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Chairmann MMr CharlesChuka C Governor
MemberMe Member Meember Ms Megg Kajiyanike Dr.D Naomi Nggwira Dr. Grannt Kabango Deputyy Governor, DeputyD Goverrnor, Deputy Governor, Opeerations Economiccs Supeervision
Member MMember MMember Mr.M Ted Sitimawina m Dr. Patriick Kambewwa Mr Newbyby Kumwembbe Seccretary forEconomic E Secretaryto t the Treasuury Plannning & Devvelopment
Member MMember Membber Member Mr. Patricee Nkhono Mr. Dixiies Kambauwwa Mr. David Grimes MrsBetty B Mahukka Report and Accounts 2013 RBM
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.
i RBM Report and Accounts 2013
EXECUTIVE MANAGEMENT
Chairmann MrM CharlesChuka C Governor
MemberMe Member Meember Ms Megg Kajiyanike Dr.D Naomi Nggwira Dr. Grannt Kabango Deputyy Governor, DeputyD Goverrnor, Deputy Governor, Opeerations Economiccs Supeervision
ii Report and Accounts 2013 RBM
HEADS OF DEPARTMENTS
Chando, P. Head of Procurement and Stores Chinkono, C. Director, Human Resources
Chitsonga, D. Director, Information and Communication Technology
Chokhotho, R. Director, Internal Audit
Gundani, J. (Mrs) Director, Exchange Control
Kanyanda, G. Director, Branch Management
Kasomphe, S. Chief of Protective Services
Kumbatira, M (Mrs) Director, Banking and Currency Management
Malitoni, S. General Counsel and Bank Secretary
Matambo, W. Director, St rategy and Risk Management
Mathanga, H. Director, Financial Markets
Mdwazika, F. Director ,National Payment System
Mhango, P. Director, Administration
Mkulichi, N. Director, Pensions and Insurance Supervision
Mlelemba, E. Director, Bank Supervision
Mseka, C. (Mrs) Director, Accounting and Finance
Mzoma, H. Acting Director, Micro Finance and Capital Markets Supervision
Ngwira, M. Director, Governor’s Office and Public relations
Stambuli, M.(Mrs) Head of Oracle Business Support Centre Tseka, R. Director, Research and Statistics
iii RBM Report and Accounts 2013
GENERAL NOTES
Separate items will not always sum to corresponding totals, owing to the rounding off 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. Phone: (265)-1-770600 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.
iv Report and Accounts 2013 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 2013 ………………………………………………………………………...... …...... 2
3.0 DEVELOPMENTS IN THE GLOBAL ECONOMY...... 4
3.1 International Economic Outlook...... 4 3.2 Growth in Advanced Economies ...... 4 3.3 Emerging and Developing Economies...... 5 3.3 The Sub-Saharan Countries ...... 5
4.0 DEVELOPMENTS IN THE MALAWIAN ECONOMY ...... 7
4.1 Production ...... 7 4.1.1 Agriculture...... 7 4.1.2 Mining and Quarrying...... 8 4.1.3 Manufacturing ...... 8 4.1.4 Construction ...... 8 4.1.6 Financial and Insurance Services ...... 8 4.1.7 Accommodation and Food Services...... 9 4.1.8 Wholesale and Retail Trade ...... 9 4.1.9 Transportation and Storage Services...... 9 4.1.10 Electricity, Gas and Water...... 9 4.2 Domestic Consumer Inflation ...... 9 4.3 Balance of payments ...... 10 4.3.1 Current and Capital Account Balances ...... 10 4.3.2 Exchange Rate Movements...... 10 4.4 Money and Credit...... 11 4.4.1 Broad Money and its Components ...... 11 4.4.2 Counterparts to Broad Money ...... 11 4.4.3 Net Domestic Credit...... 11 4.4.6 Money Market ...... 14 4.4.6.3 Open Market Operations ...... 15 4.4.7 Capital Markets ...... 17
5.0 NATIONAL PAYMENT SYSTEMS ...... 18
5.1 Introduction……………...... 18 5.2 Operational Issues...... 18 5.3 Settlement System Developments and Projects ...... 19 5.3.1 Availability and Utilisation of MITASS...... 19
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5.3.2 Automated Transfer System (ATS) and Central Securities Depository (CSD) Project ...... 19 5.4 Retail System Developments and Projects...... 19 5.4.1 National Switch Project...... 19 5.4.2 Developments in Mobile Payment Systems...... 20 5.5 Other Supporting Initiatives to Enhance Financial Inclusion ...... 20 5.5.1 The FinScope Consumer Survey 2013...... 20 5.5.2 Baseline household survey on financial literacy and capability ...... 21 5.6 Oversight Issues...... 21 5.7 Integration with Cross Border Infrastructure ...... 21 5.8 Challenges ...... 22 5.9 Conclusion...... 23 6.0 SUPERVISION OF THE BANKING SYSTEM ...... 24
6.1 Ongoing Supervision ...... 24 6.2 Laws and Regulations...... 25 6.3 Licensing...... 26 6.4 Financial Stability and Stress Testing ...... 27 6.5 Risk Based Supervision and Basle II...... 27 6.6 Financial Inclusion Initiatives ...... 28 6.7 Consolidated Supervision...... 28 6.8 Deposit Insurance Scheme...... 28
SECTION TWO
7.0 ANNUAL FINANCIAL STATEMENTS 2013...... 29
DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES.29
BOARD OF DIRECTORS...... 31
INDEPENDENT AUDITORS’ REPORTTO THE SHAREHOLDER OF THE RESERVE BANK OF MALAWI ...... 34
BALANCE SHEETS...... 36
STATEMENTS OF CO MPREHENSIVE INCOME...... 38
STATEMENTS OF CHANGES IN NET AMOUNT ATTRIBUTABLE TO SHAREHOLDER...... 39
STATEMENT OF CASHFLOWS ...... 42
SECTION THREE 8.0 STATISTICAL ANNEX TABLES ……………………………………………….....121
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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 ...... 6
Table 4: Monetary Survey (K'mn) ...... 12
Table 5: Commercial Banks: Sources and Uses of Funds (K'mn)...... 13
Table 6: Reserve Bank of Malawi: Sources and Uses of Funds (K'mn)...... 14
Table 7: Banking System Liquidity ...... 15
Table 8: Open Market Operations...... 16
vii RBM Report and Accounts 2013
