2009 Annual Report
Bank Supervision Department
Reserve Bank of Malawi Bank Supervision Department Bank Supervision Department
Table of Contents
LIST OF ABBREVIATIONS AND ACRONYMS 4 MISSION STATEMENT 5 MESSAGE FROM THE GOVERNOR 6 OVERVIEW OF THE REPORT 8
Chapter One Macroeconomic Conditions in 2009 10 Introduction 10 Gross Domestic Product 10 Inflation 10 Exchange Rates 11 Interest Rates 11 Balance of Payments 12
Chapter Two Overview of the Banking Sector in Malawi 13 Introduction 13 Composition and Ownership of the Banking Sector 13 Balance Sheet Structure of the Banking Sector 13 Market Share 19
Chapter Three Performance of the Banking Sector 21 Introduction 21 Capital Adequacy 21 Asset Quality 22 Earnings Analysis 24 Liquidity Analysis 27 Financial Soundness Indicators 29
Chapter Four Activities of the Bank Supervision Department in 2009 31 Introduction 31 Off-site Surveillance 31 On site Examination 32 Licensing and Compliance Review 32 Review of Banking Regulations 32 Problem Bank Resolution Framework 34 Training and Staff Development 35 2 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Chapter Five Current Issues in Bank Supervision 36 Introduction 36 BASEL II and the way forward for Malawi 36 Bank Supervision Department Restructuring 37 Consolidated Supervision 37 Anti Money Laundering and Combating of Financial Crime 38 Mobile Banking and E- Commerce 39 Bank Supervision Application 40 Credit Reference Bureau 41
Chapter Six Regional and International Cooperation 42 Introduction 42 International Monetary Fund East Africa Regional Technical Assistance Centre (IMF East AFRITAC) 42 Financial Services Volunteer Corps (FSVC) 44 Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) 45 East and Southern Africa Anti Money Laundering Group (ESAAMLG) 45 Financial Stability Institute (FSI) and Bank for International Settlement (BIS) Programs 46
Appendices 2009 Organisational Structure of Bank Supervision 47 Register of Commercial Banks and Other Financial Institutions as at 31 December 2009 48 Branch Network etc for Banks in 2009 49 Number of Banks per CAMEL Rating Category as at December 2009 50 Directives in Force During 2009 51 Annual Report Report Annual Tables Composition of Balance Sheet: Liabilities 52 Composition of Balance Sheet:Assets 53 Composition of Balance Sheet: Deposits 54 Trends in Capital Adequacy 55 Composition of Income Statement: Selected Items 56 Profitability: Selected Ratios 57 Asset Quality 58 Liquidity 59
3 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
LIST OF ABBREVIATIONS AND ACRONYMS
AML/CFT Anti-Money Laundering and Combating Financing of Terrorism BSA Bank Supervision Application Solution CAMEL Capital, Asset Quality, Management, Earnings, and Liquidity and funds Management CDH Continental Discount House East AFRITAC East Africa Regional Technical Assistance Centre ECOBANK ECOBANK Malawi Limited ESAAMLG Eastern and Southern Africa Anti-Money Laundering Group FDH BANK FDH Bank Limited FIU Financial Intelligence Unit FDH First Discount House Limited FMB First Merchant Bank FSI Financial Stability Institute FSIs Financial Soundness Indicators FSVC Financial Services Volunteer Corps GOVT Malawi Government ICB International Commercial Bank IMF International Monetary Fund INDEBANK INDEbank Limited
2009 IT Information Technology LFC Leasing and Finance Company Limited LRS Local Registered Stock MGDS Malawi Growth and Development Strategy MSB Malawi Savings Bank NBM National Bank of Malawi
Annual Report Report Annual NBS NBS Bank NEDBANK NEDBANK Malawi Limited NPL Non-performing loans OD Overdraft OIBM Opportunity International Bank of Malawi RBM Reserve Bank of Malawi RBS Risk Based Supervision RMP Risk Management Programmes ROA Return on Asset ROE Return on Equity STANDARD BANK Standard Bank Malawi Limited
4 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
MISSION STATEMENT
As Bank Supervision Department of the Reserve Bank of Malawi, we aim at ensuring the existence of a sound and stable banking industry in Malawi in line with international supervisory standards.
This will be achieved through entry and exit control, off-site surveillance, on-site examinations, and timely submission of reports of findings to senior management of the Reserve Bank of Malawi, commercial banks and other registered financial institutions.
In addition, we will endeavour to co-operate with domestic, regional and international regulators as well as other professional associations like
Accounting and Auditing bodies in order to contribute to a stronger regulatory 2009 and supervisory framework.
In pursuance of our goal, we will endeavour to perform our work with professionalism, integrity, impartiality, and in a friendly and cooperative
manner but with no compromise to our authority. Report Annual
5 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
MESSAGE FROM THE GOVERNOR
In compliance with section 54 of the Banking Act 1989 , I am pleased to present the 2009 Bank Supervision Annual Report. The report aims at highlighting and informing the general public of developments in the banking industry as well as detailing major activities undertaken by Bank Supervision Department during the year 2009.
The financial performance of the banking industry during the year ended 31st December 2009 was an improvement as compared to the previous year. The banking industry recorded growth in both core capital and total capital which increased from MK18.6 billion and MK24.1 billion in 2008 to MK25.2 billion and MK32.0 billion in 2009, representing an increase of 34.4 percent and 32.5 percent, respectively. Correspondingly capital ratios also increased to 17.7 percent and 22.4 percent from 16.6 percent and 21.5 percent for tier 1 and total capital, respectively. Total assets of the banking industry grew by 25.1 percent from MK185.8 billion in 2008 to MK232.5 billion in 2009.
Total funding of the banking sector recorded an increase of 25.1 percent from MK184.0
2009 billion in December, 2008 to MK230.2 billion in December, 2009. The major source of funding was deposits which accounted for 73.2 percent of total funds, up from 71.5 percent in the previous year. The second major source was capital which constituted 15.4 percent of the funding. These achievements were however made in a very difficult macroeconomic environment which was precipitated by the after effects of the global crisis. During 2009, the country experienced forex shortage that was exacerbated by increase in importation bills
Annual Report Report Annual for fertiliser and petroleum products at the international market that led to queues of unpaid forex invoices.
The banking industry continues to be dominated by two largest banks in terms of market share despite the entry of other new players in the banking market in 2008. The two largest banks controlled 53 percent of total banking assets, 52 percent of total loans in the banking sector, 54 percent of total banking sector deposits and contributed 56 percent of the overall industry capital. The overall financial soundness indicators for the industry were well above the regulatory requirements. Quality of the banking assets as measured by the level of non performing assets was considered satisfactory. The ratio of non performing loans to gross loans and advances declined marginally from 3.2 percent in December, 2008 to 3.1 percent in December, 2009. 6 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Bank Supervision Department continued with regulatory reviews during 2009. The Banking Act Amendment Bill and Credit Reference Bureau Bill were finalised in the year and the former was enacted by Parliament in December, 2009. During the year the Department drafted a Directive on Disclosures and Guidelines on Corporate Governance. The Directive on Disclosures aims to promote and maintain public confidence in the Malawi banking industry through enhanced transparency. On the other hand, the Corporate Governance Guidelines are intended to promote sound risk management and governance practices in banking institutions.
Bank Supervision Department continued to monitor developments at the international level in the wake of the global financial crisis. The Department’s staff continued to attend supervisory courses, seminars and workshops both locally, regionally and internationally in order to enhance their skills and expertise. Further, the Department continued its efforts in building a stronger AML/CFT regulatory regime by sensitising different stakeholders including Government in fostering a strong money laundering regime. 2009 Let me once again thank our banks and financial institutions for remaining very cooperative and ensuring that we continue to have a strong and stable banking industry by complying with the banking laws and directives. I would like to further thank members of staff in Bank Supervision Department for their continued vigilance in instilling market discipline and conduct in the industry. Annual Report Report Annual
Dr Perks M. Ligoya GOVERNOR
7 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
OVERVIEW OF THE REPORT
The Bank Supervision Annual report is produced annually in compliance with the requirements of Section 54 of the Banking Act, 1989. In keeping with our mission of ensuring a stable and safe banking industry in line with international standards, we have enhanced the report to ensure that it is insightful and comprehensive enough so that it provides sufficient information to enable readers make informed decisions.
The year ended December, 2009 was challenging for Bank Supervision Department. The Department adopted the risk based supervision methodology at a time when staff numbers and skills were inadequate in risk management. Further, the Department started the preparatory process for implementing BASEL II. This brings new challenges as implementing BASEL II would require not only financial resources but also enhancing the skills in the Department through training and attachments to other central banks. I would like to thank the Governor and the entire Executive Management for supporting the BASEL II initiative which, once implemented by banks, will go a long way in enhancing our banks’ risk management systems and reporting. During the year, Bank Supervision Department also introduced formal
2009 AML/CFT examinations.
Despite an impressive financial performance of the banking system for 2009, the industry still depicted some red flags which if not checked could easily erode the achievements made. Some banks continued to over lend against their existing capital levels as exemplified by a large number of waiver applications on the Large Exposure Directive. The higher growth
Annual Report Report Annual in lending which is in support of the high economic growth has also brought with it some challenges, among them an increase in nonperforming loans, deteriorating solvency margins and in some instances strained prudential liquidity levels in some banks.
