

Classification A financial instrument is any contract that gives rise to both a financial asset of one entity and a financial liability or equity instrument of another entity.

The group classifies its financial assets in the following categories: Loans and Receivables, Investments held to maturity, Available for Sale and Financial Assets at fair value through profit and loss. The group determines the classification of its investments at initial recognition.

18 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

3. Accounting policies (Continued)

3.6 Financial instruments (Continued)

Classification (Continued)

Loans and receivables These are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the group provides money or services directly to counterparties with no intention of trading the receivables. The group has the following financial assets under this category: cash and cash equivalents, balances with foreign banks, Special Drawing Rights (“SDR”) holdings and loans to commercial banks. The group also operates a staff loans scheme for its employees for the provision of facilities such as house and car loans. The loans are stated at outstanding amount less provision for impairment.

Held to maturity Investments classified as held to maturity are non-derivative financial assets with fixed determinable payments and fixed maturities that the group’s management has the intention and ability to hold to maturity. Were the group to sell other than an insignificant amount of such assets the entire category would be classified as available for sale. Financial assets falling in this category are local registered stocks, treasury notes and interest bearing promissory notes issued by the Government of Malawi.

Available for sale These investments are those which may be sold as part of the Bank’s official operations or otherwise. The Bank has a 5 percent interest in Malswitch and a 99 percent interest in Export Development Fund which are classified as available for sale. These investments are not quoted on the stock exchange and their fair value cannot be reliably measured. The Bank’s holding in treasury bills can be sold in pursuing necessary monetary policy objectives.

Financial assets at fair value through profit and loss This category has two sub-categories: (1) financial assets held for trading and (2) those designated at fair value through profit or loss at inception.

A financial asset is classified as ‘held for trading’ if it is acquired principally for the purpose of selling in the short term, it forms part of a portfolio of financial assets in which there is evidence of short-term profit-taking or if it is so designated by management. Derivatives are also classified as held for trading, unless they are designated as hedges at inception.

19

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

3. Accounting policies (Continued)

3.6 Financial instruments (Continued)

Classification (Continued)

Financial assets at fair value through profit and loss (Continued) A financial asset is designated as at ‘fair value through profit or loss’ because either it eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise from measuring the asset, or recognising the gains or losses on it on different bases; or a portfolio of financial assets is managed and its performance is evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the portfolio is provided internally on that basis to key management personnel. The class of financial assets designated by the group under this category are investments the group has with fund managers included within balances with foreign banks. These investments are reported at fair value.

Measurement Financial instruments are initially measured at cost, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition, these instruments are measured as set out below.

Investments Investments in securities are recognised at trade date (the date the Bank commits itself to purchase or sell a financial instrument). At subsequent reporting dates, debt securities that the group has originated are measured at amortised cost, less any impairment losses recognised to reflect irrecoverable amounts.

Malawi Government promissory notes, loans and advances Malawi Government Promissory Notes, loans and advances originated by the Bank are stated at amortised cost less provision for doubtful debts.

Liquid assets Liquid assets are measured at fair value, based on the quoted market price in an active market at the balance sheet date.

Financial liabilities Financial liabilities are recognised at amortised cost, comprising original debt less principal payments and amortisations.

20 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

3. Accounting policies (Continued)

3.6 Financial instruments (Continued)

Measurement (Continued)

Gains and losses on subsequent measurements Gains and losses from a change in the fair value of financial instruments are included in net profit or loss in the period in which the change arises.

3.7 Foreign currencies Assets and liabilities in foreign currencies are translated to Malawi Kwacha at rates of exchange approximating those ruling at the reporting date. (In this case it’s the rates of exchange ruling at 31 December 2012.)

The official rate of exchange of the Malawi Kwacha against the Special Drawing Right is adjusted annually on 30 April. For the purposes of translation of balances denominated in Special Drawing Rights, the exchange rate is calculated by reference to the rate of exchange for 31 December 2012 between the US Dollar and the Special Drawing Right.

Under the terms of Section 54(5) of the Reserve Bank of Malawi Act, 1989, those gains or losses that relate to revaluations or devaluations of the Malawi currency are assumed by Government by the issue or redemption of promissory notes. In the event that there are insufficient promissory notes to be redeemed, surplus gains are credited to a special account to be offset against future devaluation/revaluation losses.

Exchange differences dealt with under the terms of Section 54(5) of the Reserve Bank of Malawi Act are excluded from the calculation of profit appropriated to the general reserve fund and promissory note reserve.

Exchange differences arising from investment decisions made by the Reserve Bank of Malawi are dealt with in profit or loss in the year in which they arise.

3.8 General reserve fund In accordance with the terms of Section 54(2) & (3) of the Reserve Bank of Malawi Act 1989, 25% of distributable profit or K1m, whichever is higher, is allocated to the general reserve fund, until it reaches 10% of the amount of currency in circulation at the financial year end. With the approval of the Minister of Finance further allocations may be made to the general reserve fund. In the event of a loss being incurred by the Bank, such a loss is deducted from the general reserve fund until the fund is exhausted at which point the government will cover the remaining loss.

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Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

3. Accounting policies (Continued)

3.9 Special account In accordance with the terms of Section 54(5) of the Reserve Bank of Malawi Act 1989, results from any devaluation or revaluation of the Malawi currency shall be posted directly into a special account. In order to fully comply with International Financial Reporting Standards, these exchange differences pass through the statement of comprehensive income before being transferred to the special account. Included in the special account is an amount relating to revaluation on gold holdings due to change in the fair value.

3.10 Repurchase agreements In the course of its financial market operations, the Bank engages in repurchase agreements involving domestic currency securities.

Securities sold and contracted for purchase under repurchase agreements are classified under IAS 39 as “at fair value through profit and loss”, as they are held for trading, and reported in the balance sheet within the relevant investment portfolio. In accordance with this Standard the securities are valued at market bid prices on the balance sheet date and recognised gains or losses are taken to profit or loss. The counterpart obligation to repurchase the securities as reported in other liabilities at amortised cost, the difference between the sale and purchase price is accrued over the term of the agreement and recognised as interest expense.

Securities purchased and contracted for sale under repurchase agreements are classified under IAS 39 as “loans and receivables” and valued at amortised cost. The difference between the purchase and sale price is accrued over the term of the agreement and recognised as interest revenue.

3.11 Cost of new notes and coins The cost of new notes is charged to the statement of comprehensive income at the time of issue. The cost of new notes received but not issued is shown as part of other assets. The cost of new coins (issued and unissued) is charged to the statement of comprehensive income at the time of purchase.

3.12 Related parties transactions The group transacts a proportion of its business on an arm’s length basis with Government and other Government related bodies.

3.13 Revenue recognition Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable which is the rate that exactly discounts estimated cash receipts through the expected life of the financial asset to that asset’s net carrying amount on initial recognition.

22 Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

3. Accounting policies (Continued)

3.13 Revenue recognition (Continued) All other income, including fees and rent, is recognised on the accruals basis in accordance with the substance of the relevant transactions.

3.14 Loans from the International Monetary Fund (“IMF”) The Bank receives loans from the IMF. These loans have been accounted for under IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, and are shown at cost plus accrued interest. The denomination of transactions with the IMF is Special Drawing Rights (SDR). Gains and losses on translation of assets and liabilities denominated in SDR are included in profit and loss.

3.15 Retirement benefit costs The group contributes to a defined contribution retirement benefit fund for employees. However, management guarantees minimum monthly pension for retirees thereby rendering it a hybrid scheme in that a minimum monthly pension vests regardless of past contributions.

Contributions are recognised as an expense when employees have rendered service entitling them to the contributions.

3.16 Provisions Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that the group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation.

The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the reporting date, taking into account the risks and uncertainties surrounding the obligation. Where a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows.

When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, the receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably.

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Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

4. Critical accounting judgements and key sources of estimation uncertainty

In the application of the group’s accounting policies, which are described in note 3, the directors are required to make judgments, estimates and assumptions about the carrying amounts of assets and liabilities that are not readily apparent from other sources. The estimates and associated assumptions are based on historical experience and other factors that are considered to be relevant. Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods.

4.1 Critical judgments in applying the group’s accounting policies

4.1.1 Maturity profile for balances with banks Note 5 describes the maturity profile of the group’s foreign assets. Management considered the short term nature and other relevant factors for the balances with foreign banks and classified these as maturing within three months.

4.2 Key sources of estimation uncertainty

4.2.1 Impairment of financial assets Financial assets are assessed for indicators of impairment at each reporting date. Financial assets are impaired where there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the asset have been impacted. For financial assets carried at amortised cost, the amount of the impairment is the difference between the asset’s carrying amount and the present value of the estimated future cash flows, discounted at the original effective interest rate.

The carrying amount of the financial asset is reduced by the impairment loss directly for all financial assets with the exception of trade receivables where the carrying amount is reduced through the use of an allowance account. When a trade receivable is uncollectible, it is written off against the allowance account. Subsequent recoveries of amounts previously written off are credited against the allowance account. Changes in the carrying amount of the allowance account are recognised in profit or loss.

24 Report and Accounts 2012 RBM RESERVE BANK OF MALAWI

NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

4. Critical accounting judgements and key sources of estimation uncertainty (Continued)

4.2 Key sources of estimation uncertainty (Continued)

4.2.1 Impairment of financial assets (Continued) If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed through profit or loss to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

4.2.2 Valuation of land and buildings The group carries out valuation of its land and buildings every three years. Although the last valuation exercise was conducted as at 31 December 2011 by independent professional property valuers, the group carried out another as at 30 November 2012 following the significant devaluation of the Malawi Kwacha in May 2012 (see note 14).The valuation was based on open market values. Management considers the key assumptions and estimates used by the valuers in arriving at the carrying values for land and buildings to be appropriate for this purpose.

4.2.3 Fair values and effective interest rates of financial assets In the opinion of management, fair values of the group’s financial assets approximate their respective carrying amounts. Fair values are based on discounted cash flows using a discount rate based on the borrowing rate that management expects would be available to the group at the balance sheet date.

4.2.4 Provision for ex–gratia benefit The group has provided for ex gratia benefit allowance as at 31 December 2012 (see note 24). Management considers the estimate in arriving at the figure to be appropriate.

4.2.5 RTGS control account The group has analysed and identified the cause of the RTGS control account outstanding transactions and come up with an adjusted balance. Management considers the approach used in arriving at the figure to be appropriate.

25

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management

5.1 Risk management governance structure Due to the nature of its business, the group is exposed to significant risks such as credit, interest rate, market, currency and operational risks. Responsibility for management of the group is vested with the Board. Accordingly, the Board has the overall and ultimate responsibility for the management of risks within the group. It receives reports from Executive Management which, in turn, is supported by the Risk Management Committee and the Asset & Liability Committee.

On-going institutional risk management oversight rests with the Governor’s Office which receives support from Functional Heads supported by the Heads of Department who are designated as the risk managers in their respective functional areas in the risk management process. Heads of Department have the responsibility of ensuring that risk management practices and treatments are consistent with the group’s requirement and are regularly monitored to ensure that management strategies remain effective and commensurate with the level of risk exposure. Specific to the risk management function, the Strategy and Risk Management Department (SRD) coordinates on an on- going basis the Bank-wide risk management process. The group’s employees are also encouraged to actively support and contribute to risk management initiatives and advise their management of risk issues they believe require attention.

5.2 Operational risk This is the risk of losses arising from the operations of the group. Losses can occur due to system malfunctions or failure to follow procedures. Operational risk manifests itself in losses, customer complaints and claims. To reduce the risk, management continuously reviews the controls and procedures in place. In addition, the Internal Audit department periodically determines whether the controls in place are commensurate with the risks involved. Disaster recovery arrangements are also in place so that business can continue should major disruptions occur.

5.3 Financial instruments

5.3.1 Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial instruments and equity instruments, are disclosed in note 3 to the annual financial statements.