The report is organised as follows: Chapter One details the Macroeconomic Conditions in 2009 in terms of GDP growth, balance of payments position and movements in inflation rate, exchange rate and interest rates. GDP grew by 7.6 percent, down on 9.7 percent registered in 2008. Inflation rate decreased by 0.3 percentage points to 8.4 percent while domestic and global developments saw the Malawi Kwacha depreciating against the major trading currencies. The Bank rate was maintained at 15 percent while the country’s balance of payments registered a deficit due to inadequate long term flows received during the year. Chapter Two provides an overview of the banking sector in terms of composition and 8 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
ownership structure. The Chapter also includes details on funding structure and a snapshot on the market share analysis. The review shows that two largest banks control over 50 percent of the system assets, loan portfolio, deposit base and aggregate banking system capital.
Chapter Three details the performance of the banking sector with emphasis on the CAMEL rating system. The Chapter includes discussion on some Financial Stability Indicators for the banking sector. Overall, the banking sector continued to register good performance when compared to the preceding year. It is envisaged that in future reports, the Chapter will also include detailed analysis and discussion on stress testing results. Chapter Four details the major activities carried out by Banking Supervision Department in 2009. The Department continued with its off-site surveillance and on-site examinations of the sector. Four on-site examinations were conducted in the year using the new risk-based supervision methodology. The Department also continued with its review of banking regulations and drafting directives for the proper functioning of the sector.
Current Issues in Bank Supervision are discussed in Chapter Five. These include preparations 2009 for adoption of Basel II, AML/CFT activities, drafting of guidelines on electronic banking and establishment of a credit reference bureau. Chapter Six details Bank Supervision’s initiatives on regional and international cooperation. These include technical assistances sought from IMF East AFRITAC and FSVC for various activities, cooperation with ESAAMLG on AML/CFT issues and participation in region courses and seminars organised by MEFMI. Annual Report Report Annual
On behalf of Bank Supervision Department and indeed on my own behalf, I would like to thank the Governor of the Reserve Bank of Malawi and the entire Executive Management for the support given to Bank Supervision Department in terms of guidance and direction. Let me also thank the Board of Directors and Management of all banks and financial institutions for the efforts they have taken in ensuring that they adhere to the Laws and Directives which are key to a stable and safe banking environment.
Noel Mkulichi DIRECTOR, BANK SUPERVISION 9 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Chapter One
Macroeconomic Conditions in 2009
Introduction This chapter reports on macroeconomic conditions that prevailed and influenced the banking industry in 2009. Focus is on GDP growth, movements in inflation, exchange rate and interest rates as well as the balance of payment position.
Gross Domestic Product Malawi’s real gross domestic product (GDP) grew by 7.6 percent in 2009 compared to 9.7 percent in 2008. The reduced momentum emanated from the manufacturing sector as well as accommodation and food services whose growth declined by 4.8 percent and 4.3 percent, respectively. Nonetheless, the rate is above the 6.0 percent annual target set in the Malawi Growth and Development Strategy (MGDS). The agriculture sector remained the key driver of the economy. The GDP growth was also propelled by the mining and quarrying sector as the country’s activities in this sector increased following the inception of uranium excavation. Other sectors behind the growth were information and communications, construction, financial and insurance services.
2009 Inflation Annual inflation rate was 8.4 percent in 2009, representing 0.3 percentage points decrease from 8.7 percent registered in 2008. The annual inflation remained in single digit range largely on account of deceleration in urban inflation to 10.1 percent in 2009 from 11.0 percent in 2008 whereas rural inflation remained constant at 7.5 percent. Food inflation accelerated to 7.3 percent in 2009 from 7.0 percent in the preceding year. This was on account of
Annual Report Report Annual considerably higher food inflation of 9.8 percent in the first quarter of 2009 compared to the average of 8.0 percent recorded in a corresponding period of 2008.
Non-food inflation stood at an average of 9.6 percent in 2009 and compared favourably to 10.7percent in 2008. The deceleration largely arose from the transport category reflecting the intense competition among bus operators on the major routes of the country due to an influx of imported large buses under the duty free status. Furthermore, inflation in the housing category slowed down to 2.9 percent in 2009 from 9.5 percent in 2008 as a result of falling real estate prices in the rural areas where housing inflation dropped to 0.2 percent from 11.9 percent in 2008. Nevertheless, inflation in the categories of beverages and tobacco, household operations, and clothing and footwear increased due to rising costs associated with expensive imports of raw materials and other finished goods due to the perennial foreign exchange shortages. 10 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Monetary developments were contractionary in 2009, as the growth in money supply decelerated to 24.4 percent at the close of 2009 compared to 33.1 percent in 2008. The decline in growth of money supply ensued as the Reserve Bank of Malawi (RBM) issued repurchase (REPO) instruments to combat inflationary pressure arising from the movement in the exchange rate.
Exchange Rates The Malawi Kwacha remained fairly stable for the first three quarters of the year, depreciating slightly in the last quarter of the year reflecting both domestic and global developments. Globally, prices of strategic commodities like fuel and fertiliser increased as the global recession continued in 2009 thereby worsening Malawi’s terms of trade. Domestically, the country experienced a critical shortage of foreign exchange reserves emanating from the import of fertiliser and fuel, the 2009 general elections, and delays by donors in disbursing pledged budgetary support and high import demand arising from high economic growth of the last five (5) years. This exerted considerable pressure on the exchange rate especially in the last quarter of 2009. Consequently, the Malawi Kwacha depreciated by 3.8 percent against the United States Dollar and by 16.8 percent against the British Pound Sterling to trade at MK145.9951 per United States Dollar and MK234.4973 per British Pound Sterling at
the end of 2009. The local unit also lost ground against the Euro by 14.8 percent and against 2009 the Japanese Yen by 0.7 percent to trade at MK209.3424 per Euro and MK1.5804 per Yen at the end of 2009.
In the SADC sub-region, the Malawi Kwacha depreciated by 41.1 percent against the South African Rand to close the year at MK19.7673 per Rand. This was mainly due to the continued
strengthening of the Rand against hard currencies. Similarly the local currency depreciated Report Annual against the Zambian Kwacha by 14.8 percent to trade at MK0.0315 per Zambian Kwacha.
Interest Rates In 2009, the RBM maintained the bank rate at 15.0 percent, in a bid to mitigate the impact of the after-shock of the global recession on the economy. Accordingly, commercial bank’s base lending rate averaged 19.6 percent, a marginal increase from 19.25 percent recorded at the close of 2008. Credit to the private sector increased by 39.2 percent in 2009.
On the money market, subscriptions for Treasury Bills stood at MK82.3 billion (banking subscriptions were MK58.9 billion) at the end of December 2009. This was 85.5 percent more than subscriptions received in the corresponding quarter of 2008. However, yields on Treasury 11 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Bills declined reflecting the excess liquidity in the system. The all-type yield dropped by 293 basis points from 13.13 percent in the fourth quarter of 2008 to 10.2 percent in the fourth quarter of 2009. Yields on the 91day tenor dropped by 104 basis points from 13.14 percent to 11.1 percent while yields on the 182 and 273 day tenors increased by 380 and 50 basis points to 13.5 percent and 13.7 percent, respectively.
On the capital market, there were no trades in the secondary market for local registered stocks as investors continued to hold onto their instruments which offered higher yields in the range of 15.5 percent to 25.0 percent compared to short term Treasury Bills and RBM Bills whose yield averaged 12.0 percent.
Balance of Payments The country’s overall Balance of Payments, as measured by the change in net international reserves of the banking system registered a deficit of MK20.6 billion, a turn-around from a surplus of MK10.4 million in 2008. The dismal performance was a result of lower long term inflows that were received in 2009 compared to the preceding year. The capital account recorded a balance of MK116.5 billion compared to MK134.2 billion in 2008. A notable decline was recorded in the net government drawings sub-account from MK23.5 million in 2008 to
2009 MK18.6 billion in 2009.
The current account, which invariably was in deficit, registered a further deficit of MK115.6 billion compared to MK86.0 billion in 2008. This was mainly due to poor performance in the merchandise account, which experienced a trade deficit of MK78.2 billion. Imports increased further to MK199.5 billion in 2009 from MK183.0 billion in 2008. The increase
Annual Report Report Annual in imports was mainly due to the expanding economy, as well as government’s continued fertiliser subsidy programme.
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Chapter Two
Ove rvie w o f t he Banking Sector in Malawi
Introduction This Chapter gives an overview of the banking sector. It provides statistics on the composition and ownership structure of the sector as well as its funding structure and market share.
Composition and Ownership of the Banking Sector As at 31st December 2009, the banking sector consisted of fourteen financial institutions; eleven banks, one leasing company and two discount houses. The banks were National Bank of Malawi, Standard Bank, FMB, NBS Bank, Malawi Savings Bank, Indebank Limited, NEDBANK Malawi Limited, Opportunity International Bank of Malawi, ECOBANK Malawi Limited, FDH Bank and International Commercial Bank. The other financial institutions were Leasing and Finance Company of Malawi, Continental Discount House and First Discount House. No new bank or financial institution was licensed during the year. The total number of operating branches/agencies/kiosks nation-wide was 176 as detailed on Appendix 3. Out of
the 14 financial institutions, one institution was wholly owned by Government, four were 100 2009 percent locally owned, two were 100 percent foreign owned whereas seven had mixed local and foreign ownership.
Balance Sheet Structure of the Banking Sector The aggregate balance sheet of the banking sector in Malawi grew by 25.2 percent from
MK184.0 billion in 2008 to MK230.2 billion in 2009. The growth was mainly attributable to Report Annual a higher increase in loans which went up from MK81.9 billion in 2008 to MK113.9 billion in 2009. On the liability side, the growth was noted in deposits which increased from MK131.5 billion in 2008 to MK168.6 billion in 2009. Table 1 & Figures 1.1 and 1.2 show figures of aggregate balance sheet from 2005 to 2009 and percentage changes:
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Fig 1.1: AGGREGATE BALANCE SHEET TREND
250 45 40 200 35 30 G E 150 25 100 20 15 MK B ILLION 10 50 PER C ENTA 5 0 0 2005 2006 2007 2008 2009
PERCENTAGE CHANGE FIGURES IN MK BILLION
Fig 1.2: BALANCE SHEET GROWTH
2009 250 90
230 80
210 70 190 60
170 ercentage) 50
Annual Report Report Annual 150
SS ET S MK B ILLION 40 A 130 30 110 TOTAL 90 20 ( P SS ET G ROWTH 70 10 A G RO SS 50 0 Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 2009 ASSET GROWTH RATE GROSS TOTAL ASSETS
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TABLE 1: AGGREGATE BALANCE SHEET (TOTAL ASSETS)
Period MK Billion Percentage Change
2005 77.5 15 % 2006 96.1 24 % 2007 131.2 37 % 2008 184.0 42 % 2009 230.2 25.2 %
Asset Structure The banking sector’s assets grew by 25.2 percent from MK184.0 billion in 2008 to MK230.2 billion in 2009. The growth was contributed mainly by:
• Cash, Balances with the Reserve Bank of Malawi and other banks increased by 65.3
percent from MK21.3 billion as at 31st December 2008 to MK35.2 billion as at 31st 2009 December 2009. These assets accounted for 15.3 percent of the total banking system assets;
• Interest receivables recorded an increase of 48.5 percent from MK2.1 billion as at 31st December 2008 to MK3.1 billion as at 31st December 2009; Annual Report Report Annual
• Loans and advances (which constituted 49.0 percent of the total assets) increased by 39.0 percent from MK82.0 billion as at 31st December 2008 to MK114.0 billion as at 31st December 2009;
• Other assets recorded an increase of 14.3 percent from MK6.3 billion to MK7.2 billion.
Table 2 and figures 2.1 and 2.2 indicate asset composition and growth as at 31st December 2008 and 2009.
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TABLE 2: ASSETS COMPOSITION (Figures in MK billions)
Assets Dec-08 % Total Assets Dec-09 % Total Assets Growth
Other Assets 23.6 12.8% 30.5 13.3% 29.2% Cash and Due from Banks 21.3 11.6% 35.2 15.3% 65.3% Securities and investments 59.0 32.1% 52.8 23.0% -10.5% Total loans and advances 80.2 43.6% 111.6 48.5% 39.1% Total Assets 184.1 100.0% 230.1 100.0% 25.0%
Fig 2.1: ASSET COMPOSITION 2009
OTHER ASSETS TOTAL LOANS 14% CASH DUE FROM 49% BANKS 15% 2009
SECURITIES AND
Annual Report Report Annual INVESTMENTS 22%
16 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Fig 2.2: ASSET STRUCTURE
120
100
80
60
40
MK B ILLION 20
0 Jan - Apr - Jul - Oct - Jan - Apr - Jul - Oct - Mar Jun Sep Dec Mar Jun Sep Dec 2008 2009 OTHER ASSETS CASH AND DUE FROM THE BANKS 2009 SECURITIES AND INVESTMENTS LOANS AND ADVANCES
Funding Structure As at 31st December 2009, total funding of the banking sector was MK230.2 billion
compared to MK184.0 billion as at 31st December 2008, representing an increase of 25.1 Report Annual percent. Deposits were the major source of funding totalling MK168.6 billion (73.2 percent of total funding) from MK131.5 billion as at 31st December 2008, registering a growth of 28.2 percent. Bank capital was at MK36.1 billion as at 31st December 2009 from MK27.5 billion in 2008. Other sources of funds included interbank borrowings, borrowings from the RBM and lines of credit from international lending institutions such as the Development Bank of South Africa (DBSA), parent banks and the World Bank.
Funding trend and composition from 2005 to 2009 is as indicated in tables 3(a), 3(b) and Figures 2.3 and 2.4 below:
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TABLE 3 (a): FUNDING TREND (Figures in MK billion)
Item Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Change 04/05 05/06 06/07 07/08 08/09 Deposits 57.8 66.9 94.4 131.5 168.6 18.0% 15.7% 41.1% 39.3% 28.2% Liabilities to other banks 0.8 4.1 5.6 8.4 5.9 50.0% 412.5% 36.6% 50.0% -29.8% Other Liabilities 7.6 9.5 12.1 16.5 19.5 -9.7% 25.0% 27.4% 36.4% 18.2% Total Capital 10.5 14.5 17.6 27.5 36.1 10.5% 38.1% 21.4% 56.3% 31.3% Total Funding 76.7 95.0 129.7 183.9 230.2 14.6% 23.9% 36.5% 41.8% 25.2%
TABLE 3 (b): FUNDING COMPOSITION
Item Dec 05 Dec 06 Dec 07 Dec 08 Dec 09 Deposits 75.4% 70.4% 72.8% 71.5% 73.2% Liabilities to other banks 1.0% 4.3% 4.3% 4.5% 2.6% Other liabilities 10.0% 10.0% 9.3% 9.0% 8.5% Total Capital 13.7% 15.3% 13.6% 15.0% 15.7%
2009 Total Funding 100.0% 100.0% 100.0% 100.0% 100.0%
Fig 2.3: FUNDING STRUCTURE 2005 - 2009
80
70
Annual Report Report Annual 60
50
FUN D IN G TOTAL 40
G E 30
20
10 PER C ENTA 0 2005 2006 2007 2008 2009 PERIOD DEPOSITS LIABILITIES TO OTHER BANKS OTHER LIABILITIES TOTAL CAPITAL 18 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Fig 2.4: LIABILITY STRUCTURE
180 160 140 120 100 80 60 MK B ILLION 40 20 0 Jan - Apr - Jul - Oct - Jan - Apr - Jul - Oct - Mar Jun Sep Dec Mar Jun Sep Dec 2008 2009
LIABILITIES TO OTHER BANKS OTHER LIABILITIES 2009 TOTAL CAPITAL TOTAL DEPOSITS
Market Share
There were eleven commercial banks, two discount houses and one leasing and financing Report Annual company in Malawi as at December 2009. Excluding the two discount houses, two largest banks had combined market share of about 53 percent of the system’s total assets, 52 percent of the system loan portfolio, 54 percent of deposits and 56 percent of the aggregate capital of the banking system. The exclusion of the two financial institutions was to ensure fair comparability because commercial banks are the major players in the banking sector. The next four largest banks had market share of 34 percent of system assets, 38 percent of the loan portfolio, 33 percent of deposits and 28 percent of the system capital.
The table below show market share of banks in terms of total assets, loans, deposits and capital from 2007-2009.
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TABLE 4: MARKET SHARE (%)
Market share Assets Loans Deposits Capital 2007 2008 2009 2007 2008 2009 2007 2008 2009 2007 2008 2009
Two largest banks 59% 55% 53% 56% 52% 52% 58% 56% 54% 58% 55% 56%
Next four largest banks 33% 33% 34% 36% 37% 38% 34% 33% 33% 35% 33% 28%
Next four banks 8% 11% 11% 8% 11% 9% 8% 1% 12% 7% 10% 12%
The least two banks 0% 1% 2% 0% 0% 1% 0% 0% 1% 0% 2% 4% 2009 Annual Report Report Annual
20 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Chapter Three
Performance of the Banking Sector
Introduction This Chapter provides a detailed analysis of the financial performance of the banking sector during the period ended 31st December, 2009. The analysis uses the CAMEL rating system which assesses the adequacy of Capital, Asset Quality, Management, Earnings and Liquidity. The Chapter also gives a summary of the key selected Financial Stability Indicators for the banking industry.
Capital Adequacy Capital is categorised into Core Capital (comprising paid up capital, share premium, retained earnings and 60 percent of current year profits) and total capital which is sum of core capital and revaluation reserves, general provision, hybrid debt capital and other subordinate debt. The minimum regulatory benchmarks for core capital and total capital to risk based assets are 6.0 percent and 10.0 percent respectively. The banking industry recorded core capital and total capital of MK25.2 billion and MK32.0 billion from MK18.6 billion and MK24.1 billion registered in December 2008 representing 34.0 percent and 32.8 percent increase
respectively. The industry core capital and total capital ratios were 17.7 percent and 22.4 2009 percent in December 2009, an increase from 16.6 percent and 21.5 percent recorded in December 2008. On the other hand, Risk Weighted Assets grew by 27.4 percent from MK111.7 billion in December 2008 to MK142.4 billion in December 2009. During the period under review, NBM, Standard Bank, Indebank, LFC and FMB converted their retained earnings into paid up capital and share premium to meet new capital regulatory requirements
while ECOBANK injected additional capital to meet the new capital requirements. The Figure Report Annual below illustrates the banking sector’s capital position and capital ratios.