26 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.3 Financial instruments (Continued)

5.3.2 Categories of financial instruments

Group Bank Bank 2012 2012 2011 K’m K’m K’m

Financial assets

Held to maturity investments Treasury notes (notes 12) 32,333 32,333 31,258 Interest bearing promissory notes (note 11) 29,527 29,527 1,007

Total 61,860 61,860 32,265

Available for sale financial assets Investment in Malswitch 17 17 17 Investment in Export Development Fund - 1,100 - Treasury bills 88,251 88,251 115,807

Total 88,268 89,368 115,824 Loans and receivables (including cash and cash equivalents Special drawing rights 295 295 70 Loans to commercial banks 7,207 7,207 - Staff loans and advances 959 959 942 Balances with foreign Banks 60,184 60,184 20,227 Cash and cash equivalent 2,237 1,037 326

Total 70,882 69,682 21,565

Fair value through Profit and Loss (FVTPL) Investment with fund managers Forward forex deals - - 67 Bonds-Floating 5,560 5,560 8,823 Bond-Fixed 1,942 1,942 629

Total 7,502 7,502 9,519

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Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued) 5.3 Financial instruments (Continued)

5.3.2 Categories of financial instruments (Continued)

Group Bank Bank 2012 2012 2011 K’m K’m K’m

Financial liabilities Financial liabilities measured at amortised cost Notes and coins in circulation 71,014 71,014 53,502 Other OMO instruments 15,201 15,201 8,290 Borrowing (IMF loans) 61,244 61,244 23,716 Allocations of special drawing rights 34,523 34,523 16,685 Bankers deposits 42,189 42,189 19,718 Government deposits 31,966 31,966 42,913 Other liabilities 6,397 6,390 2,614

Total 262,534 262,527 167,438

5.4 Financial risk management objectives The group is involved in policy-oriented activities and therefore its risk management framework differs from the risk management frameworks for most other financial institutions that are there to maximize shareholders’ return.

The majority of the group’s financial risks arise from the foreign reserves management and domestic financial market operations. The main objectives of the domestic reserves management is to ensure that the activities of the group are in line with stipulated statutes in order to ensure that there is no conflict of interest with the monetary policy framework and regulatory function as a central bank whilst that for foreign reserves management is to ensure that there is sufficient amount of liquid financial resources at any time to undertake interventions in order to maintain stability of the exchange rate and facilitate official transactions. These functions are undertaken by the Financial Markets Department which also manages the financial risks relating to these operations through internal risk reports that analyse exposure by degree and magnitude of risks. These risks include market risk, credit risk, liquidity risk and cash flow interest rate risk.

As a matter of policy, interest rate risk on local investments and foreign exchange risk are not actively managed. This recognises the fact that active risk management could require the Bank to carry out transactions that conflict with its monetary policy stance. In the management of foreign reserves, minimising liquidity risk is one of the considerations taken to maintain an effective foreign exchange intervention capability.

28 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued) The group does not use derivative financial instruments to minimize the effects of financial risks but tries to cover all exposures through transfer of funds at the opportune time. The group has significant balances of liquid financial assets due to the nature of its operations.

5.4.1 Capital risk management The group manages its capital to ensure that its principal objectives are undertaken with adequate capital cover. The principal elements of the group’s capital are as disclosed in the statement of changes in net amount attributable to shareholder.

5.4.2 Credit risk Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group, and exists in lending and other trading activities.

In providing liquidity through the open market operations or Malawi Inter-bank Transfer and Settlement System (MITASS), credit risk is managed by dealing with counterparties that meet appropriate credit and functional criteria, and by ensuring that exposures are fully collateralised by high-quality, marketable securities.

Credit risk on investments of foreign reserves is managed by holding only high- quality securities, issued largely by governments, government agencies and supranational organizations as stipulated in the Reserves Management Policy.

29

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.2 Credit risk (Continued)

The table below shows the balances and advances with major banks and other institutions at the reporting date and the institutions’ recent credit ratings according to the Standard and Poor credit rating scale. This represents the maximum credit exposure as at the reporting date.

Credit limits and balances with major central and commercial banks and other institutions at 31 December 2012 Actual Carrying Credit limit holding Amount as as percentage percentage of total of total Bank/other institutions Locations Rating portfolio portfolio K’m Bank of England Europe AAA No limit 2.00 1,131 North Bank of Canada America AAA No limit 0.00 25 Deutche Bundesbank Europe AAA No limit 36.00 23,791 Reserve Bank of South Africa Africa BBB+ No limit 0.00 96 Federal Reserve Bank of North New York America AA+ No limit 10.00 6,567 Bank of Tokyo Mitsubishi Asia A+ No limit 0.00 36 North Citibank America A 25.00 7.00 4,571 HSBC Bank Africa AA- 25.00 0.00 - Standard Chartered Bank Europe AA- 25.00 0.00 - Crown Agents Fund Managers* Europe BBB+ 25.00 10.00 7,640 Crown Agents Bank Europe BBB+ 25.00 17.00 11,422 Commerz Bank Europe A 25.00 17.00 11,086 No rating could be Bank of Mauritius Africa obtained 25.00 0.00 77

30 Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.2 Credit risk (Continued)

Credit limits and balances with major central and commercial banks and other institutions at 31 December 2011

Actual Carrying Credit limit holding Amount as as percentage percentage of total of total Bank/other institutions Locations Rating portfolio portfolio K’m Bank of England Europe AAA No limit 1.00 194 North Bank of Canada America AAA No limit 0.00 12 Deutche Bundesbank Europe AAA No limit 7.00 2,126 Reserve Bank of South Africa Africa BBB+ No limit 0.00 13 Federal Reserve Bank of North New York America AA+ No limit 1.00 362 Bank of Tokyo Mitsubishi Asia AA No limit 0.00 46 North Citibank America A+ 25.00 2.00 503 HSBC Bank Africa AA 25.00 5.00 1,643 Standard Chartered Bank Europe AA- 25.00 8.00 2,381 Crown Agents Fund Managers* Europe BBB+ 25.00 37.00 10,874 Crown Agents Bank Europe BBB+ 25.00 26.00 7,581 Commerz Bank Europe A+ 25.00 11.00 3,366 No rating could be Bank of Mauritius Africa obtained 25.00 0.00 38

31

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.2 Credit risk (Continued)

* The 10 percent (2011: 37 percent) with the Crown Agents Fund Managers includes a diversified portfolio of investments held with government, financial and non-financial institutions. See note 5.3.2.

5.4.3 Liquidity risk Liquidity risk is the potential that an institution will be unable to meet its obligations as they fall due because of inability to liquidate assets or obtain adequate funding or that it cannot unwind or offset specific exposures without significantly affecting market prices.

The group manages its foreign exchange liquidity risk through appropriate structuring of its portfolios and investing in liquid assets and deep markets including short term deposits and bonds issued by governments of the G7 countries. Under International Monetary Fund (IMF) liabilities (note 18) the Bank agrees with the IMF monetary targets that are to be achieved for macroeconomic stability.

32 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.3 Liquidity risk (Continued) The following tables detail the group’s remaining contractual maturity for its non-derivative financial assets and financial liabilities. The tables have been drawn up based on the undiscounted contractual maturities of the financial assets and cash flows of financial liabilities based on the earliest date on which the group can be required to pay. Group At 31 December 2012 Up to 1 to 3 4 to 12 Over Carrying 1 month months months 12 months Total Value K’m K’m K’m K’m K’m K’m Assets Gold reserves 7,135 - - - 7,135 7,135 Special Drawing Rights - - - 295 295 295 Investments in Malswitch - - - 17 17 17 Investments in Malawi Government - - - promissory notes 71 - - 29,456 29,527 29,527 - treasury notes - 6,083 - 26,250 32,333 32,333 - treasury bills - 12,672 75,579 - 88,251 88,251 Advances to Malawi Government 25,442 - - 25,442 25,442 Loans to commercial banks 7,207 - - 7,207 7,207 Liquid assets -Balances with foreign banks - 67,686 - - 67,686 67,686 -Cash and cash equivalents 2,237 - - - 2,237 2,237 Other assets - 13,738 - - 13,738 13,738 Total assets 34,885 107,386 75,579 56,018 273,868 273,868

Liabilities Allocation of Special Drawing Rights - - - 34,523 34,523 34,523 Borrowings (IMF loans) - - - 61,244 61,244 61,244 Other OMO instruments - 10,626 - 4,575 15,201 15,201 Notes and coins in circulation 71,014 - - - 71,014 71,014 Bankers’ deposits 42,189 - - - 42,189 42,189 Other deposits 1 - - - 1 1 Government deposits 31,966 - - - 31,966 31,966 Other liabilities 6,398 - - - 6,398 6,398 Total liabilities 151,568 10,626 - 100,342 262,536 262,536

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 33

Report and Accounts 2012 RBM

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.3 Liquidity risk (Continued)

Bank

At 31 December 2012 Up to 1 to 3 4 to 12 Over Carrying 1 month months months 12 months Total Value K’m K’m K’m K’m K’m K’m Assets Gold reserves 7,135 - - - 7,135 7,135 Special Drawing Rights - - - 295 295 295 Investments in EDF - - - 1,100 1,100 1,100 Investments in Malswitch - - - 17 17 17 Investments in Malawi Government - promissory notes 71 - - 29,456 29,527 29,527 - treasury notes - 6,083 - 26,250 32,333 32,333 - treasury bills - 12,672 75,579 - 88,251 88,251 Advances to Malawi Government 25,442 - - 25,442 25,442 Loans to commercial banks 7,207 - - 7,207 7,207 Liquid assets -Balances with foreign banks - 67,686 - - 67,686 67,686 -Cash and cash equivalents 1,037 - - - 1,037 1,037 Other assets - 13,806 - - 13,806 13,806 Total assets 33,685 107,454 75,579 57,118 273,836 273,836

Liabilities Allocation of Special Drawing Rights - - - 34,523 34,523 34,523 Borrowings (IMF loans) - - - 61,244 61,244 61,244 Other OMO instruments - 10,626 - 4,575 15,201 15,201 Notes and coins in circulation 71,014 - - - 71,014 71,014

Bankers’ deposits 42,189 - - - 42,189 42,189 Other deposits 1 - - - 1 1 Government deposits 31,966 - - - 31,966 31,966 Other liabilities 6,390 - - - 6,390 6,390 Total liabilities 151,560 10,626 - 100,342 262,528 262,528

34 Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.3 Liquidity risk (Continued)

At 31 December 2011 Up to 1 to 3 4 to 12 Over Carrying 1 month months months 12 months Total Value K’m K’m K’m K’m K’m K’m Assets Gold reserves 3,254 - - - 3,254 3,254 Special Drawing Rights - - - 70 70 70 Investment in EDF ------Investments in Malswitch - - - 17 17 17 Investments in Malawi Government - promissory notes 71 - - 936 1,007 1,007 - treasury notes - - 3,987 27,271 31,258 31,258 - treasury bills 24,009 4,143 87,655 - 115,807 115,807 Liquid assets -Balances with foreign banks - 29,582 164 - 29,746 29,746 -Cash and cash equivalents 326 - - - 326 326 Other assets - 10,010 - - 10,010 10,010 Total assets 27,660 43,735 91,806 28,294 191,495 191,495

Liabilities Allocation of Special Drawing Rights - - - 16,685 16,685 16,685 Borrowings (IMF loans) - - - 23,716 23,716 23,716 Other OMO instruments - 3,947 - 4,343 8,290 8,290 Notes and coins in circulation 53,502 - - - 53,502 53,502 Bankers’ deposits 19,718 - - - 19,718 19,718 Other deposits 5 - - - 5 5 Government deposits 42,913 - - - 42,913 42,913 Other liabilities 2,619 - - - 2,619 2,619 Total liabilities 118,757 3,947 - 44,744 167,448 167,448

There are more liabilities in the up to one month category for both the group and the bank. The inbalance arose due to classification of transactions relating to currency in circulation and deposits. The transactions were classified according to demand but as a central bank there is not much exposure.

35

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.4 Interest rate risk Interest rate risk is the risk of a change in the value of an investment as a result of a change in the absolute level of interest rates.

The group manages this risk in its foreign reserves investment by prescribing a benchmark index that has an acceptable level of risk. Currently, the group uses the Merill Lynch, 1-3 Year, G7 Government Bond Index as its benchmark for foreign reserves being managed by foreign fund managers.

The value of the external funds being managed by the external fund managers stood at K7,640m as at 31 December 2012 (2011: K10,874m).

For domestic investments in securities such as treasury bills, the group does not actively manage the related interest rate risk because these investments are largely for monetary policy purposes and the overriding concern is the monetary policy consideration and not the interest rate risk.

The group uses the existing contractual interest rates and maturity profiles for the various assets and liabilities held at year-end in preparing the interest rate risk sensitivity gap analysis. The table below summarises the carrying amount of interest rate sensitive assets and liabilities and the notional amounts of financial instruments in the period in which they next reprice to market rates or mature. The sum of these reflects the interest rate sensitivity gap.

36 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.4 Interest rate risk (Continued) Group Interest rate sensitivity gap analysis

31 December 2012 On demand 1 - 3 months 4 - 12 months Over 12 months Non-rate sensitive Total

K’m K’m K’m K’m K’m K’m ASSETS

Special Drawing Rights - - - 295 - 295

Gold Reserves 7,135 - - - - 7,135 Investments in Malawi Government:

- promissory notes 71 - - 29,456 - 29,527

- treasury note - 6,083 - 26,250 - 32,333

- treasury bills - 12,672 75,579 - - 88,251 Advances to Malawi Government 25,442 25,442 Loans to commercial banks 7,207 7,207 Liquid assets:

- balances with foreign banks - 60,184 - - - 60,184

- investments with fund managers - 7,502 - - - 7,502

- cash and cash equivalents 2,237 - - - - 2,237 Total interest bearing assets 34,885 93,648 75,579 56,001 - 260,113

Non-interest bearing assets - - - - 37,916 37,916 TOTAL ASSETS 34,885 93,648 75,579 56,001 37,916 298,029

37

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.1 Financial risk management objectives (Continued)

5.4.4 Interest rate risk (Continued)

Group Interest rate sensitivity gap analysis

31 December 2012 On demand 1 - 3 months 4 - 12 months Over 12 months Non-rate sensitive Total

K’m K’m K’m K’m K’m K’m

LIABILITIES Allocation of Special Drawing Rights - - - 34,523 - 34,523

Borrowings (IMF loans) - - - 61,244 - 61,244

Other OMO Instruments - 10,626 - 4,575 - 15,201

Total interest bearing liabilities - 10,626 - 100,342 - 110,968

Non-interest bearing liabilities - - - - 154,770 154,770

Shareholders’ funds - - - - 32,291 32,291

TOTAL LIABILITIES & SHAREHOLDERS' FUNDS - 10,626 - 100,342 187,061 298,029

Interest rate sensitivity gap 34,885 83,022 75,579 (44,341) (149,145) -

Cumulative interest rate sensitivity gap 34,885 117,907 193,486 149,145 - -

38 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.4 Interest rate risk (Continued)

Group Interest rate sensitivity gap analysis

31 December 2012 On demand 1 - 3 months 4 - 12 months Over 12 months Non-rate sensitive Total

K’m K’m K’m K’m K’m K’m ASSETS

Special Drawing Rights - - - 295 - 295

Gold Reserves 7,135 - - - - 7,135 Investments in Malawi Government:

- promissory notes 71 - - 29,456 - 29,527

- treasury note - 6,083 - 26,250 - 32,333

- treasury bills - 12,672 75,579 - - 88,251 Advances to Malawi Government 25,442 25,442 Loans to commercial banks 7,207 7,207 Liquid assets:

- balances with foreign banks - 60,184 - - - 60,184

- investments with fund managers - 7,502 - - - 7,502

- cash and cash equivalents 1,037 - - - - 1,037 Total interest bearing assets 33,685 93,648 75,579 56,001 - 258,913

Non-interest bearing assets - - - - 39,046 39,046 TOTAL ASSETS 33,685 93,648 75,579 56,001 39,046 297,959

39

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.1 Financial risk management objectives (Continued)

5.4.4 Interest rate risk (Continued)

Group Interest rate sensitivity gap analysis

31 December 2012 On demand 1 - 3 months 4 - 12 months Over 12 months Non-rate sensitive Total

K’m K’m K’m K’m K’m K’m

LIABILITIES

Allocation of Special Drawing Rights - - - 34,523 - 34,523

Borrowings (IMF loans) - - - 61,244 - 61,244

Other OMO Instruments - 10,626 - 4,575 - 15,201

Total interest bearing liabilities - 10,626 - 100,342 - 110,968

Non-interest bearing liabilities - - - - 154,762 154,762

Shareholders’ funds - - - - 32,229 32,229

TOTAL LIABILITIES & SHAREHOLDERS' FUNDS - 10,626 - 100,342 186,991 297,959

Interest rate sensitivity gap 33,685 83,022 75,579 (44,341) (147,945) -

Cumulative interest rate sensitivity gap 33,685 116,707 192,286 147,945 - -

Gold is mainly affected by price and currency movements. However, gold benefits from low real interest rates, an increasing yield-spread (the difference between long-term and short-term interest rates) , and widening credit spreads, each of which can occur when nominal interest rates are rising or falling. In this regard, changes in interest rates have an impact on the valuation of gold.

40 Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.4 Interest rate risk (Continued)

31 December 2011 On demand 1 - 3 months 4 - 12 months Over 12 months Non-rate sensitive Total

K’m K’m K’m K’m K’m K’m

ASSETS

Special Drawing Rights - - - 70 - 70

Investments in Malawi Government:

- promissory notes 71 - - 936 - 1,007

- treasury note - - 3,987 27,271 - 31,258

- treasury bills - 28,152 87,655 - - 115,807

Liquid assets:

- balances with foreign banks - 20,063 164 - - 20,227

- investments with fund managers - 9,519 - - - 9,519

- cash and cash equivalents 326 - - - - 326

Total interest bearing assets 397 57,734 91,806 28,277 - 178,214

Non-interest bearing assets - - - - 28,648 28,648

TOTAL ASSETS 397 57,734 91,806 28,277 28,648 206,862

41

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.1 Financial risk management objectives (Continued)

5.4.4 Interest rate risk (Continued)

Interest rate sensitivity gap analysis (Continued)

31 December 2011 On demand 1 - 3 months 4 - 12 months Over 12 months Non-rate sensitive Total

K’m K’m K’m K’m K’m K’m

LIABILITIES Allocation of Special Drawing Rights - - - 16,685 - 16,685

Borrowings (IMF loans) - - - 23,716 - 23,716

Other OMO Instruments - 3,947 - 4,343 - 8,290

Total interest bearing liabilities - 3,947 - 44,744 - 48,691

Non-interest bearing liabilities - - - - 120,942 120,942

Shareholders’ funds - - - - 37,229 37,229

TOTAL LIABILITIES & SHAREHOLDERS' FUNDS - 3,947 - 44,744 158,171 206,862

Interest rate sensitivity gap 397 53,787 91,806 (16,467) (129,523) -

Cumulative interest rate sensitivity gap 397 54184 145,990 129,523 - -

42 Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.5 Market risk The group is exposed to market risk on the international financial market, principally through changes in the relevant interest rates received and paid largely on its foreign assets and foreign liabilities. Exposure may also be incurred to changes in exchange rates and to shifts in general market conditions, such as the liquidity of the assets market. The Bank has engaged the services of professional fund managers who manage a significant portfolio of its foreign assets. An appropriate benchmark was given which has several aspects in terms of quality of instruments, maximum duration and credit concentration.

5.4.5.1 Sensitivity Analysis of market risk The Bank uses models to assess the impact of possible changes in market risks. These risks include interest rate risk and currency risk.

Interest rate risk Interest rate risk is the risk of loss resulting from changes in interest rates, including changes in the shape of yield curves. The Bank bases its analysis on the interest sensitivity gap (note 5.4.4). The sensitivity computations assume that financial assets maintain a constant rate of return from one year to the next. The effect on profit due to reasonable possible changes in interest rates, with all other variables held constant, is as follows:

2012 2011 K’m K’m

Effect on profit of a +5% change in interest rates 537 619 Effect on profit of a -5% change in interest rates (537) (619) Currency risk Currency risk is the risk of loss resulting from changes in exchange rates. The Bank has assets and liabilities in various currencies; however, the most significant exposure arises from assets denominated in the USD, GBP and Euro currencies. The following table demonstrates sensitivity to reasonably possible change in the major currencies in which the Bank trades, with all other variables held constant, of the Bank’s profit earned.

2012 2011

Effect on profit of a +5% change in exchange rates 2,078 1,536 Effect on profit of a -5% change in exchange rates (2,078) (1,536)

43

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.5.2 Currency risk Currency risk relates to the exposure of the Bank’s foreign exchange position to adverse movements in foreign exchange rates. These movements may impact on the Bank’s future cash flows. The Bank manages this risk by adhering to currency exposure limits as stipulated in Foreign Exchange Reserves Management Policy.

The Bank had the following significant foreign currency positions as at 31 December 2012:

Currency composition as at 31 December 2012 Figures in Millions Currency MWK USD GBP JPY EUR ZAR XDR Liabilities Government deposit 31,966 69 5 - 13 - - Bankers deposit 22,945 47 4 - 10 1 - Allocation of Special Drawing Rights 34,523 - - - - - 66 Borrowings (IMF loans) 61,244 - - - - - 118 Total 150,678 116 9 - 23 1 184 Assets Special Drawing Rights 295 - - - - - 1

Gold reserve account 7,135 22 - - - - -

Foreign nostros 36,198 34 2 9 54 - - IP-Time Deposits 21,817 33 20 -

IMF - Reserve tranche 1,245 - - - - - 2 Funds under foreign management 8,247 23 1 - - - - IP – Foreign Special 180 - - - 2 -

Total 75,117 112 23 9 54 2 3

44

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.4 Financial risk management objectives (Continued)

5.4.5.2 Currency risk (Continued)

Currency composition as at 31 December 2011 Figures in Millions Currency MWK USD GBP JPY EUR ZAR XDR Liabilities Government deposit 8,161 26 - 3 17 - - Bankers deposit 3,905 21 - - 2 1 - Allocation of Special Drawing Rights 16,685 - - - - - 66

Borrowings (IMF loans) 23,716 - - - - - 94

Total 52,467 47 - 3 19 1 160

Assets Special Drawing Rights 70 - - - - - 1

Gold reserve account 3,254 20 - - - - -

Foreign nostros 2,914 3 1 22 10 - - IP-Time Deposits 11,803 38 6 19 IMF - Reserve tranche 609 - - - - - 2 Funds under foreign management 14,406 70 12 - - - - IP – Foreign Special 14 - - - - 1 -

Total 33,070 131 19 22 29 1 3

5.5 Fair value of financial assets and liabilities The carrying amounts of treasury bills, loans and advances, liquid assets, deposits, and short-term balances with foreign banks approximate to fair value. The absence of an active market or established valuation techniques in Malawi means that the determination of fair value for the remaining instruments is impracticable. In this instance, amortised cost is regarded as the best approximation of fair value.

45

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

5. Risk management (Continued)

5.5 Fair value of financial assets and liabilities (Continued)

5.5.1 Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value grouped into levels 1 to 3 based on the degree to which the fair value is observable:

Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 fair value measurements are those derived from inputs other than quoted prices included within level one that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (i.e. unobservable inputs).

Level 1 Level 2 Level 3 Total 31 December 2012 K’m K’m K’m K’m Financial assets at fair value through profit and loss Crown Agents - Treasury Notes & Bonds 7,502 - - 7,502 Available for sale financial assets

Malswitch - - 17 17 Export Development Fund 1,100 1,100

Treasury Bills 88,251 - - 88,251

Level 1 Level 2 Level 3 Total 31 December 2011 K’m K’m K’m K’m Financial assets at fair value through profit and loss Crown Agents - Treasury Notes & Bonds 9,452 - - 9,452

46

Report and Accounts 2012 RBM

Crown Agents - Forward FX deals & deposits - 67 - 67 Available for sale financial assets

Malswitch - - 17 17 Treasury Bills 115,807 - - 115,807

There have been no movements in the ascribed value of the investment in Malswitch for the 2012 financial year.

47

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K'm K'm K'm

6. Cash and cash equivalents

Foreign Foreign cash 787 787 226 Travellers’cheques 40 40 19 Charges and credit cards - - 28

Sub-total 827 827 273 Domestic Cash 1,201 1 53 Uncleared effects 209 209 -

Sub-total 1,410 210 53

Total cash and cash equivalents 2,237 1037 326

7. Balances with foreign banks

Balances with foreign banks are due to mature as follows:

Within 3 months 67,686 67,686 29,746

Analysis of deposits by geographical

location: - Africa 96 96 5,022 - Europe 55,147 55,147 23,438 - North America 12,407 12,407 1,240 - Asia 36 36 46

67,686 67,686 29,746

48

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

7. Balances with foreign banks (Continued) The Bank’s principal liquidity risk management objective is to maintain sufficient liquid resources to enable it to meet all probable cash flow needs for a rolling 1-year horizon without sourcing additional financing. Included in total balances with foreign banks are funds of K7,640 million (2011: K10,874 million) that have been placed with external fund managers who are given a mandate of investing the funds with a modified duration of less than three years. However, the investments are easily convertible such that they can be liquidated at short notice.