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Fig 3.1: CAPITAL ADEQUACY
30 35
25 30
25 20
G E 20 15 15 MK B ILLION
PER C ENTA 10 10
5 5
0 0 Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 2009 QUALIFYING CORE CAPITAL: TIER 1 TOTAL CAPITAL REQUIRED CAPITAL AT 6% OF RISK WEIGHTED ASSETS QUALIFYING SUPPLEMENTARY CAPITAL: TIER 2 2009 REQUIRED CAPITAL AT 10% OF RISK WEIGHTED ASSETS
Asset Quality For purposes of this report, asset quality is measured by the level of non performing loans and adequacy of provisions. The Reserve Bank of Malawi uses the Asset Classification
Annual Report Report Annual Directive, Risk Management Guidelines, Directives on Large Exposures and Foreign Currency Lending ratio as tools for assessing credit risk. Gross loans and advances/leases constituted 48.7 percent of the gross total assets and represented the highest exposure to the banks during the period under review. Gross loans and advances stood at MK114.0 billion compared to MK81.9 billion recorded in December 2008 depicting an increase of 39.2 percent. MK3.6 billion of this gross figure were loans deemed non-performing and compared to MK2.6 billion in December 2008. This represents 3.2 percent of the loan book, a constant ratio from the December 2008 position. Specific provisions rose from MK1.1 billion in December, 2008 to MK1.5 billion in December, 2009. Consequently, the ratio of specific provisions to non performing advances declined to 42.4 percent in December 2009, from 43.3 percent recorded in December 2008 indicating an improvement in the asset quality. The Figure below illustrates the Asset quality indicators: 22 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
FIG 3.2: NON-PERFORMING LOANS (AS PERCENTAGE OF TOTAL LOANS AND TOTAL ASSETS
4.0
3.5
3.0
2.5 G E
2.0
1.5 PER C ENTA 1.0
0.5
0 Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 2009 NPL TO TOTAL ASSETS NPL TO GROSS LOANS 2009
The banking sector extended credit facilities to nearly all the sectors of the economy. Of the various sectors, Community and Personal Services sector received the most credit
(24 percent) followed by Mining, Quarrying and Manufacturing (18 percent). Construction, Report Annual Restaurants and Hotels, Real Estate and the Financial Services sectors received the least credit (11 percent in total). The pie chart below illustrates the allocation of credit to each sector of the economy in 2009.
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FIG 3.3: LOANS BY SECTOR
Other Sectors Agriculture 14% 11% Mining, Quarrying Real Estate and Manufacturing 3% 19%
Construction 2%
Community and Wholesale Personal Services and Trade 24% 13% Restaurants Financial Services Transport and Hotels 5% 8% 1% 2009
Annual Report Report Annual Earnings Analysis Earnings play a vital role in providing cushion for losses and funding capital growth prospects for banks. Aggregate net income before tax was MK14.9 billion in December 2009 compared to MK12.1 billion in December 2008, indicating an increase of 23.1 percent. Interest income accounted for 71.3 percent of total income in 2009 compared to 82.5 percent in 2008. The increase in gross income largely emanated from an increase in interest income realised from loans which went up by MK7.0 billion to MK20.2 billion. In the period under review, the income statement was comprised of the following attributes as depicted in the graph below:
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FIG 3.4: COMPOSITION OF THE INCOME STATEMENT
Total Interest Expenses
Total Interest Income
Non-Interest Income
Net Interest Income
Operating Expenses
0.0 5.0 10.0 15.0 20.0 25.0 30.0
2009 2008 2009
As at December 2009, the industry recorded Net Interest Margin of 13.0 percent, an improvement from 12.1 percent recorded in December 2008. During the same period, the efficiency ratio improved to 49.1 percent, down from 49.8 percent in December 2008. The figure below indicates the relationship between Net Interest Margin and Efficiency Ratio. Annual Report Report Annual
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Fig 3.5: NET INTEREST MARGIN, EFFICIENCY RATIO
52 16
51 15 50 ercentage) 14 49 ercentage) 48 13
47 T MAR G IN ( P 12 46
EFFI C IEN Y ( P 11 45
44 10 S NET INTERE Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 2009 EFFICIENCY NET INTEREST MARGIN 2009
Profitability as measured by ROA and ROE ratios declined from 4.8 percent and 43.6 percent registered in December 2008 to 4.6 percent and 34.1 in December 2009 respectively. The banking sector therefore recorded marginal growth in profits. The graph
Annual Report Report Annual below depicts the movement in ROA and ROE during the period under review.
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Fig 3.6: RETURN ON ASSETS, RETURN ON EQUITY
5.2 50.0
5.0 40.0
4.8 30.0 4.6 ercentage) ercentage) 20.0 4.4 ( P ROA 10.0 ROE ( P 4.2
4.0 0.0 Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 2009 ROA ROE 2009
Liquidity Analysis As at end December 2009, the liquidity position of the banking sector was considered satisfactory. Although the liquidity ratio declined from 53.5 percent in December 2008
to 48.0 percent during the period under review, the ratio was still above the regulatory Report Annual benchmark of 30 percent. However, the decline follows a decrease in holdings of securities and investments from MK59.0 billion in December 2008 to MK52.8 billion in December 2009. Instead, the banking industry increased its lending activities as evidenced by the growth in the lending ratio from 62.3 percent to 67.6 percent in December 2009. Figure 3.7 (overleaf) illustrates the relationship between liquid assets to total deposits and short term liabilities.
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Fig 3.7: LIQUIDITY ASSETS TO DEPOSITS AND SHORT TERM LIABILITIES
130% 120% 110% 100% 90% 80% ercentage
P 70% 60% 50% 40% 30% 20% 10% 0 Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 2009
LIQUID ASSETS TO TOTAL DEPOSITS 2009 LIQUID ASSETS TO TOTAL DEPOSITS & SHORT TERM LIABILITIES
In addition, interest rate sensitivity ratio expressed as a percentage of interest earning
Annual Report Report Annual assets to interest earning liabilities at 101.8 percent in December 2009 (105.6 percent in December 2008) indicates that current matching of rate sensitive assets against rate sensitive liabilities is almost at neutral point therefore banks are well cushioned against interest rate adjustments in either direction. The graph below illustrates the relationship between interest rate assets and liabilities.
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Fig 3.8: LIQUIDITY GAP (as percentage)
180%
160%
140%
120%
100% ercentage P 80%
60%
40%
20%
0 Jan - Mar Apr - Jun Jul - Sep Oct - Dec Jan - Mar Apr - Jun Jul - Sep Oct - Dec 2008 2009 TIME PROFILES OF RSA/RSL 2009
Financial Soundness Indicators
There is a range of Financial Soundness Indicators (FSIs) which provide detailed information Report Annual on the general health of the financial system. Performance of the banking industry in Malawi as assessed by the financial soundness indicators was satisfactory. As at 31st December 2009, the banking sector was adequately capitalised relative to the risk weighted assets. Both core and total capital ratios were above minimum regulatory benchmarks of 6 percent and 10 percent respectively. As discussed earlier, the overall quality of the banking assets as measured by the level of non-performing loans was considered satisfactory. The ratio of non-performing loans and advances to gross loans and advances remained constant at 3.2 percent in December 2009 from the December 2008 position. The overall liquidity position of the banking sector was satisfactory as the ratio of liquid assets to deposits and short term liabilities stood at 48.0 percent in December 2009 down from 53.5 percent in December 2008. At this level the liquidity ratio was above the minimum benchmark of 30 percent. 29 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
The table below contains three years financial soundness indicators (FSIs) for the banking system up to 31st December 2009.
SUMMARY OF FINANCIAL SOUNDNESS INDICATORS
Ratios Dec Dec Dec 2007 2008 2009 Capital Regulatory total capital to Adequacy Risk Weighted Assets 19.6 21.5 22.4 Regulatory Tier 1 capital to Risk Weighted assets 15.5 16.6 17.7 Total capital to Total Assets 13.4 14.8 15.5 Total loans and advances to total assets 42.8 44.1 49.0
Asset Foreign Loans to total loans 12.9 19.6 9.9 composition Non-performing loans to gross loans 3.4 3.2 3.2 and quality Non-performing loans net of provisions to capital 7.3 8.3 6.7 2009 Earnings and Return on assets 4.9 4.8 4.6 Profitability Return on equity 34.1 43.6 34.1 Interest margin to gross income 47.9 48.2 51.0 Non-interest expenses to gross income 52.6 49.6 47.9 Personal expenses to non interest expenses 52.0 49.4 48.9
Annual Report Report Annual Liquid assets to total assets 43.1 40.3 35.4
Liquidity Liquid assets to total short term liabilities 56.5 53.5 48.0 Total loans to total deposits 59.5 62.3 67.6 Foreign Exchange liabilities to total liabilities 14.9 9.3 9.7
30 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Chapter Four
Ac t ivi t i e s o f t h e b A n k Supervision Department in 2009
Introduction Bank Supervision Department is responsible for ensuring safety and soundness of the banking system in Malawi as provided for under Banking Act, 1989 Section 14. This is achieved through controlling market entry into the banking system by undertaking vigilant licensing processes of banks and financial institutions, conducting on-going supervision of the industry through off-site surveillance and on-site inspections, ensuring orderly market exit and continuous review of laws and enforcing compliance with Laws and Directives issued by the Reserve Bank of Malawi. This Chapter highlights some of the activities undertaken during the period under review.
Off-site Surveillance Off-site surveillance is one of the major supervisory tools that the Department uses when assessing the financial performance and condition of licensed institutions. This is done by using prudential call reports received from licensed institutions and computing key quantitative ratios on capital adequacy, asset quality, earnings and liquidity. The computed
ratios are then compared with benchmark ratios where applicable, industry ratios and trends 2009 observed overtime. The desk analysis also helps to monitor compliance with laws, directives and guidelines issued by the Reserve Bank of Malawi. In areas where weaknesses have been noted, the surveillance is enhanced further by summoning Executive Management and in some instances Board of Directors from institutions that are underperforming or not complying with the Laws or Directives. Annual Report Report Annual
During the period under review, the Department was able to produce all quarterly offsite reports for the industry. In brief, the quarterly reports showed that the banking industry continued to record impressive financial performance. However, there was a high growth in credit when compared to the growth in the sources of funds. The year also witnessed an increase in non performing loans, prudential liquidity concerns on some banks and deteriorating solvency margins for one of the banks.
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On site Examination The on-site examination involves visiting banks or financial institutions licensed under the Banking Act, 1989 and examining the books of accounts to assess the adequacy of management, internal controls as well as the risk management structures of the institution with the ultimate aim of evaluating the institutions’ financial performance and compliance. Apart from the traditional CAMEL evaluations, the examinations have embraced the risk- based supervision methodology to ensure all risks assumed by the financial institutions are evaluated and measured. In some instances, tripartite meetings with management of financial institutions, their external auditors and the Reserve Bank of Malawi can be organised depending on the severity of examination findings.
During the year ended 31st December 2009, Bank Supervision Department conducted four on-site examinations using the Risk Based Supervision Framework. The Onsite reports from all examinations showed an improvement in the risk management structures in most of the banks. In general however, it was observed that most of the banks examined were still building up risk management structures that would enable them identify, measure, monitor and control risk.
2009 Licensing and Compliance Review Licensing The purpose of the vigilant licensing process regime that the Department has adopted is to protect the interests of depositors and the public and help minimise future bank failures by ensuring that only fit and proper players are allowed to conduct banking business in the country. Annual Report Report Annual
During 2009 the RBM did not license any new bank. However, the industry expanded through the opening of new branches and agencies by existing bank. During the year, 22 branches/ agencies/kiosks were opened by nine banks out of the eleven banks operating in the market.
The minimum capital requirement for establishing a new banking institution was revised upwards from USD1.5 million to USD5.0 million. In addition, the licence processing fee was also revised upwards from USD1,500 to USD5,000.
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Compliance Review Compliance review entails examination of the operations of each licensed financial institution to determine the level of compliance with laws, policies, directives and regulations as set by the Reserve Bank of Malawi from time to time.
A review of 2009 off-site analysis reports, on-site examination reports and other submissions showed that most banks were compliant with supervisory requirements. However, in some cases, there were some minor compliance weaknesses which called for corrective action and monetary penalties. The violations were noted in Foreign Currency Exposure Limit Directive, Liquidity Reserve Requirement and Submission of Call Reports.
Licensing Guidelines Internal licensing guidelines were also reviewed in 2009 to incorporate international best practice and market developments. The key areas of review were the incorporation of new capital requirements; the new licensing fees; the need to conduct physical due diligence of prospective applicants and the inclusion of conducting the fit and proper test for shareholders. Previously, the evaluation of shareholders was only limited to assessing their financial capability. 2009 Related to licensing, the Department also drafted procedures for assessing applications on mergers and acquisitions. The Department all along did not have specific procedures for evaluating such applications. These procedures are awaiting technical comments and input from the Financial Services Volunteer Corps (FSVC) and enactment of the Financial Services Bill before they can finally be adopted by the Department. Annual Report Report Annual Review of Banking Regulations In 2009, the Department finalised the review of the Banking Act Amendment Bill, an exercise that commenced in 2007. This was after a decision was taken to repeal the Banking Act 1989, due to major changes that were proposed in the Act. The new Amendment Bill was finally enacted by Parliament in December 2009. The Department also drafted two policy documents during the year namely; the Directive on Disclosures and Guidelines on Corporate Governance. Both documents are expected to be issued to the market before end of 2010.
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The Directive on Disclosures is intended to promote and maintain public confidence in the Malawi banking industry through enhanced transparency. Banks will be required to disclose information that is adequate and relevant to enable depositors and the general public make informed decisions. In addition to publishing their annual reports, the new Directive will require banks to disclose in public newspapers their bank charges, lending rates, non- performing loans, directors fees, just to mention but a few. Corporate Governance Guidelines on the other hand seek to promote sound risk management and governance practices by outlining the expected roles of shareholders, board of directors and executive management.
The Department also revised the Asset Classification Directive by aligning it with IAS 39 – on classification and provisioning criteria. Under the new Directive, banks will be required to make provisions for bad debts by using the estimated recoverable method where full provisions are made on the difference between the carrying amount and the fair value of collateral of the loan. However, the Directive also provides for Standard Matrix Method for making provisions for bad debts. This method is based on age in arrears in categories of 20 percent, 50 percent and 100 percent. The Directive is also expected to be issued in 2010.
Problem Bank Resolution Framework
2009 The Department drafted a framework articulating the various ways that the RBM can use to resolve a problem bank. The framework provides for systematic and consistent formal options available to the RBM in line with the revised Banking Act. Among the options drawn include Memorandum of Understandings, Monetary Penalties, Cease and Desist Orders, Statutory Management/Receivership, and Closure, depending on the severity and frequency of the problem. RBM’s in-house legal input was already incorporated in the document, but formal
Annual Report Report Annual adoption will await technical input from FSVC and enactment of the Financial Services Bill.
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Training and Staff Development The Department had eighteen members of staff in the year, one of whom joined the Department in the fourth quarter. Most members had an opportunity to enhance their skills and knowledge through attendance of various courses, seminars and workshops locally, regionally and internationally. This is done to ensure that banking supervision staff are kept abreast of contemporary and upcoming issues in the financial arena. The following courses, seminars and workshops were attended in 2009: Financial Stability Institute Seminars on Risk Management and Basel II; Practical Techniques to implement Pillar 2, Stress Testing and Operational Risk Management and the Recent Financial Crisis; Risk Based Supervision; Bank Management; Banking Crisis Simulation Program; Leadership Development; Financial Analysis for AML/CFT Issues; and Corporate Governance.
One member of the Department attained the accreditation of the Association of Certified Anti-Money Laundering Specialists (ACAMS). This is a membership that serves as a platform for career development and professional networking for individuals in a wide range of industries, including Anti-Money Laundering. Two members of staff were awarded scholarships to undergo postgraduate Studies. Finally, the Department continued to utilise the FSI Connect which is a web based information resource and learning facility for bank
supervisors that was developed by the Financial Stability Institute. 2009 Annual Report Report Annual
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Chapter Five
Cu rr ent Issues i n b A n k Supervision
Introduction The banking industry is very dynamic. In Malawi the changes that have taken place in the banking sector include new product and service innovation that have included a mobile banking, internet banking and growth in bank holding structures. Bank Supervision Department continued to work on various initiatives to ensure that the banking sector is well supervised. The initiatives are detailed in this Chapter.
BASEL II and the way forward for Malawi As a continuation of preparations for the adoption of Basel II, the Department undertook the following activities in 2009:
• Adopted the Project Initiation Document • Formally constituted a National Steering Committee • Formally constituted five subcommittees • Adopted terms of reference for the National Steering Committee and sub committees
2009 • Sensitised all banking institutions on Basel II • Organised seminars for some members on Basel II • Drafted the Disclosure Directive (Pillar III)
The preparatory work on Basle II will continue in 2010 in line with the Project Plan. The Department intends to train banks on market risk and capital charge by end of 2010. In
Annual Report Report Annual terms of implementation, the RBM has opted for a phased approach, starting with Pillar III and II and ending with Pillar I. Conducting a Quantitative Impact Survey and attachments to other central banks on Basel II and risk-based supervision have also been planned for 2010. The major handicap in the preparations is technical ability. Although funding has been made available, the Department has generally lagged behind in building capacity and this has the potential of derailing the preparations.
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Bank Supervision Department Restructuring In order to improve operational efficiency and better service to stakeholders, the Reserve Bank of Malawi undertook a job evaluation and organisational review program in 2008. The organisational review resulted in a new Corporate Structure which ultimately resulted in changing the structure and reporting lines of Bank Supervision Department.
Bank Supervision Department is headed by a Director who reports to the Executive Director Supervision of Financial Institution (EDSFI). The office of the EDSFI reports to the General Manager who reports to the Governor. The overall responsibility of licensing of banks lies in the office of the Governor. The Governor, General Manager and EDSFI are all members of Senior Management. All policy issues pertaining to supervising banks are discussed at Senior Management meetings.
Under the Director Bank Supervision are 3 Chief Examiners. A new Division of Policy and Regulatory Administration was created to handle issues pertaining to policy formulation, licensing, market conduct and AML/CFT compliance. The new structure also included a Principal Examiner, Information Communication Technology (ICT), which has been created to coordinate all activities pertaining to IT Examination. Another new position of Principal
Examiner, Modelling was created for purposes of validating financial models, conducting 2009 stress testing and coordinating the activities of special projects such as Risk Management Implementation and BASEL II. The new departmental structure is shown under Appendix 1.
Consolidated Supervision The drive to implement consolidated Supervision has been necessitated by the various
developments that have taken place with regard to the ownership structure of most financial Report Annual institutions in the country. These include: • The increase in the number of foreign entities acquiring licences to operate financial institutions in Malawi; • Financial holding companies investing in non bank financial institutions; • Local banks acquiring and/or investing in subsidiaries abroad; • Conglomerates owning banks and other financial institutions, with some conglomerates having in their structures entities which have no formal supervision.