Included in the K7,640 million (2011: K10,874 million) with external fund managers are funds under management by Crown Agents amounting to K7,502 million (2011: K9,519m) whose underlying investments were as follows:

Group Bank Bank 2012 2012 2011 K'm K'm K'm

Forward forex deals - - 67 Bonds – Floating 5,560 5,560 8,823 Bonds – Fixed 1,942 1,942 629

7,502 7,502 9,519

Balances with foreign banks carry interest rates of between 0.01% and 1.00% (2011: 0.00% and 1.00%) per annum.

8. Advances to Malawi Government

Under the terms of Section 40(4) of the Reserve Bank of Malawi Act, 1989, short-term advances must be repaid within four months of the end of the Malawi Government’s financial year, which is 30 June 2013. These advances bear interest at the ruling Bank rate which was at 25% as at 31 December 2012. As at 31 December 2012 the Government had K25,442 million owing to the Bank as advances (2011: nil).

49

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012 Group Bank Bank 2012 2012 2011 K’ m K’ m K’m

9. Loans to commercial Banks

NBS Bank 7,207 7,207 -

On 14th December, 2012 the Reserve Bank of Malawi extended a three month liquidity adjustment loan facility to NBS Bank in the amount of K7.0 billion. Collateral for the facility comprises US$3.0 million deposit, treasury bills and treasury note worth K1.0 billion and K4.66 billion respectively. The facility attracts interest at the rate of 24 percent per annum. Group Bank Bank 2012 2012 2011 K'm K'm K'm

10. Other assets

Prepayments 3,429 3,428 1,555 Staff loans and advances 1,342 1,342 1,140 Recoverable expenditure 375 444 148 Other receivables 1 1 1 Inventory currency notes 3,337 3,337 1,249 Accrued interest 5 5 6 Consumable stocks 123 123 65 Clearing and suspense accounts 5,763 5,763 6,298 Impairment of staff loans (383) (383) (198) Provision for bad and doubtful debts (254) (254) (254)

Total other assets 13,738 13,806 10,010

Staff loans and advances are issued to members of staff at concessionary rates. A fair value calculation was performed to determine the impact of the concessionary rates and an adjustment has been made in the annual financial statements.

The directors consider the carrying amounts of other assets to approximate their fair values.

50

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K'm K'm K'm

11. Malawi Government promissory notes

31 December 2000 i) 71 71 71 31 December 2011 ii) 936 936 936 31 December 2012 iii) 28,520 28,520 -

Total Malawi Government promissory notes 29,527 29,527 1,007

The promissory notes, which meet the definition of financial assets in accordance with IAS 39, were issued by the Government of Malawi in accordance with Section 54(2b) of the Reserve Bank of Malawi Act, 1989, and consist of:

An interest bearing promissory note of K71 million issued on 31 December 2000 in settlement of interest charged on 1990 to 1992 Government loans. The promissory note is denominated in Malawi Kwacha and is redeemable on demand by the Malawi Government. It bears interest at the ruling Bank rate.

An interest bearing promissory note of K936 million issued by the Malawi Government in settlement of the loss incurred by the Bank and its then subsidiary, MALSWITCH, for the financial year ended 31 December 2006. The note, denominated in Malawi Kwacha, matured on 31 December 2011 and was subsequently rolled over for another 5-year period from its effective date of 31 December 2011. It bears interest at the ruling Bank rate.

An interest bearing promissory note of K28, 520 million issued by the Malawi Government in settlement of the loss incurred by the Bank for the financial year ended 31 December 2012. The note is denominated in Malawi Kwacha and matures after five years from its effective date of 31 December 2012. It bears interest at the ruling Bank rate.

51

Report and Accounts 2012 RBM

Group Bank Bank 2012 2012 2011 K'm K'm K'm

12. Malawi Government treasury notes

The treasury notes will mature as follows:

-Within three months 6,083 6,083 - -Between one year and five years 26,250 26,250 10,554 -Between five years and ten years - - 20,704 Total Malawi Government treasury notes 32,333 32,333 31,258

52

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

12. Malawi Government treasury notes (Continued)

Included in the total figure for treasury notes are two treasury notes that were issued in January 2008 as part of the recapitalisation process the Malawi Government undertook. The treasury notes bear a 16.5% coupon rate and will mature as follows:

Group Bank Bank 2012 2012 2011 K'm K'm K'm

- Within three months 6,083 6,083 - - Between one year and five years 19,179 19,179 6,083 - Between five years and ten years - - 19,179 Total treasury notes arising on recapitalisation 25,262 25,262 25,262 Total interest income from these treasury notes as at 31 December 2012 was K4, 885 million (2011: K4, 826 million). The interest is receivable semi-annually effective 8 July 2008 until the maturity date. A treasury note for K6,083 million will be rolled over on 8th January 2013 for another period of 5 years and will bear interest at 27.5% per annum.

Group Bank Bank 2012 2012 2011 K'm K'm K'm

. Malawi Government treasury bills Treasury bills are due to mature as follows: -Within three months 12,672 12,672 28,152 -Between three months and one year 75,579 75,579 87,655 Total Malawi Government treasury bills 88,251 88,251 115,807

These treasury bills are held by the Bank as ‘available for sale financial assets’ and are carried at fair value. As at 31 December 2012 they carried an average interest rate of 15.91% (2011: 6.38%) per annum.

53

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

14. Property and equipment

Group

Furniture, equipment, Land & & computer Motor buildings hardware vehicles Total K’m K’m K’m K’m 2012

COST OR VALUATION At beginning of the year 12,021 509 2,924 15,454 Additions 6,252 62 533 6,847 Disposals - - (74) (74) Surplus on revaluation 1,703 - - 1,703

At end of the year 19,976 571 3,383 23,930

DEPRECIATION At beginning of the year - 388 807 1,195 Charge for the year 100 29 362 491 Disposals - - (36) (36) Reversed on revaluation (91) - - (91)

At end of the year 9 417 1,133 1,559

NET BOOK VALUE Assets classified as held for sale (69) - - (69) At end of the year 19,898 154 2,250 22,302

54

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

14. Property and equipment (Continued)

Bank Furniture, equipment, Land & & computer Motor buildings hardware vehicles Total K’m K’m K’m K’m 2012

COST OR VALUATION At beginning of the year 12,021 509 2,924 15,454 Additions 6,252 57 498 6,807 Disposals - - (74) (74) Surplus on revaluation 1,703 - - 1,703

At end of the year 19,976 566 3,348 23,890

DEPRECIATION At beginning of the year - 388 807 1,195 Charge for the year 100 29 360 489 Disposals - - (36) (36) Reversed on revaluation (91) - - (91)

At end of the year 9 417 1,131 1,557

NET BOOK VALUE Assets classified as held for sale (69) - - (69) At end of the year 19,898 149 2,217 22,264

2011

COST OR VALUATION At beginning of the year 7,711 465 2,610 10,786 Additions 2,122 44 315 2,481 Disposals - - (11) (11) Transfer - - 10 10 Surplus on revaluation 2,188 - - 2,188

At end of the year 12,021 509 2,924 15,454

DEPRECIATION At beginning of the year 35 339 484 858 Charge for the year 22 49 332 403 Disposals - - (9) (9) Reversed on revaluation (57) - - (57)

At end of the year - 388 807 1,195

NET BOOK VALUE At end of the year 12,021 121 2,117 14,259

55

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

14. Property and equipment (Continued)

During the year the Bank committed itself to disposing of a house that had a carrying amount of K69 million upon discovering that it had a number of defects that would have cost it a lot of money to rehabilitate to expected standards. Consequently the house has been classified as held for sale and reported at its carrying amount which is the lower of fair value less costs to sale and carrying amount.

Valuations of land and buildings are performed by independent valuers with sufficient regularity such that the carrying amount does not differ materially from that which would be determined using fair values at the balance sheet date. The group normally revalues its property every three years with the last revaluation done in 2011. However, following the significant devaluation of the Malawi Kwacha in May 2012 and its subsequent floatation that contributed to property price increases, the Bank carried out an extraordinary valuation.

Land and buildings were revalued as at 30 November 2012 on an open market value basis as follows:

a) Reserve Bank Headquarters, New and Old Blantyre Branch Buildings, Salima and Mangochi Cottages, by Mpico Limited, Registered Valuers; and

b) Silver Strikers Stadium, Clubhouse, Guesthouses, official residences in Blantyre, Lilongwe and Mzuzu, by Lipimbi Property Services, Registered Valuers.

The following assumptions were used:

1. Open market values are the estimated amount for which a property should be exchanged on the date of valuation between a willing buyer and willing seller dealing at arm’s length.

2. The valuation did not take into account plant and equipment and other items such as furniture and fittings.

3. The leases will be renewed by the Malawi Government Ministry responsible upon expiry.

4. The properties and their values are not affected by any matters that would be revealed by local search or by any statutory notice and properties are free from encumbrances, restrictions or charges.

56

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

14. Property and equipment (Continued)

As at 31 December 2012, the cost of land and buildings was as follows:

Land Buildings Total 2012 (K'm) (K'm) (K'm) Headquarters 185 2,803 2,988 New Blantyre Branch 32 2,221 2,253 Old Blantyre Branch 9 453 462 Residential property 63 239 302 Utility Buildings` - 146 146 Ware/Printing property - 199 199 Cafeteria property - 394 394 Club house property 20 81 101 Silver Strikers Stadium 35 238 273 Guesthouses 103 348 451 Cottages 20 71 91 Work in Progress: - Mzuzu Branch 9 10,567 10,576 - Enhancements - 37 37 Total 476 17,797 18,273

57

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

14. Property and equipment (Continued)

2011 Land Buildings Total (K'm) (K'm) (K'm) Headquarters 296 1,472 1,768 New Blantyre Branch 95 1,954 2,049 Old Blantyre Branch 30 339 369 Residential property 41 479 520 Utility Buildings` - 199 199 Ware/Printing property - 94 194 Cafeteria property - 146 146 Club house property 8 66 74 Silver Strikers Stadium 7 130 137 Work in Progress: - Mzuzu Branch 9 4,352 4,361 - Enhancements - 114 114 Total 486 9,345 9,831

58

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K'm K'm K'm

15. Intangible assets

COST At the beginning of the year 1,667 1,667 954 Additions 686 686 713

At the end of the year 2,353 2,353 1,667

AMORTISATION At the beginning of the year 559 559 495 Charge for the year 4 4 64

At the end of the year 563 563 559

NET BOOK VALUE At the end of the year 1,790 1,790 1,108

Intangible assets represent computer software and the costs associated with development of software for the Bank’s use. Software is amortised over the expected useful economic life that ranges from 3 to 5 years.

16. Investment in Export Development Fund

The K1.1 billion relates to investment the Bank made in Export Development Fund (EDF) for establishment of a limited company whose major objective is to ensure that Malawi’s vast export potential and business opportunities are exploited in order to generate the much needed foreign exchange for the country. The Bank holds 99% of the shareholding in the company.

59

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

17. Investment in Malawi Switch Centre Limited (“MALSWITCH”)

The Bank holds 5 percent of the shareholding in MALSWITCH with the Malawi Government being the majority shareholder with 94 percent shareholding. The total investment as at Balance sheet date was K17 million (2011:K17 million).

18. Government deposits

Under the provisions of the Reserve Bank of Malawi Act, 1989, one of the principal objectives of the Bank is to act as banker and adviser to the Government. Acting in this capacity, the Bank receives deposits which represent all receipts accruing to the Government.

The Bank also facilitates the operation of the Government Credit Ceiling Authority (“CCA”) through the maintenance of holding accounts which eventually fund the operating accounts of Government Ministries held at commercial banks. No interest is payable on these deposits which are repayable on demand.

19. Bankers’ deposits

In the exercise of its powers under Section 36 of the Reserve Bank of Malawi Act, 1989, the Bank requires all commercial banks to maintain a specified liquidity reserve with the Central Bank at all times. No interest is payable on these deposits.

In April 2011, the Bank introduced liquidity reserve requirement on foreign currency denominated customer account balances with the commercial banks. As at balance sheet date total deposits of this nature came to K8,815 million (2011: K3,905 million) with the following currency composition:

Currency Composition as at 31 December 2012

Currency MWK EUR GBP USDZAR Bankers Deposits (million) 8,815 2 - 23 1

Currency Composition as at 31 December 2011

Currency MWK EUR GBP USDZAR Bankers Deposits (million) 3,905 2 - 21 1

Other than the liquidity reserve requirement figure included in the bankers deposits are term deposits with commercial banks amounting to K14,130 million (2011: nil) with the following composition as at 31 December,2012:

Currency MWK EUR GBP USDZAR

60

Report and Accounts 2012 RBM

Term Deposits (million) 14,130 8 4 25 -

61

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K'm K'm K'm 20. Borrowings International Monetary Fund (‘IMF’)

Exogenous Shock Facility (“ESF”) 18,050 18,050 8,724 Extended Credit Facility (“ECF”) 12,685 12,685 - Poverty Reduction Growth Facility (“PRGF”) 30,509 30,509 14,992

Total borrowing 61,244 61,244 23,716

The Exogenous Shock Facility (“ESF”) is a loan that the IMF Executive Board approved for Malawi to support the authorities in their adjustment to the terms of trade shock caused by rapid increases in fuel and fertilizer prices in 2008. The ESF loan is denominated in Special Drawing Rights (‘‘XDR’’) and bears interest at 0.5% per annum. The loan is repayable in installments of XDR3.47m, payable half-yearly and commencing in 2014 up to the year 2018.

The Poverty Reduction and Growth Facility (“PRGF”) loan is denominated in Special Drawing Rights and bears interest at 0.5% per annum. Draw-downs under this facility are repayable half-yearly in equal installments from September 2011. Final installments for the loans are expected in the year 2018.

On 23 July 2012, the Executive Board of the International Monetary Fund (IMF) approved a new three-year arrangement for Malawi under the Extended Credit Facility (ECF) in an amount equivalent to XDR 104.1 million (about US$ 156.2 million). Following the approval, the Bank was availed ECF loan tranches of XDR13.02 million each, one in July 2012 and the other in December 2012.

In accordance with IAS 20 these borrowings from the IMF have been accounted for as preferential loans from a quasi-government institution. As such, the loans are carried at cost plus accrued interest.

21. Allocation of Special Drawing Rights (“SDR”)

The allocation of SDR, which are due to the IMF, represents XDR66 million (K34,523m) (2011: XDR66m (K16,685m)) and bear interest at an average rate of 0.11% (2011: 0.40%) per annum. The liability represents an allocation and has no fixed repayment dates.

62

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K'm K'm K'm 22. Notes and coins in circulation Notes 70,408 70,408 52,950 Coins 606 606 552 Total notes and coins in circulation 71,014 71,014 53,502

The liability for notes and coins in circulation is the net liability after off-setting notes and coins held by the Bank as cash on hand because cash held by the Bank does not represent currency in circulation.

Group Bank Bank 2012 2012 2011 K'm K'm K'm 23. Other liabilities Payables 7,848 7,848 1,183 Appropriation due to Government - - 366 Payroll accruals 86 86 1,011 Other payables (1,536) (1,544) 59 Total other liabilities 6,398 6,390 2,619

Included in the payables is amount of K287 million which relates to Government Credit Ceiling Authority claims made through Standard Bank in 2007, which was still outstanding as at the balance sheet date.

The amount of appropriation due to Malawi Government is payable in accordance with provisions of Section 54 of the Reserve Bank of Malawi Act 1989 on appropriation of the Bank’s profits. However, in 2012 the Bank had an amount of K3,228 million in respect of an appropriation due to Government that was off-set by a net revaluation loss of K31,802 million, thereby reducing an amount to be covered by Government through issuance of a security.

63

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K'm K'm K'm 24. Ex-Gratia benefit provision At the beginning of the year 2,185 2,185 - Provision made in the year 1,017 1,017 2,185 Total Ex-gratia benefit provision 3,202 3,202 2,185

In September, 2011 the Bank introduced Ex-Gratia benefit which is payable upon retirement, end of fixed term contract, resignation or termination of service of the employee and is based on the number of years of service. The Benefit has an effect of an unfunded defined benefit scheme and is subject to Human Resource Policies, Procedures and Guidelines for members of staff.

Independent professional experts, Alexander Forbes Financial Services (Proprietary) Limited of the Republic of South Africa, carried out the ex-gratia benefit valuation exercise for the year ended 31st December 2012. Key assumptions underlying the computation of the provision are as follows: 2012 2011 -Inflation rate 5.50% 6.75% -Discount rate 8.25% 9.25% -Salary increase rate 6.50% 7.75%

For the year 2011 the Bank estimated the liability using years of service for employees multiplied by annual basic salary and only 75% of the total liability computed was provided for. Group Bank Bank 2012 2012 2011 K'm K'm K'm 25. Other OMO instruments Repurchase agreements 10,626 10,626 3,947 Reserve Bank of Malawi Bond 4,575 4,575 4,343 Total other OMO instruments 15,201 15,201 8,290

The Bank issued a three-year bond in June 2011, at a coupon rate of 8.5% per annum, to mature in 2014, replacing a similar bond that matured in June 2011. The Bank uses the effective interest method to account for the bond interest.

64

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI Group Bank Bank 2012 2012 2011 K'm K'm K'm Reconciliation of net profit for the year to operating 26. profit before changes in operating assets and liabilities Profit before foreign exchange revaluation 4,336 4,304 489 Adjustments for: • Depreciation and amortization of assets 489 486 468 • Impairment of staff loans 203 203 31 • Property income (28) (28) (25) • Sundry income (203) (68) (1,232) Operating profit/(loss) before changes in operating assets 4,797 4,897 (269)

65

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

27. Concentration of funding

The Bank’s significant end of year concentrations of funding were as follows:

2012

Figures in K'm Malawi Foreign Government Public & local Governments institutions & financial institutions Total Foreign Currency Financial liability Borrowings (IMF loans) - - 61,244 61,244 Allocation Special Drawings Rights (SDRs) - - 34,523 34,523 Other deposits - - 1 1 Government deposits 31,966 - - 31,966 Bankers’ deposits - 22,945 - 22,945

Total 31,966 22,945 95,768 150,679

Local Currency Financial liability Government deposits - - - -

Bankers’ deposits - 19,244 - 19,244 Other OMO instruments - 15,201 - 15,201

Total - 34,445 - 34,445

Other liabilities

Notes and coins in circulation - 71,014 - 71,014 Other liabilities - 6,398 - 6,398

Total - 77,412 - 77,412

TOTAL LIABILITIES 31,966 134,802 95,768 262,536

66

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

27. Concentration of funding (Continued)

2011

Figures in K'm Malawi Foreign Government Public & local Governments institutions & financial institutions Total Foreign Currency Financial liability Borrowings (IMF loans) - - 23,716 23,716 Allocation Special Drawings Rights (SDRs) - - 16,685 16,685 Other deposits - - 5 5 Government deposits 8,101 - - 8,101 Bankers’ deposits - 3,905 - 3,905

Total 8,101 3,905 40,406 52,412

Local Currency Financial liability Government deposits 34,812 - - 34,812

Bankers’ deposits - 15,813 - 15,813 Other OMO instruments - 8,290 - 8,290

Total 34,812 24,103 - 58,915

Other liabilities

Notes and coins in circulation - 53,502 - 53,502 Other liabilities 366 2,253 - 2,619

Total 366 55,755 - 56,121

TOTAL LIABILITIES 43,279 83,763 40,406 167,448

67

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

Group Bank Bank 2012 2012 2011 K'm K'm K'm

28. Capital and other commitments

Endorsed by senior management Capital commitments contracted 145 126 511 Capital commitments not contracted 18,039 17,940 51

Total capital and other commitments 18,184 18,066 562

Capital commitments are to be financed from internal resources.

29. Taxation

The Bank is exempt from payment of income tax under Section 57 of the Reserve Bank of Malawi Act, 1989.

30. Employee benefits

As indicated in note 3.15, the Bank operates a defined contribution pension fund for its employees through an internally managed pension fund (Fund). The Bank contributes 15% of the eligible employee’s basic salary whilst the eligible employee contributes 3.5% of the basic salary. The contributions due and paid to the Fund by the Bank in the year amounted to K569m (2011: K448m). The contributions are charged to profit or loss in the year they arise. Further, the Bank has introduced Ex-Gratia benefit for employees on retirement, termination, and resignation which is calculated as per conditions in the guidelines on human resource policies and procedures for members of staff.

31. Related party transactions

In the context of the Bank, related party balances include any transactions made by any of the following persons:-

• The Government of Malawi; • Government bodies; • The Governor and his Deputies; • Senior Government Officers; • Members of the Board of Directors; • Head of State and Cabinet Ministers;

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Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

31. Related party transactions (Continued)

• Immediate family of the above categories; and • The Reserve Bank of Malawi Pension Fund.

The transactions to be reported are those that affect the Bank in making financial and operating decisions. Examples of such transactions include:-

• Finance (loans); • Preferential treatment on application of exchange control and licensing regulations; • Procurement and investment contracts; • Disposal of assets; • Guarantees and collaterals; and • Terminal benefits.

The Bank undertakes to disclose the nature of related party relationships, types of transaction, and the elements of the transactions necessary for the understanding of the annual financial statements.

During the period to 31 December 2012 loans totaling K16m (2011: K30m) were advanced to employees in key positions (Executive Management). At 31 December 2012 the total loans outstanding from employees in key positions were K39m (2011: K20m). These loans were granted on the same interest and repayment terms as loans to other staff members.

Emoluments paid to the employees in key positions during the reporting period were as follows:

Group Bank Bank 2012 2012 2011 K’m K’m K’m

Salary, gratuity and benefits 221 221 360

69

Report and Accounts 2012 RBM RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

31. Related party transactions (Continued)

In addition to the related party balances disclosed in notes 8, 11, 12, 13, 17, 18, 19, 27 and 29, the following transactions took place with Government:

Group Bank Bank 2012 2012 2011 K'm K'm K'm

Interest income on advances to Malawi Government 1,376 1,376 630 Interest on promissory notes 178 178 131 Interest on treasury bills 13,618 13,618 1,011 Cost of treasury bills issued and matured during the year 5,830 5,830 2,569

The following were the closing balances in respect of Government Deposits:

Government institutions 28,638 28,638 39,583 Statutory corporations 3,330 3,330 3,330

32. Economic factors

The exchange rates of the foreign currencies most affecting the performance of the Bank are stated below, together with the increase in the National Consumer Price Index, which represents an official measure of inflation.

1 USD 1 GBP 1 EURO 1 XDR

31 December 2012 335.13 541.93 442.94 515.02

31 December 2011 165.4 255.0 214.4 253.1

At 31 December 2012, the Bank rate was 25.0% (2011: 13.0%) while the annual official rate of inflation was 21.3% (2011: 9.8%).

70

Report and Accounts 2012 RBM

RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2012

32. Economic factors (Continued)

Subsequent to year-end, as at 14 June 2013 the exchange rates to the Malawi Kwacha and inflation rate had moved as follows:

USD : 329.1854 GBP : 517.4794 EURO : 440.2855 XDR : 502.3430 Inflation (for April 2013) : 35.8%

No adjustments arising from the movements of the exchange rates and inflation rate after 31 December 2012 have been made in the annual financial statements.

33. Bank accounts held on behalf of third parties

The Bank opens and holds external bank accounts on behalf of third parties, mainly consisting of Donor funded projects and the Government of Malawi. The Bank has no ownership of the funds in these accounts and accordingly they are not accounted for in the accounting records of the Bank. They are not reconciled or controlled by the Bank and are not included as assets or liabilities in these annual financial statements.

34. Events after the reporting period

Subsequent to the balance sheet date, the Bank’s Executive Management made a decision to transfer the sum of K287 million to Standard Bank which was still outstanding in the Bank’s books. The amount relates to Government Credit Ceiling Authority claims made through Standard Bank in 2007 and is included in payables figure.

35. Contingent liabilities and encumbrances

During the year the Bank encumbered on behalf of the Government of Malawi, foreign exchange for purposes of servicing letters of credit. As at 31 December 2012, these encumbrances amounted to K2,708 million (2011: K2,402 million).