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Undertaking non financial business in subsidiaries, associates or affiliates can mean that activities which could affect the soundness of the financial institutions are not under the direct oversight of the supervisory authority. In the absence of consolidated supervision, the above developments can create various risks to financial institutions belonging to conglomerate groups. Some of the risks include: • The financial institutions being weakened by loans provided to unviable related parties, recapitalisation of weak subsidiaries or dividends paid to support the parent or affiliates; • Loss of confidence in other parts of the group that may trigger runs on the financial institutions, even if the financial institutions may be financially sound; • Use of financial institutions’ deposits to largely fund the activities of related members of the group; • Granting of loans by other members of the group to avoid the single borrower limit applicable to financial institutions.
Consolidated supervision provides a structured framework for this group wide assessment, ensuring that all risk exposures of a bank belonging to a conglomerate group are taken into account, whether the risks arise in the bank itself, or in a parent, subsidiary or affiliate. The Banking Bill, 2009 mandates the Reserve Bank of Malawi to undertake on a consolidated
2009 basis, an examination of any affiliates, associates, holding or subsidiary companies or any person who controls a bank, whether they are domiciled within or outside Malawi. The Bill once promulgated into law will empower the Reserve Bank of Malawi through Bank Supervision Department to undertake a consolidated supervision of banks in Malawi.
Anti Money Laundering and Combating of
Annual Report Report Annual Financial Crime The Anti Money Laundering and Combating Financing of Terrorism activities (AML/CFT) continued in 2009. Two full scope on-site examinations were conducted in the year. The examinations covered the following areas; AML/CFT Compliance Program, Internal/External Audit, Customer Identification Program and Due Diligence, Suspicious Activity Reporting, Correspondent Banking and Wire Transfers.
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The Department hosted a team of Bank Examiners from Bank of Mozambique – Bank Supervision Department on AML/CFT study attachment. The attachment involved one week of walk through presentations and another week of on-the-job training by participating in an on-site examination.
In order to enhance capacity and increase awareness of AML/CFT matters in banking institutions, the Department, in conjunction with the Financial Intelligence Unit (FIU), organised a workshop for all commercial banks’ Compliance Officers. Similar workshops are planned for 2010.
The Department also received technical assistance from the World Bank on AML/CFT off-site and on-site examinations. The technical assistance was provided by a World Bank financial expert and an expert from Federal Financial Supervisory Authority. The Department also benefited from technical assistance from the Financial Services Volunteer Corps and USAID on AML/CFT on-site examination. The Department continued to participate in AML/CFT committee meetings, both at national and regional levels. The committee meetings helped in the coordination of the different agencies with regard to AML/CFT issues. It also provided a platform for discussing complex money laundering cases. 2009 The Department attended both the March 2009 Senior Officials Task Force meeting in Arusha, Tanzania and Ministerial Council meeting in Maseru - Lesotho in August 2009. During the 2009 Ministerial Council meeting in Maseru, Lesotho, Malawi accepted to host the 2010 Ministerial meeting in August 2010.
Mobile Banking and E- Commerce Report Annual While the two terms are similar and often used interchangeably, the later is broader and encompasses the former but also includes internet banking, card based payments and transactions and ATMs, among others. Mobile banking refers to bank transactions and instructions that are executed via mobile phones.
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The Reserve Bank of Malawi (RBM) formed a Taskforce on Mobile Banking and Electronic Banking comprising members from a number of departments to champion and proactively plan for activities surrounding electronic banking and mobile payment systems. Bank Supervision Department’s Taskforce on electronic banking members are also members of the RBM Taskforce. During the year, the Department’s Taskforce carried out a number of activities, at times jointly with colleagues of the RBM Taskforce. These activities included:
• Drafting guidelines on electronic banking with the technical assistance of the East AFRITAC and IMF ; • Study tour on operatives and regulation of mobile payment systems in East Africa notably Kenya and Tanzania, where the services are branded ZAP and MPesa; • Evaluating the introduction of ZAP in Malawi; and • Attending to several enquiries on introduction of a variety of mobile banking systems including interoperable payment system across electronic payment systems.
Post 2009, one mobile telephone company was approved to roll out a pilot study of mobile banking in Malawi jointly with two host banks.
2009 Bank Supervision Application Bank Supervision Application (BSA) is a web based reporting tool that was adopted by a number of SADC Central Banks to replace Microsoft Excel Spreadsheet-based Database in carrying out financial analysis of the banking industry. The Application contains two modules viz: the Risk Analysis Automation System (RAAS) which contains the quantitative tools for off-site surveillance and the Business Support System (BSS) that is used as a Supervisory
Annual Report Report Annual Information System (SIS) for automating workflows as well as an electronic filing system. The exercise was moderated by T-Systems of South Africa who in collaboration with the SADC IT Forum and selected IT personnel from various central banks computer coded the Application.
To date its usage has been limited and full adoption slow. However, remarkable progress has been recorded and most impediments attendant to the present state has been largely overcome in 2009. The Application is now running on pilot basis beginning with November 2009 returns. The critical outstanding work on BSA now is development of off-site monitoring reports.
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Malawi hosted the BSA Executive and Stakeholders Group Meeting from 13th to 14th August 2009 in Lilongwe. The two arms are the highest policy making forums of BSA. They comprise Heads of Supervision and ICT from member central banks.
Credit Reference Bureau The Department, in collaboration with the Council of the Bankers Association of Malawi, embarked on a project to establish a Credit Reference Bureau (CRB) in the country way back in 2005. The main objective of instituting the Bureau is to provide a mechanism for banks to share credit information in order to enhance information symmetry, improve credit repayment culture in the country and promote risk-based pricing of loan facilities in the banking sector.
Since there has been no legislation to regulate CRBs, the Department was largely involved in drafting the Credit Reference Bureau Bill in 2007, which gives powers to the Reserve Bank of Malawi to licence and regulate such entities. Meanwhile, the Department has identified consultants, International Monetary Fund’s East AFRITAC to see the project through and their first mission would be to assist in developing the regulatory framework for CRBs. A suitable technical partner, CRB Africa of Kenya has since been identified to facilitate the implementation of the Bureau and entered into an agreement with the commercial banks
aimed at facilitating the sharing of customer information among the commercial banks. Some 2009 members of staff from the Department had conducted a due diligence exercise of CRB Africa in countries where it has operations such as Uganda, Kenya and Zambia in order to ascertain its capacity to see the project through in Malawi. Annual Report Report Annual
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Chapter Six
Re gi o n a l a n d I n t e r n at i o n a l Cooperation
Introduction This chapter focuses on projects that were undertaken during the year. It also discusses Technical Assistance that was received by Bank Supervision Department in 2009.
INTERNATIONAL MONETARY FUND East Africa Regional Technical Assistance Centre (IMF East AFRITAC) The International Monetary Fund East Africa Regional Technical Assistance Centre (IMF East AFRITAC) is a collaborative venture between the International Monetary Fund (IMF), the recipient countries, and bilateral and multilateral donors. It derived from the IMF’s response to African leaders’ call on the international community to increase technical assistance (TA) to Africa and focus it more sharply on capacity building. Its strategic goal is to strengthen the institutional capacity of African countries to design and implement their Millennium Development Goals and poverty-reducing strategies, supported by sound macroeconomic and financial policies, as well as to strengthen the coordination of capacity-building TA. IMF East
2009 AFRITAC is the first Centre to be established in Africa in 2002, and is based in Dar es Salaam, Tanzania.
IMF East AFRITAC delivers capacity-building TA in its sectors of expertise to seven countries in East Africa: Eritrea, Ethiopia, Kenya, Malawi, Rwanda, Tanzania, and Uganda. Member countries are not charged for the use of IMF East AFRITAC’s resources. Instead, the
Annual Report Report Annual cost of running the Centre is currently defrayed by grants from the African Development Bank and 15 bilateral donors (Canada, Peoples’ Republic of China, Denmark, Finland, France, Germany, Italy, Japan, Luxembourg, Norway, the Russian Federation, Sweden, Switzerland, the Netherlands, and the United Kingdom), in addition to financing from the IMF. In complementing the Centre’s resource pool, two member states (Kenya and Tanzania) generously provide in-kind contributions.
The fiscal year for IMF East AFRITAC runs from May to April each year and in 2009 Bank Supervision Department was assisted in the following areas:
Risk-Based Supervision The general focus of IMF East AFRITAC’s Bank Supervision assistance included the 42 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
move away from rules - or compliance-based supervision to more risk-based approaches, thus ensuring the most effective use of limited supervisory resources. It has also been demonstrated that adoption of risk-based supervision strengthens the overall levels of compliance with the Basel Core Principles for Effective Banking Supervision.
The assistance to the RBM Team of Examiners was in form of pre-examination fact finding phase and pre-examination meeting with the banks’ senior management. As a result of the assistance provided, the RBM Examination Team was able to produce a pre-examination plan, a preliminary risk assessment, CAMELS ratings, and a scope memorandum which provided a roadmap for the actual on-site examination. IMF East AFRITAC further assisted RBM in preparing a revised manual on RBS to reinforce the pre-examination planning phase of the RBS process.
Risk-Based Supervision Manual IMF East AFRITAC launched a new publication series, called the IMF East AFRITAC Field Manuals. The purpose of this series is to distil the practical lessons that the Centre has gained in working closely with member countries on various capacity-building issues. One of such manuals is A Guidebook on the Implementation of Risk-Based Supervision.