71

SECTION THREE 8.0 STATISTICAL ANNEX TABLES

Table 1: Reserve Bank of Malawi: Assets and Liabilities (K’mn) ...... 2 Table 2: Monetary Authorities: Assets and Liabilities (K’mn) ...... 3 Table 3: Commercial Banks: Assets and Liabilities (K’mn) ...... 4 Table 4: Monetary Survey: (K’mn) ...... 5 Table 5 Official Foreign Exchange Reserves and Net Foreign Assets of Commercial Banks (K’mn) ...... 5 Table 6: Money and Quasi-Money (K’mn) ...... 6 Table 7a: Commercial Banks: Advances by Main Sector (K’mn) ...... 6 Table 7b: Commercial Banks: Demand Deposits by Main Sector (K’mn) ...... 6 Table 8: Principal Interest Rates ...... 7 Table 13: Balance of Payments Summary (K’mn) ...... 8 Table 14 Selected Foreign Exchange Rates1,2 ...... 9 Table 16: Domestic Exports by Main Commodity (K’mn) ...... 9 Table 17: Gross Domestic Product by Economic Activity (K’mn) ...... 10 Table 18: The National Composite Price Index (2000=100) ...... 10

1

Table 1: Reserve Bank of Malawi: Assets and Liabilities (K’mn) 1.0 LIABILITIES 2007 2008 2009 2010 2011 2012

1.1 Foreign Sector 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 1.1.1 Deposits of International Agencies 349.1 24.3 46.7 30.9 89.8 108.3 1.1.2 Other IMF and Commercial loans 4,344.7 17,530.3 18,527.1 22,022.8 23,716.2 61,244.4 1.1.3 Allocation Of SDR 2,430.8 2,376.8 15,190.1 15,413.3 16,685.2 34,523.3 1.2 Official sector 23,466.5 29,288.4 23,874.2 30,198.2 40,206.2 28,061.6 1.2.1 Government deposits 23,466.5 29,288.4 23,874.2 30,198.2 40,206.2 28,061.3 1.2.2 Statutory bodies deposits - - - 1.3 Domestic Banks 7,496.4 10,786.1 22,899.9 25,569.1 29,728.6 57,821.3 1.3.1 Deposits with RBM 2,855.1 5,805.7 16,910.9 17,879.4 19,717.4 42,185.2 1.3.2 Currency in Banks 4,641.3 4,980.4 5,989.0 7,689.6 10,011.2 15,636.0 1.4 Private sector deposits 1.4.1 Currency Outside Banks 19,561 25,261.3 27,493.1 31,843.4 43,491.2 55,377.5 1.5 Capital Reserves Undistributed Income 13,716 58,121.3 44,402.9 46,223.4 43,291.8 16,399.3 Total Liabilities 71,365.2 143,388.4 152,434.0 171,306.1 197,209.1 25,535.6 2.0 ASSETS 2.1 Foreign sector 34,829.4 35,930.2 23,629.7 45,084.4 31,151.2 748,52.8 2.1.1 Balance with non-resident Bank 29,342.0 32,698.8 19,675.4 41,350.9 30,472.7 733,13.5 2.1.2 Bills and other Securities 4,959.0 2,715.1 3,116.4 2,926.7 0.0 0.0 2.1.3 Holdings of SDR and R.P.F. 528.4 516.3 837.9 806.8 678.5 1,539.2 2.2 Official Sector 24,503.0 88,369.4 111,053.9 103,870.5 143,634.5 139,568.1 2.2.1.Central Government 23,236.7 86,396.6 110,075.8 103,171.5 143,634.5 139,316.0 2.2.1.1 Treasury Bills and advances 22,936.7 56,247.7 78,298.9 73,923.7 114,386.7 108,316.0 2.2.2 2 Local Registered Stocks (LRS) 300.0 30,148.9 31,776.9 29,247.8 29,247.8 31,252.1 2.2.2 Statutory Bodies 1,266.3 1,972.8 978.1 699.0 0.0 0.0 2.3 Banks including other Financial 108.5 1.2 2.3 11.8 1.2 1.2 2.3.1 Loans and Advances 1.5 1.2 1.2 1.2 1.2 1.2 2.3.2 Internal Bills Purchased and discounted 107.0 - 1.1 10.7 0.0 0.0 2.4 Other Assets 11,924.2 19,087.7 17,748.2 22,339.3 22,422.16 39,113.5 Total Assets 71,365 143,388.4 152,434.0 171,306.1 197,209.1 253,535.6 Source: Reserve Bank of Malawi

2

Table 2: Monetary Authorities: Assets and Liabilities (K’mn) 2007 2008 2009 2010 2011 2012 1.0 LIABILITIES 1.1 Foreign Sector 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 1.1.1 Deposits of International Agencies 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 1.2 Official sector 24,053.2 29,691.2 24,330.3 30,656.9 40,705.9 29,127.2 1.2.1 Central Government deposits 24,053.2 29,691.2 24,330.3 30,656.9 40,705.9 29,127.2 1.2.1.1 Deposits with RBM 23,466.5 29,288.4 23,874.2 30,198.2 40,206.2 28,061.6 1.2.1.2 Treasury Holdings 586.8 402.8 456.2 458.7 499.7 1,065.5 1.2.2 Statutory Bodies - - - 1.2.2.1 Deposits with RBM - - - 1.2.2.2 Special A/c Bal - - - 1.3 Domestic Banks 7,496.4 10,786.1 22,899.9 25,569.1 29,728.6 57,821.3 1.3.1 Deposits with RBM 2,855.1 5,805.7 16,910.9 17,879.4 19,717.4 42,185.2 1.3.2 Currency in Banks 4,641.3 4,980.4 5,989.0 7,689.6 10,011.2 15,636.0 1.3.3 Reserve Bank Bills - - - 1.4 Private sector deposits 1.4.1 Currency Outside Banks 19,561.3 25,261.3 27,493.1 31,848.3 43,491.2 55,377.5 1.5 Capital Reserves Undistributed Income 13,716.4 58,121.3 44,402.9 46,223.4 43,291.8 16,399.3

Total Liabilities 71,952.0 143,791.2 152,890.2 171,764.8 197,708.7 254,601.1 2.0 ASSETS 2.1 Foreign sector 35,416.2 36,333.0 24,085.9 45,543.1 31,650.9 75,918.3 2.1 1 Reserve Bank1 34,829.4 35,930.2 23,629.7 45,084.4 31,151.2 74,852.8 2.1.2 Treasury Crown Agents 586.8 402.8 456.2 458.7 499.7 1,065.5 2.1.3 Reserve Position In IMF - - - 2.1.4 Special Account Balance - - - 2.2 Official Sector 24,503.0 88,369.4 111,053.9 103,870.5 143,634.5 139,568.1 2.1 Reserve Bank Credit to Central Govt. 23,236.7 86,396.6 110,075.8 103,171.5 143,634.5 139,568.1 0.0 2.2 Reserve Bank Credit to Statutory Bodies 1,266.3 1,972.8 978.1 699.0 0 2.3 Banks including other Financial 108.5 1.2 2.3 11.8 1.2 1.2 2.3.1 RBM Credit to other Domestic Banks 108.5 1.2 2.3 11.8 1.2 1.2 2.3.2 RBM Credit to other banks - - - 2.4 Other Assets 11,924.2 19,087.7 17,748.2 22,339.3 22,422.2 39,113.5

Total Assets 71,952.0 143,791.2 152,890.2 171,764.8 197,708.7 254,601.1 Source: Reserve Bank of Malawi and Ministry of Finance 1Including holding of SDRs

3

Table 3: Commercial Banks: Assets and Liabilities (K’mn) 2007 2008 2009 2010 2011 2012 1.0 LIABILITIES 1.1 Foreign Sector 5,845.6 4,168.3 3,966.8 1,577.6 5,795.6 15,508.0 1.1.1 Deposits of nonresidents 827.4 870.0 999.8 654.3 1,115.0 1,921.0 1.1.2 Liabilities to banks abroad 5,018.1 3,298.4 2,967.0 923.3 4,681.0 13,587.0 1.2 Official sector 3,437.1 4,961.8 5,013.3 10,113.5 7,801.5 14,303.8 1.2.1 Government deposits 977.0 2,708.1 1,328.3 6,044.7 4,392.7 6,802.2

1.2.2 Statutory bodies deposits 2,460.2 2,253.7 3,685.0 4,068.8 3,408.8 7,501.6

1.3 Domestic Banks 352.1 1,859.4 1,922.0 2,640.1 3,141.3 7,162.2 1.3.1 Liabilities to RBM 0.0 0.0 0.0 0 84.3 1.3.2 Liabilities to other domestic banks 352.1 1,859.4 1,922.0 2,640.1 3,141.3 7,077.8 1.4 Private sector deposits 82,858.3 112,128.3 142,854.1 167,980.8 219,575.1 323,556.6 1.4.1 Demand deposits 32,799.4 44,095.3 52,847.3 68,304.8 87,716.8 162,101.4 1.4.2 Time and Savings deposits 50,058.9 68,033.1 90,006.8 99,676.1 131,858.3 161,455.2 1.5 Capital accounts 16,577.6 25,232.4 32,757.4 39,908.2 47,298.4 69,719.7 1.6 Other Liabilities 10,842.9 16,385.9 18,734.2 22,946.8 22,242.8 47,966.2 Total Liabilities 119,913.6 164,736.2 205,247.8 245,166.9 305,854.6 478,216.4

Acceptances, Guarantees, etc. 13,685.0 18,050.3 17,299.8 17,370.6 14,623.2 8,214.7

2.0 ASSETS 2.1 Foreign sector 7,808.7 7,433.8 11,368.2 13,878.3 17,019.3 66,872.1 2.1.1 Claims on banks abroad 7,791.8 7,400.2 11,352.2 13,826.8 16,946.2 66,826.2

2.1.2 Bills payable abroad -58.0 2.9 -12.8 0.0 0.0 0.0 2.1.3 Loans and advances to non-residents 74.9 30.7 28.7 51.5 73.2 45.9 2.2 Official Sector 25,375.1 33,928.9 34,297.8 28,075.7 48,498.7 56,328.4

2.2.1 Claims on Central Government 22,904.9 29,858.3 29,036.6 24,112.3 34,602.8 36,970.9 2.2.1.1 Local Registered Stocks (LRS) 2,284.3 2,456.5 2,385.0 2,412.7 1,859.4 5,166.5 2.2.1.2 Treasury Bills (TBs) and advances 20,620.6 27,401.9 26,651.6 21,699.7 32,703.8 30,356.5

2.2.2 Claims on Statutory Bodies 2,470.2 4,070.6 5,261.3 3,963.3 13,895.9 19,357.4 2.3 Domestic Banks 9,163.7 14,597.6 21,309.2 22,395.3 34,669.9 53,011.2 2.3.1 Claims on RBM 8,543.7 14,032.8 20,620.4 21,849.6 33,061.7 42,000.5 2.3.1.1 Deposits in RBM1 3,902.4 9,052.3 14,631.4 14,159.9 23,050.5 26,364.4 2.3.1.2 Currency in banks 4,641.3 4,980.4 5,989.0 7,689.6 10,011.2 15,636.0 2.3.2 Claims on other domestic banks 620.0 564.9 688.8 545.7 1,608.3 11,010.7 2.4 Private sector loans and advances 47,267.1 68,143.5 95,043.6 121,632.5 140,737.5 218,866.4 2.5 Other 30,299.0 40,632.3 43,228.9 33,933.2 33,753.2 43,807.7

Total Assets 119,913.6 164,736.2 205,247.8 245,166.9 305,854.6 478,216.4 Source: Commercial banks’ reports 1Including Reserve Bank of Malawi Bills

4

Table 4: Monetary Survey: (K’mn) 2007 2008 2009 2010 2011 2012 1.0 Net foreign assets 30,254.6 19,667.1 (2,276.8) 20,376.8 2,383.3 31,406.4 1.1 Monetary authorities 28,291.5 16,401.7 (9,678.1) 8,076.1 (8,840.4) (19,957.7) 1.2 Commercial banks 1,963.1 3,265.5 7,401.3 12,300.7 11,223.7 51,364.1 2.0 Net domestic credit 72,115.1 158,042.4 214,736.7 216,877.1 287,772.1 378,833.5 2.1 Net Claims on the Official sector 24,848.0 89,898.9 119,693.1 95,244.6 147,034.7 159,967.0 2.1.1 Net claims on government 21,111.4 83,855.5 113,453.7 90,582.2 133,138.8 140,609.6 2.1.1.1 Monetary authorities (816.5) 56,705.4 85,745.5 72,514.6 102,928.7 110,440.9 2.1.1.2 Commercial banks 21,927.9 27,150.2 27,708.3 18,067.7 30,210.1 30,168.7 2.1.2 Gross claims on statutory bodies 3,736.5 6,043.4 6,239.3 4,662.4 13,895.9 19,357.4 2.1.2.1 Monetary authorities 1,266.3 1,972.8 978.1 699.0 0.0 0.0 2.1.2.2 Commercial banks 2,470.2 4,070.6 5,261.3 3,963.3 13,895.9 1,935.4 2.2 Gross claims on private sector 47,267.1 68,143.5 95,043.6 121,632.5 140,737.5 218,866.4 3.0 Total net domestic credit and net foreign assets 102,369.7 177,709.5 212,460.0 237,253.9 290,155.5 410,239.9 4.0 Liabilities to Private Sector 4.1 Money and quasi-money 104,879.8 139,643.3 174,032.2 203,898.0 266,475.1 386,435.6 4.1.1 Narrow Money 54,016.4 70,596.7 81,900.3 102,112.2 131,208.0 217,478.8 4.1.2 Quasi-money 50,863.4 69,046.6 92,132.0 101,785.8 131,858.3 161,455.2 5.0 Capital accounts 16,577.6 25,232.4 32,757.4 39,908.2 47,298.4 69,719.7 6.0 Unsectored accounts (net) (2,510.0) 38,066.2 38,427.7 33,355.9 23,680.4 23,804.3 7.0 Total Domestic Liabilities 74,625.1 119,976.2 176,309.0 203,898.0 266,475.1 386,435.6 Source: Reserve Bank of Malawi

Table 5 Official Foreign Exchange Reserves and Net Foreign Assets of Commercial Banks (K’mn)

2007 2008 2009 2010 2011 2012 1.0 Official Foreign Exchange Reserves

1.1 Reserve Bank Foreign Assets:

1.1.1 Foreign Assets 34,829.4 35,930.2 23,629.7 45,084.4 31,151.2 74,852.8 1.1.1.1 Balance with foreign Banks 34,301.0 35,413.9 22,791.8 44,277.6 30,472.7 73,313.5 1.1.1.2 SDR and RPF 528.4 516.3 837.9 806.8 678.5 1,539.2 1.1.2 Foreign Liabs. International Agencies 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 1.2 Net Foreign Exchange Reserves (RBM) 27,704.8 15,998.9 -10,134.2 7,617.4 -9340.1 -21,023.0 1.3 Balance with Crown Agents and Special Accounts 586.8 402.8 456.2 458.7 499.7 1,065.5 1.4 Gross Official Reserves 35,416.2 36,333.0 24,085.9 45,543.1 31,650.9 75,918.3 1.5 Net Official Reserves 28,291.5 16,401.7 -9,678.1 8,076.1 -8,840.4 -19,957.7 2.0 Net Foreign Assets of Commercial Banks

2.1 Foreign Assets 1,963.1 3,265.5 7,401.3 13,878.3 11,223.7 51,364.1 2.1.1 Claims on foreign Bank 7,808.7 7,433.8 11,368.2 13,826.8 16,946.2 66,826.2 2.1.2 Loan & Advances to non-residents 7,791.8 7,400.2 11,352.2 51.5 73.2 45.9 2.2 Foreign Liabilities 16.9 33.6 16.0 1,577.6 5,795.6 15,508.0 2.2.1 Liabilities to Foreign Banks 5,845.6 4,168.3 3,966.8 923.3 4,680.6 13,587.0 2.2.2 Deposits of non-residents 5,018.1 3,298.4 2,967.0 654.3 1,115.1 1,921.0 Total net foreign Assets 827.4 870.0 999.8 20,376.8 2,383.3 31,406.4 Source: Reserve Bank of Malawi

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Table 6: Money and Quasi-Money (K’mn) 2007 2008 2009 2010 2011 2012 1. Money 1.1 Currency outside banks…… 19,561.3 25,261.3 27,493.1 31,848.3 43,491.2 55,377.5 1.2 Demand deposits………….. 34,455.1 45,335.5 54,407.1 70,263.9 90,512.3 166,987.6 1.3 Total money (1.1+1.2)……. 54,016.4 70,596.7 81,900.3 102,112.2 134,003.5 222,365.1 2. Quasi-money …………………….. 50,863.4 69,046.6 92,132.0 101,785.8 132,471.6 164,070.6 3. Total money and quasi-money (1+2) 104,879.8 139,643.3 174,032.2 203,898.0 266,475.1 386,067.9 Source: Reserve Bank of Malawi

Table 7a: Commercial Banks: Advances by Main Sector (K’mn) 2006 2007 2008 2009 2010 2011 2012 Agriculture 1 …………………………………. 4,593.9 6,109.9 12,811.5 10,694.7 14,163.2 34,140.1 44,353.9 Mining and Quarrying……………………….. 56.8 127.0 1,270.4 2,485.2 31,186.5 936.0 85,554.2 Manufacturing……………………………….. 4,059.7 4,585.0 5,234.0 14,280.1 12,478.4 19,082.9 22,817.2 Electricity, Water and Gas…………………… 475.0 595.2 75.5 1,807.8 762.7 1,266.2 3,156.0 Construction and Civil Engineering………….. 1,045.9 1,034.2 1,206.9 1,517.5 4,262.9 5,845.2 10,530.0 Wholesale and Retail Trade…………………… 5,082.9 6,632.6 8,464.9 12,719.8 14,283.3 11,275.1 50,498.1 Transport, Storage and Communications……… 1,951.4 2,375.0 8,539.6 7,844.7 9,831.5 16,675.3 21,610,9 Finance, Insurance, Real Estate and Business Services…………………………….. 4,302.6 6,698.0 7,934.8 3,162.4 3,011.8 19,603.4 33,973.0 Community, Social and Personal Services………………………………………. 4,108.0 3,391.8 6,342.2 30,762.7 17,443.8 22547.4 4323.8 Personal Accounts…………………………….. 4,445.7 5,999.4 12,481.0 16,709.9 20,672.7 26,708.8 39179.8 Total2 …………………………………………. 30,122.0 37,548.1 64,359.7 101,983.8 128,096.9 158,080.4 233,832.1 Source: Commercial banks’ reports to Reserve Bank 1Includes forestry fishing and livestock 2Excludes statutory bodies and local authorities 3Figures starting from December 1999 include Finance Bank of Malawi, First Merchant Bank and Malawi Savings Bank Table 7b: Commercial Banks: Demand Deposits by Main Sector (K’mn) 2006 2007 2008 2009 2010 2011 2012 Agriculture 1 …………………………………. 4,593.9 6,109.9 12,811.5 10,694.7 14,163.2 34,140.1 44,353.9 Mining and Quarrying……………………….. 56.8 127.0 1,270.4 2,485.2 31,186.5 936.0 85,554.2 Manufacturing……………………………….. 4,059.7 4,585.0 5,234.0 14,280.1 12,478.4 19,082.9 22,817.2 Electricity, Water and Gas…………………… 475.0 595.2 75.5 1,807.8 762.7 1,266.2 3,156.0 Construction and Civil Engineering………….. 1,045.9 1,034.2 1,206.9 1,517.5 4,262.9 5,845.2 10,530.0 Wholesale and Retail Trade…………………… 5,082.9 6,632.6 8,464.9 12,719.8 14,283.3 11,275.1 50,498.1 Transport, Storage and Communications……… 1,951.4 2,375.0 8,539.6 7,844.7 9,831.5 16,675.3 21,610,9 Finance, Insurance, Real Estate and Business Services…………………………….. 4,302.6 6,698.0 7,934.8 3,162.4 3,011.8 19,603.4 33,973.0 Community, Social and Personal Services………………………………………. 4,108.0 3,391.8 6,342.2 30,762.7 17,443.8 22547.4 4323.8 Personal Accounts…………………………….. 4,445.7 5,999.4 12,481.0 16,709.9 20,672.7 26,708.8 39179.8 Total2 …………………………………………. 30,122.0 37,548.1 64,359.7 101,983.8 128,096.9 158,080.4 233,832.1 Source: Commercial banks’ reports to Reserve Bank 1Includes forestry fishing and livestock 2Excludes statutory bodies and local authorities 3Figures starting from December 1999 include Finance Bank of Malawi, First Merchant Bank and Malawi Savings Bank

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Table 8: Principal Interest Rates 2012 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1. Bank Rate……….……………….. 13.00 13.00 13.00 13.00 16.00 16.00 21.00 21.00 21.00 21.00 21.00 25.00 2. Treasury Bills 2.1 91 Days……………………... .. 6.94 7.12 7.46 12.52 15.57 17.88 18.68 18.65 19.79 20.23 20.05 2.2 182 Days……………….…… .. 7.21 7.02 8.15 9.17 16.03 17.94 20.37 25.05 21.65 23.38 25.16 2.3 271 Days……………………. .. 9.23 8.97 9.20 10.82 18.50 20.98 22.08 23.32 24.70 25.80 26.44 3. RBM Bills 3.1 63 Days……………….…….. 3.2 91 Days………………..…… 4. Commercial Banks 4.1 Base rates………………….… 18.11 18.11 18.11 18.11 20.57 22.83 31.42 31.42 31.42 31.42 31.42 36.17 4.2 Savings Deposits……..…….. 4.16 4.16 4.16 4.16 5.73 6.23 8.82 8.82 8.82 8.82 8.82 10.55 4.3 Short Term deposit 4.3.1 7 Days call………….… 3.47 3.47 3.47 3.47 4.88 5.96 8.63 8.63 8.63 8.63 8.63 10.25 4.3.2 30 Days call….……..… 4.32 4.32 4.32 4.32 5.85 7.19 10.96 10.96 10.96 10.96 10.96 13.08 4.4 Fixed Deposits 4.4.1 3 months…………...…. 4.73 4.73 4.73 4.73 6.41 10.23 16.14 16.14 16.14 16.14 16.14 18.96 4.4.2 6 months…………….… 4.33.. 4.33 4.33 4.33 7.72 11.08 20.05 20.05 20.05 20.05 20.05 23.65 4.4.3 12 months……………...... 5. Building Societies 5.1 Deposit rates 5.1.1 Individual savings…...... 5.1.2 Corporate savings……...... 5.1.3 3 months fixed deposits ...... 5.2 Mortgage rates 5.2.1 Owner Occupied……. 17.50 17.50 17.50 17.50 20.50 23.50 31.00 31.00 31.00 31.00 31.00 36.00 5.2.3 Flats and rented houses. 23.00 23.00 23.00 23.00 23.50 23.50 31.00 31.00 31.00 31.00 31.00 31.00 5.2.4 Commercial properties. 22.38 22.38 22.38 22.38 23.00 24.50 30.38 30.38 30.38 30.38 30.38 35.50 Source: Commercial banks, New Building Society, Post Office Savings Bank and INDEFinance

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Table 13: Balance of Payments Summary (K’mn) 2008 2009 2010 2011 2012

A. Current Account -136,771.7 -76,743.8- -125,432.0 -116,275.5 -224,827.77

Goods: exports f.o.b. 133,514.2 179,052.3 171,441.0 240,931.4 365,537.5

Goods: imports f.o.b. -294,488.7 -283,513.0 -344,286.3 -414,815.6 -645,110.9

Balance on Goods -160,974.5 -104,460.7 -172,845.3 -173,884.2 -279,573.4

Services: credit 10,455.2 11,165.2 12,440.0 15,406.1 28,518.2

Services: debit -26,869.35 -32,351.5- -32,834.7 -36,848.2 -57,771.6

Balance on Goods and Services -177,388.6 -125,646.9 -193,240.0 -195,326.4 -308,826.8

Income: credit 234.1 50.5 268.2 725.5 1,474.6

Income: debit -21,048.0 -17,297.4 -28,934.3 -17,079.6 28,441.2

Balance on Goods, Services, and Income -198,202.5 -142,893.8 -221,906.2 -212,029.8 -336,542.5