The objective of this manual is to document the approach followed by IMF East AFRITAC 2009 countries in moving from compliance-based to risk-based bank supervisory practices and capture lessons learned from several countries across the region.
Consolidated Supervision Consolidated supervision, which also stems from the Basel Core Principles, enables bank
supervisors to look broadly, across the entire range of banking groups’ activities, both Report Annual within a country and beyond its borders. This enables potential cross-border issues to be detected early and rectified.
In November 2008, an IMF East AFRITAC technical assistance mission was undertaken to assist RBM to develop a framework for the practice of consolidated supervision in collaboration with Bank Supervision staff where upon a policy paper on the concept was produced. The paper examines the need for consolidated supervision, highlights relevant international best practices, discusses the measures that will be necessary to implement consolidated supervision in Malawi, and includes an action plan to guide the process. This project will continue until consolidated supervision is adopted.
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Discount Houses In June 2009, IMF East AFRITAC undertook yet another mission whose purpose was to assist RBM to redesign the off-site returns used by discount houses. The revisions would help RBM to obtain relevant and comprehensive information about the operation of discount houses.
Electronic Banking In July 2009, IMF East AFRITAC provided another assistance in electronic banking (e-banking) whose purpose was to assist regulation of e-banking products and services. The TA sensitised RBM to the regulatory issues relevant to the oversight of e-banking activity and developed guidelines to assist banking supervision staff to exercise such oversight. It will be noted that IMF East AFRITAC has indeed played a major role in building capacity in the banking supervision function. The RBM is highly indebted to the continuous support that it receives from IMF East AFRITAC and believes that this will continue in the foreseeable future.
Financial Services Volunteer Corps (FSVC) In 2009, the Department continued to benefit from the technical assistance by FSVC. Under a Technical Assistance Agreement, FSVC provides the Department with technical assistance through in-house seminars/workshops on topical areas of supervision and by making
2009 commentaries on work originally initiated by the Department. The Agreement with FSVC was coming to an end in January 2010 but indications towards end of last quarter of 2009 were that the programme would be renewed for another year. During the year under review, FSVC provided the following technical assistance: • AML/CFT on-site examination techniques; • Basel II overview to members of the National Steering Committee;
Annual Report Report Annual • Formulation of Questionnaire on Deposit Insurance Scheme; • Training on market risk, credit risk.
Commentaries are expected in the first quarter of 2010 on Procedures for evaluating applications for Mergers and Acquisitions and on Problem Bank Resolution Framework. Should the progamme be renewed, the Department has prioritised Basel II and deposit insurance scheme as areas of focus in the second phase.
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Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) Bank Supervision Department continued to participate in courses and seminars organised by MEFMI. During the year, one member of staff attended Financial and Statistical Calculations and Accounting for Bank Supervisors in Uganda. Two members of staff attended the Risk Management and Consolidated Supervision Course in Livingstone, Zambia.
East and Southern Africa Anti Money Laundering Group (ESAAMLG) The Eastern and Southern Africa Anti Money Laundering Group comprises of fourteen countries in the Sub Saharan Southern Africa region. Two of the members are located in the Indian Ocean. The group was formed in 1999, Arusha, Tanzania. The main objective of the group is to foster anti money laundering and combating the financing of terrorism efforts in the region. This is achieved through Mutual Evaluation exercises conducted in all countries and through progress reports submitted by members at the plenary meetings. In addition the group carries out research on the trends and typologies of AML/CFT cases happening in the region. 2009 Malawi is a founding member of the group and has continued to support all efforts of the grouping by attending all plenary meetings of the group conducted in March and August of each year. At each plenary meeting Malawi participates in several working group such as Expert Review Working Group, Mutual Evaluation Working Group, Finance Working Group and Legal Working Group. Annual Report Report Annual
Meetings of this group are attended by government officials from all the relevant government arms i.e. Ministry of Finance, Ministry of Justice, Reserve Bank of Malawi (through Bank Supervision, Supervision of Non Bank Financial Institutions and Legal Affairs Departments), Financial Intelligence Unit, Anti Corruption Bureau, Immigration Department, Director of Public Prosecutions and Malawi Police Service.
45 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
The Eastern and Southern Africa Anti-Money Laundering Group comprise of the following;
• The Ministerial Council (the Council) and its meetings are conducted every August; • The Task Force of Senior Officials and its meetings are conducted every March and August; • The Secretariat.
The Ministerial Council is the key decision making body within the ESAAMLG representative from each member country. The council elects a President and Vice-President from among its members. It is expected that Malawi will be given the presidency in August 2010 when it will host the ESAAMLG meeting. At the moment the presidency is with the Republic of Lesotho.
In addition, ESAAMLG has cooperating partners who attend the meetings as observers and help enrich the discussions of the meetings. Bank Supervision Department attended both the March and August meetings in 2009 and participated in the Expert Review Group and the Mutual Evaluation Group. ii The following are member central banks: Malawi, Mozambique, Zambia, Zimbabwe, Namibia, Kenya, Uganda, Swaziland, Lesotho, Cape Verde, DRC and Angola. 2009 Financial Stability Institute (FSI) and Bank for International Settlement (BIS) Programs The Department continued to benefit from training courses offered by the FSI and BIS during the year under review. The Department also benefits from the FSI Connect – the on line learning tutorials offered by the FSI. In 2009, four members attended the FSI/BIS courses
Annual Report Report Annual in Switzerland on Risk Management, Operational Risk, Stress Testing and Pillar II. Going forward, the Department intends to request for more slots under FSI Connect to enable more staff members to access the on line tutorials.
46 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Appendices
Appendix 1
Organisational Structure of Bank Supervision
Executive Director Supervision of Financial Institutions (1)
Director Bank Supervision (1)
Senior Secretary (1)
Chief Examiner, Chief Examiner, Banks (2) Banks (2) 2009
Principal Examiner, Principal Examiner, Principal Examiner, Principal Examiner, Principal Examiner, ICT (1) Banks (4) Financial Modelling (1) Policy and Licensing (1) Conduct AML/CFT (1) Annual Report Report Annual Examiner 1 , Examiner 1 , Examiner1 , Banks (6) Policy and Licensing (1) Market Conduct (1)
Examiner 2 , Examiner 2 , Examiner 2 , Banks (6) Policy and Licensing (1) Market Conduct (1)
47 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Appendix 2
Register of Commercial Banks and Other Financial Institutions as at 31 December 2009
Name of Institution Title & Name Postal Phone and Location of of Top Officer Address Fax Numbers Head Office
National Bank Managing Director Box 945, 01 820622 Victoria Avenue, of Malawi Mr. G Partridge Blantyre 01 820321 Blantyre Stanbic Bank Managing Director Box 1111, 01 820144 Glyn Jones Road, Malawi Ltd Mr. C Mudiwa Blantyre 01 820360 Blantyre NEDBANK Managing Director Box 750, 01 820477 Victoria Avenue, Malawi Ltd Mr. Andy Kulugomba Blantyre 01 820102 Blantyre Indebank Chief Executive Box 358, 01 820055 Top Mandala, Malawi Ltd Mr. W Chatsala Blantyre 01 835703 Blantyre First Merchant Managing Director P/Bag 122, 01 821942 Glyn Jones Road, Bank Mr. K Chaturvedi Blantyre 01 821978 Blantyre Ecobank Managing Director P/Bag 389, 01 822681 Victoria Avenue, Mr. Olufemi Salu Blantyre 3 01 822683 Blantyre NBS Bank Ltd Chief Executive Officer Box 32251, 01 876222 Ginnery Corner,
2009 Mr. J Biziwick Blantyre 3 01 875485 Blantyre Opportunity International Chief Executive P/Bag A71, 01 758403 Old Town, Bank Malawi Ltd Mr. A Kalanda Lilongwe 01 758400 Lilongwe Malawi Savings Bank Acting Chief Executive Box 521, 01 825111 Victoria Avenue, Mr. Kayisi Sadala Blantyre 01 821089 Blantyre Leasing and Finance General Manager Box 1963, 01 820233 Glyn Jones
Annual Report Report Annual RoadCompany Mr. Alex Chigwale Blantyre 01 820275 Blantyre Continental Discount Chief Executive Box 1441, 01 821 300 Victoria Avenue, House Ltd Mr. M Esau Blantyre Blantyre International Mr. J.Gopalan Box 437 01847901 Stansfield House Commercial Bank Blantyre Blantyre FDH Bank Managing Director Box 152 01820219 Umoyo House Mr. Jimmy Kayuni Blantyre Blantyre First Discount Managing Director Box 521, 01 820 219 Victoria Avenue, House Ltd Mr. E Chilima Blantyre Blantyre
48 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Appendix 3
Branch Network etc for Banks in 2009
Name of Institution Branch Agencies No of No of Network ATMs Employees
National Bank of Malawi Ltd 11 14 48 815
Standard Bank Malawi Ltd 8 11 41 609
NEDBANK Malawi Ltd 2 0 2 88
INDEbank Malawi Ltd 4 4 8 170
First Merchant Bank Ltd 7 11 20 582
ECOBANK 6 0 5 79
NBS Bank Ltd 13 12 47 570 2009 Opportunity International Bank Malawi Ltd 3 16 16 369
Malawi Savings Bank Ltd 6 43 12 328
Leasing and Finance Co Ltd 1 0 0 36 Annual Report Report Annual
First Discount House Ltd 0 0 0 N/A
FDH Bank 1 0 0 N/A
Continental Discount House Ltd 1 0 0 35
International Commercial Bank 2 0 2 40
N/A: Information not available
49 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Appendix 4
Number of Banks per CAMEL Rating Category as at December 2009
No. of Composite Capital Asset Manage- Earnings Liquidity Institutions Rating Quality ment
Strong (1) 0 0 0 0 0 0
Satisfactory (2) 7 9 8 5 8 7
Fair (3) 5 2 4 7 4 3
Marginal (4) 0 1 0 0 0 0
Unsatisfactory (5) 0 0 0 0 0 0 2009 Annual Report Report Annual
50 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
Appendix 5
Directives in Force During 2009
DO2-93/MCR Minimum Capital Ratios for Banks
DO1-97/FX Foreign Currency Exposure Limits
DO2-97/FXLR Foreign Currency Lending Ratio
DO1-04/CR Submission of Call Reports by Banks and other Financial Institutions
DO1-05CDD Customer Due Diligence for Banks and Financial Institutions
DO1-06/FMO Liquidity Reserve Requirement
DO1-06/SF Supervisory Fees
DO1-06/ASCL Asset Classification and Provisioning
DO2- 06/LA FX Large Exposures 2009 DO3- 06/DAS Audit Committee and Annual Audits
DO4- 06/TRP Transactions with Related Persons
DO5- 06/IA New Directors and Senior Management Officials Annual Report Report Annual
DO1- 2008/PID Premises Inspection
Policy Statement on the Prudential Aspects of Bank Liquidity
Draft directives and guidelines expected to be issued Capital Adequacy Guidelines on Corporate Governance Publication of Financial Statements and Other Disclosure
51 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 1 COMPOSITION OF BALANCE SHEET: LIABILITIES
Deposits Due to Interest Other Capital Total Other Payable Liabilities and Capital Banks Reserves and Liabilities
MKmillion Average End of Quarter
2008: 01 102,904 4,940 243 12,160 20,253 140,501 2008: 02 107,868 9,685 440 13,543 21,928 153,464 2008: 03 126,586 14,967 702 14,765 23,547 180,566 2008: 04 131,484 8,410 702 15,847 27,548 183,991
2009: 01 136,144 7,722 398 16,318 30,575 191,156 2009: 02 141,705 13,878 638 18,460 32,032 206,713
2009 2009: 03 161,163 5,226 20 20,601 33,512 220,521 2009: 04 168,597 5,935 1,079 18,465 36,087 230,163
Month-end balance for year
Dec 2007 94,408 5,638 178 11,936 17,635 129,795
Annual Report Report Annual Dec 2008 131,484 8,410 702 15,847 27,548 183,991 Dec 2009 168,597 5,935 1,079 18,465 36,087 230,163
52 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 2 COMPOSITION OF BALANCE SHEET: ASSETS
Cash and Due Loans Securities Other Total from Other and and Assets Assets Banks Advances Investments
MKmillion Average End of Quarter
2008: 01 25,896 54,392 41,674 18,538 140,501 2008: 02 22,973 68,737 42,601 19,153 153,464 2008: 03 34,452 76,347 47,946 21,821 180,566 2008: 04 21,266 80,173 58,978 23,574 183,991
2009: 01 28,724 86,628 41,674 18,538 175,564 2009: 02 33,269 99,477 42,601 19,153 194,501 2009: 03 41,436 104,328 47,946 21,821 215,531
2009: 04 35,205 111,630 52,839 30,490 230,163 2009
Month-end balance for year
Dec 2007 16,868 54,797 41,738 16,391 129,795 Dec 2008 21,266 80,173 58,978 23,574 183,991
Dec 2009 35,205 111,630 52,839 30,490 230,163 Report Annual
53 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 3 COMPOSITION OF BALANCE SHEET: DEPOSITS
Demand Savings Time FCDAs Total Deposits Deposits Deposits Deposits
MKmillion Average End of Quarter
2008: 01 37,064 18,228 29,840 17,773 17,773 2008: 02 38,132 23,929 27,099 18,708 107,868 2008: 03 44,457 28,233 35,800 18,097 126,586 2008: 04 48,815 25,921 42,226 14,521 131,484
2009: 01 52,343 22,531 44,276 16,995 136,144 2009: 02 52,908 25,826 44,146 18,824 141,705 2009: 03 55,988 30,131 53,321 21,723 161,163 2009: 04 59,259 28,670 61,877 18,791 168,597
2009 Month-end balance for year
Dec 2007 36,041 18,565 25,515 14,288 94,409 Dec 2008 48,815 25,921 42,226 14,521 131,484 Dec 2009 59,259 28,670 61,877 18,791 168,597 Annual Report Report Annual
54 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 4 TRENDS IN CAPITAL ADEQUACY
Tier 1 Total Risk Tier 1 Total Capital Capital Weighted Capital Capital Assets Ratio % Ratio
MK million Average End of Quarter
2008: 01 15,061 19,584 83,098 18.1 23.6 2008: 02 15,809 20,226 96,671 16.4 20.9 2008: 03 16,724 21,068 93,269 17.9 22.6 2008: 04 18,760 24,113 111,903 16.6 21.5
2009: 01 23,138 29,362 121,528 19.0 24.2 2009: 02 23,279 29,840 134,520 17.3 22.2 2009: 03 24,016 30,285 141,566 17.0 21.4
2009: 04 25,208 31,955 142,353 17.7 22.4 2009
Month-end balance for year
Dec 2007 12,261 15,516 79,061 15.5 19.6 Dec 2008 18,760 24,113 111,903 16.8 21.5
Dec 2009 25,208 31,955 142,353 17.7 22.4 Report Annual
55 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 5 COMPOSITION OF INCOME STATEMENT: SELECTED ITEMS
Total Gross Non- Interest Operating Gross Interest Interest Expenses Expenses Income Income Income
MKmillion Average End of Quarter
2008: 01 6,487 3,913 5,274 619 3,325 2008: 02 14,159 8,058 6,101 1,316 7,293 2008: 03 22,921 12,939 9,982 2,174 11,629 2008: 04 31,757 18,536 13,222 3,238 15,829
2009: 01 8,986 5,560 3,426 1,070 4,341 2009: 02 19,589 11,900 7,689 2,324 9,154 2009: 03 30,434 18,614 11,820 3,664 14,367
2009 2009: 04 41,350 25,900 15,450 5,098 20,296
Month-end balance for year
Dec 2007 25,058 15,148 9,910 3,138 13,187 Dec 2008 31,757 18,536 13,222 3,238 15,829
Annual Report Report Annual Dec 2009 41,350 25,900 15,450 5,098 20,296
56 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 6 PROFITABILITY: SELECTED RATIOS
Interest Efficiency ROE ROA Margin % % % %
Average End of Quarter
2008: 01 12.5 51.3 35.1 4.4 2008: 02 12.0 51.5 39.0 4.7 2008: 03 12.0 50.7 42.7 4.8 2008: 04 12.1 49.8 43.6 4.8
2009: 01 12.3 48.3 32.7 4.8 2009: 02 12.7 46.7 34.7 4.9 2009: 03 12.8 47.2 36.9 5.1 2009: 04 13.0 49.1 34.1 4.6
Month-end balance for year 2009
Dec 2007 13.9 52.6 39.9 4.9 Dec 2008 12.1 49.8 43.6 4.8 Dec 2009 13.0 49.1 34.1 4.6 Annual Report Report Annual
57 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 7 ASSET QUALITY
Loans Non- Non- Specific Specific and Performing Performing Provisions Provisions Advances Assets to Assets to to Gross to Non- Gross Total Loans % Performing Loans % Assets % Assets %
MKmillion
Average End of Quarter
2008: 01 55,961 3.7 1.5 2.1 56.0 2008: 02 70,468 3.1 1.4 1.8 58.0 2008: 03 78,057 3.3 1.4 1.5 46.7 2008: 04 81,948 3.2 1.4 1.4 43.3
2009 2009: 01 88,300 3.4 1.5 1.2 36.4 2009: 02 101,345 3.1 1.5 1.2 37.3 2009: 03 106,314 3.8 1.3 1.2 41.8 2009: 04 113,953 3.2 1.5 1.3 42.4
Month-end balance for year
Annual Report Report Annual Dec 2007 54,797 3.4 1.4 1.8 46.0 Dec 2008 81,948 3.2 1.4 1.4 43.3 Dec 2009 113,953 3.2 1.5 1.3 42.4
58 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department Bank Supervision Department
TABLE 8 LIQUIDITY
Liquid Assets Liquid Assets Rate Sensitive to Total Deposits to Total Assets/ Rate & Short Term Deposits % Sensitive Liabilities % Liabilities% MKmillion
Average End of Quarter
2008: 01 60.2 63.1 155.0 2008: 02 52.5 57.2 154.8 2008: 03 55.0 61.5 142.1 2008: 04 53.0 56.8 162.0
2009: 01 50.1 52.9 101.1 2009: 02 48.2 52.9 101.8
2009: 03 49.5 51.1 101.4 2009 2009: 04 48.0 49.6 101.8
Month-end balance for year
Dec 2007 55.0 61.5 142.1
Dec 2008 53.0 56.8 162.0 Report Annual Dec 2009 48.0 49.6 101.8
59 RESERVE BANK OF MALAWI RESERVE BANK OF MALAWI Bank Supervision Department 2009 Annual Report Report Annual
60 RESERVE BANK OF MALAWI