Current transfers: credit 62,283.7 67,309.4 98,067.8 97,951.8 115,256.6

Current transfers: debit -852.9 -1,159.4 -1,593.6 -2,197.5 -3,541.8

B. Capital Account 61,654.3 57,691.6 106,852.7 98,746.8 79,694.6

Capital account: credit 61,671.2 57,708.6 106,870.7 98,770.2 79,732.2

Capital account: debit -16.9 -16.9 -18.0 -23.5 -37.5

Total, Groups A Plus B -75,117.4 -19,052.2 -18,579.3 -17,528.8 -145,133.1

C. Financial Account 57,942.0 14,443.4 22,941.2 54,183.8 55,315.7

Direct investment abroad -2,606.8 187.8 -6,365.6 -7,756.2 -12,409.9

Direct investment in Malawi 27,461.6 6,935.7 14,598.7 20,160.9 32,257.4

Portfolio investment assets -14.1 -14.1 15.0 17.8 21.1

Equity securities -14.1 -14.1 15.0 17.8 28.5

Portfolio investment liabilities -203.8 -38.1 149.0 167.6 268.2

Equity securities -203.8 -38.1 149.0 167.6 268.2

Other investment assets 5,390.0 -5,565.1 -5,335.5 -4,511.4 -10,926.9

Banks 418.2 -3,958.6 -2,814.8 -2,723.2 -8,146.5

Other sectors 4,971.8 -1,606.5 -2,520.7 -1,788.2 -2,780.4

Other investment liabilities 5,390.0 -5,565.1 -5,335.5 -4,511.4 -3,545.2

Monetary authorities 12,489.1 12,324.1 2,900.9 -121.5 18,866.1

General government 12,489.1 12,324.1 2,900.9 -121.5 11,293.1

Banks -3,193.6 -6,018.5 -5,222.9 -2,392.8 -441.2

Other sectors 10,192.3 -5,476.0 12,494.9 20,155.9 5,489.1

Total, Groups A Through C -17,175.4 -4,608.8 4,361.9 36,655.0 -89,817.4

D. Net Errors and Omissions 18,021.3 -8,354.7 16,018.5 -53,672.9 96,122.3

Total, Groups A Through D (Overall balance) 846.0 -12,963.6 20,380.4 -17,017.8 6,304.9

E. Reserves and Related Items -846.0 12,963.6 -20,380.4 17,017.8 -6,304.9

Reserve assets -846.0 12,963.6 -20,380.4 17,017.8 -6,304.9

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Table 14 Selected Foreign Exchange Rates1,2

Malawi Kwacha Malawi Kwacha per Malawi Kwacha Per Malawi Kwacha Malawi Kwacha Malawi Kwacha Per Zambian End of Pound U.S dollar Per Euro3 Per S.A Rand Per Zim dollar Kwacha Buying Selling Buying Selling Buying Selling Buying Selling Buying Selling Buying Selling 1995… 24.01 24.25 15.21 15.36 10.62 10.82 4.20 4.24 1.76 1.78 0.02 0.02 1996… 25.37 25.62 15.25 15.40 9.82 9.92 3.26 3.29 1.42 1.43 0.01 0.01 1997… 27.03 27.30 16.48 16.64 9.52 9.62 3.57 3.61 1.37 1.39 0.01 0.01 1998… 51.34 51.85 30.92 31.03 9.44 9.53 3.55 3.58 1.36 1.38 0.02 0.02 1999… 70.97 71.68 43.87 44.31 47.24 47.01 7.19 7.26 1.15 1.16 0.02 0.02 2000… 89.02 89.92 59.25 59.84 54.13 54.68 8.46 8.54 1.33 1.34 0.02 0.02 2001… 103.44 104.48 71.84 72.56 64.37 65.02 8.53 8.61 1.31 1.32 0.02 0.02 2002… 114.85 116.00 76.28 77.09 72.30 73.03 7.34 7.39 1.39 1.40 0.61 0.62 2003… 158.66 159.86 96.96 97.92 109.86 110.96 13.04 13.15 0.51 0.52 0.02 0.02 2004… 198.50 200.50 108.40 109.50 135.00 136.20 17.00 17.20 0.02 0.02 0.02 0.02 2005… 214.20 216.30 117.90 119.00 146.40 147.90 18.50 18.70 0.02 0.02 0.02 0.02 2006… 249.59 251.89 135.34 136.68 170.11 171.83 20.32 20.22 0.02 0.02 0.02 0.02 2007… 279.22 282.00 139.31 141.55 191.20 193.45 19.75 19.93 0.38 0.39 0.17 0.17 2008… 259.24 261.84 139.82 141.23 205.62 207.70 17.17 1734 0.98 0.99 0.04 0.04 2009.... 219.91 222.05 140.46 141.87 195.72 197.69 16.95 17.13 00.0 00.0 0.02 0.03 2010 231.27 233.59 149.74 151.23 198.80 200.79 20.47 20.67 0.00 0.00 0.03 0.03 2011 248.99 252.54 155.42 157.64 216.23 219.30 21.51 21.82 0.00 0.00 0.03 0.03 2012 391.39 399.28 246.62 251.60 317.15 323.56 29.79 30.39 0.00 0.00 0.05 0.05 1Averages of daily rates quoted by the Reserve Bank for dealing with commercial banks in Malawi 2From 7th February 1994 the Malawi Kwacha exchange rates became market determined 3Before January 1999, these rates were quoted as Kwacha per Deutch Mark

Table 15: Commodity Imports and Exports1 Value f.o.b (K’mn) 2006 2007 2008 2009 2010 2011 2012 1. Imports …………………… 162,504.7 156,387.0 278,477.3 220,454.3 325,613.3 379,648.8 345,566.4 2. Domestic exports…………. 90,662.7 98,339.2 123,345.1 167,409.5 159,225.0 222,430.6 175,992.5 3. Re-exports……………….. 429.4 64.6 54.4 308.1 211.4 938.9 198.4 4. Total exports (2+3)……….. 91,092.1 98,403.8 123,399.5 167,717.6 159,436.4 223,369.6 176,190.9 5. Visible trade balance (4-1).. Indices (1994=100) Imports Volume……………………… 237.9 423.7 385.4 460.8 244.4 Unit value…………………… 1,356.1 1,356.1 1,366.0 1,457.9 1,156.2 Domestic exports:…………… Volume …………………….. 131.7 134.9 176.0 157.9 125.6 Unit value…………………… 2,454.7 3,206.2 3,314.9 2,532.9 1,577.8 Terms of trade……………… 283.3 318.9 414.2 382.7 171.4 Source: National Statistical Office & Ministry of Economic Planning and Development 1Due to adjustments for balance of payments purposes, figures may not agree with corresponding figures in Table 13

Table 16: Domestic Exports by Main Commodity (K’mn)

2006 2007 2008 2009 2010 2011 2012 Tobacco…. 39,403.5 57,006.3 61,088.0 57,230.2 87,490.4 90,724.4 87,490.4 Tea………. 6,514.9 7,200.4 10,190.5 7,000.0 12,078.7 11,061.6 12,078.7 Cotton…… 1,832.7 3,062.2 3,732.8 3,070.4 1,751.5 7,516.7 1,751.5 Sugar…….. 6,503.0 6,756.4 7,681.0 8,496.4 10,324.3 28,942.4 10,324.3 Other…….. 18,912.0 39,344.7 34,322.6 45,411.1 47,446.4 72,133.2 22,642.3 Total……. 73,803.7 113,370.0 117,014.9 121,208.1 159,225.0 216,635.4 134,287.0 Source: National Statistical Office

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Table 17: Gross Domestic Product by Economic Activity (K’mn) 2007 2008 2009 2010* 2011* 2012 A. Agriculture, forestry and fishing …………. 134,851.5 145,424.1 165677.7 167,903.1 179,142.8 of which: i. Crop, animal production, hunting and related services……………………………….. 125,573.4 134,972.0 154,666.4 156,348.0 167,135.1 ii. Forestry and logging …………………….. 5,130.2 5,489.8 5,846.6 6,226.5 6,600.1 iii. Fishing and aquaculture...... 4,148.0 4,962.3 5,164.7 5,328.6 5,407.7 B. Mining and Quarrying…………………………. 5,093.8 5,726.6 6,458.5 9,869.4 12,522.9 C. Manufacturing………………… 42,813.5 49,235.1 51,898.2 55,134.6 57,919.5 D+ E. Utilities………………………. 6,060.6 6,234.8 6,234.8 6,527.6 6,964.6 F. Construction……….. 15,844.0 17,125.3 18,227.5 21,859.3 22,772.5 G. Wholesale and retail……………………. 80,069.0 86,485.7 91,335.8 95,989.5 102,564.3 H. Transport and storage….. 16,068.0 16,983.0 18,115.1 19,845.7 22,061.8 I. Accommodation and food service activities….. 7,325.4 7,918.4 8,966.7 10,573.7 12,146.2 J. Information and communication……….. 13,724.9 21,656.5 23,688.2 28,277.8 31,218.0 K. Financial and Insurance activities…………. 28,230.2 31,619.6 34,128.4 37,461.4 39,943.7 L. Real estate activities………….…….. 20,671.0 21,615.5 22,806.2 25,001.8 25,993.6 M.+ N. Professional, scientific and technical activities, administrative and support service activities….. 7,022.7 7,530.1 7,987.5 8,828.7 9,406.6 O. Public administration and defence…. 13,857.9 14,884.4 15,616.5 17,125.8 18,085.2 P. Education…… 8,508.1 9,442.0 9,886.3 10,805.8 11,383.1 Q. Human health and social work activities 18,882.7 20,802.9 22,122.4 24,373.9 25,436.4 R+S+T+U Other services, nec 17,646.1 18,296.5 18,946.8 20,504.1 21,235.0 GDP in 2006 constant 448,369.7 487,764.9 524,550.9 558,426.9 593,055.1 GDP per capita (current market prices)………….. 36,673.5 43039.2 49,435.5 56,786.0 64,477.0 GDP at current prices 484,091.0 572,421.2 667,379.2 772,290.2 883,334.7 Source: National Statistics Office, Economic Planning and Development, Treasury and Reserve Bank of Malawi NB: These figures are based classified according to ISIC Rev 4

Table 18: The National Composite Price Index (2000=100) Beverages Clothing and Household All items Food costs and Tobacco Foot wear Housing operation Transportation Miscellaneous Overall Weight 100.0 58.1 5.9 8.5 12.1 4.1 5.1 6.2 Period 1990…….. 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 1991…….. 108.2 108.4 106.5 104.8 114.1 104.4 112.1 105.9 1992…….. 133.4 138.9 137.4 114.4 136.7 131.7 130.5 116.7 1993…….. 163.8 175.7 180.1 126.2 159.0 158.4 149.4 149.9 1994…….. 220.5 242.9 259.8 149.3 191.7 219.3 197.3 206.3 1995…….. 404.2 408.6 463.6 231.9 325.9 385.2 332.4 337.1 1996…….. 556.2 680.7 598.0 278.0 429.6 444.9 440.4 403.3 1997…….. 607.1 736.8 701.2 296.6 480.9 504.6 486.6 435.1 1998…….. 787.7 941.2 1,178.3 333.7 607.2 751.3 666.1 530.9 1999…….. 1,140.5 1,346.0 1,734.0 417.7 991.5 981.5 971.5 1,015.1 2000…….. 100 100 100 100 100 100 100 100 2001…….. 122.7 117.6 131.0 130.5 132.9 129.3 129.7 122.1 2002…….. 140.8 136.4 136.8 153.6 156.6 143.9 143.9 134.4 2003…….. 154.3 143.6 165.8 166.8 180.0 172.9 172.1 148.3 2004…….. 172.0 154.4 196.5 179.5 211.7 218.3 202.8 169.1 2005…….. 198.5 181.0 240.6 192.8 236.9 269.0 230.1 182.6 2006…….. 226.1 209.1 273.5 208.8 266.9 313.5 261.6 197.5 2007…….. 244.1 224.7 302.6 221.2 291.4 336.2 289.2 211.6 2008...... 265.4 240.3 332.0 237.6 319.1 383.5 338.9 232.3 2009...... 287.7 258.0 369.0 259.1 328.3 452.8 380.1 263.1 2010 309.0 271.2 417.2 279.5 350.2 512.1 428.4 287.7 2011 332.6 279.8 460.7 307.9 392.4 564.4 501.2 329.8 2012 403.4 332.5 543.9 347.5 525.4 681.0 636.6 395.8 Source: National Statistical Office

10