viii Report and Accounts 2013 RBM
SECTION ONE 1.0 OPERATIONS AND PERFOMANCE OF THE RESERVE BANK OF MALAWI 1.1 Staffing and Staff Complement In 2013, the Bank had a total workforce of 706 against 691 in 2012. The Bank had 20 exits in 2013 compared to 21 in 2012 due to the following reasons: deaths, expiry of contracts, resignations and terminations. . 1.2 Appointments The following appointments were made in 2013: Ms. Meg Kajiyanike was appointed Deputy Governor, Operations Mr George Kanyanda was appointed Director, Administrative Services Mr Mbane Ngwira was appointed Director, Governor’s Office Mrs Mercy Kumbatira was appointed Director, Banking and Currency Management Mr Hastings Mzoma was appointed Acting Director, Microfinance and Capital Markets
1.3 Capacity Building The Bank realizes that 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 2013. A total of 88 members of staff attended short- term training compared to 179 members of staff in 2012. In addition, the Bank conducted 3 in-house courses compared to 8 in-house courses in 2012.
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 2013 which is also the same number of the members of staff that benefited in 2012. In addition, one Head of Department attended the Management Development Programme offered by University of Cape Town.
On long-term training, the Bank awarded scholarships to Messrs John Kachale and Stanley Mphande to pursue postgraduate courses in the United Kingdom. In addition, the Bank granted paid study leave to Messrs Jimmy Kaunda, Kesale Nyirenda, Maleka Thula and Mrs Chisomo Kuyenda who were offered postgraduate scholarships by the African Capacity Building Foundation, Korea Development Institute (KDI) School Of Public Policy And Management and Williams College, respectively.
Messrs Herbert Kaipa, Jimmy Mwenye, George Nkosi, Elton Masibawo, Bruce Kasambara and Miss Annie-Marie Mambiya returned home after successfully completing their postgraduate studies.
1 RBM Report and Accounts 2013
2.0 IMPLEMENTATION OF MONETARY POLICY DURING THE YEAR 2013 2.1 Introduction
Monetary Policy in 2013 was geared towards containing inflationary pressures emanating from the volatility in the exchange rate and expansionary fiscal operations. The movement in the local currency followed the liberalisation of the exchange market in May 2012. The liberalised foreign exchange environment enabled the central bank maintain adequate international reserves during the last quarter of 2013 which is seasonally a lean period that concided with the suspension of general budget support. The Reserve Bank of Malawi therefore maintained the Bank rate and the Liquidity Reserve Requirement (LRR) at 25 percent and 15.5 percent, respectively, throughout the year in order to contain inflationary pressure arising from these developments.
2.2 Monetary policy instruments and implementation
The monetary policy framework remained that of monetary targeting, the operational target being the growth rate in reserve money. Specific targets from the supply side components of broad money supply were net domestic assets (NDA) and net foreign assets (NFA) of the Reserve Bank. The Monetary Policy Committee held 5 meetings all of which resolved to maintain tight monetary policy in view of prevailing high levels of inflation. The overall objective was to bring down inflation to single digits and gradually move towards the SADC macroeconomic convergence criteria of 5.0 percent inflation.
Throughout 2013 the Bank rate which was hiked to 25 percent in December 2012 was maintained at that level as an anchor to short term interest rates. The LRR also remained unchanged at 15.5 percent. Open Market Operations (OMO) and foreign exchange operations were used to contain monetary expansion and safeguard the country’s foreign exchange reserves.
2.3 Monetary policy assessment
Monetary policy was conducted in an economic environment characterised by improved availability of foreign exchange compared to the preceding year. Growth rebounded from 1.9 percent in 2012 to 6.1 percent in 2013, buttressed by the availability of foreign exchange and fuel. Mounting inflationary pressures pushed average headline inflation to 28.1 percent from an average of 21.3 percent in 2012. The surge in annual average inflation was largely attributed to the free floating exchange rate which saw the kwacha sharply depreciating during the lean period and also due to the relatively lower agricultural yield in 2013. The policy environment was complicated further by the suspension of donor inflows in the second half of the year.
Although average inflation surged in 2013 compared to 2012, annual inflation dropped from a peak of 37.9 percent in February 2013 to a low of 22.2 percent in October 2013. By December 2013 inflation was at 23.5 percent. Tight monetary policy stance coupled
2 Report and Accounts 2013 RBM with increased availability of food as well as an improvement in foreign exchange reserves which saw the kwacha appreciate between April 2013 and July 2013, are accredited for the drop in annual inflation.
2.4 Challenges
The suspension of donor inflows was the main challenge to implementation of monetary policy. Monetary policy was therefore focused on protecting the country’s official foreign exchange reserves at about two months of imports. In addition, declining food stocks towards the last quarter of 2013 compounded by distributional bottlenecks of food stuffs to deficit areas also brought about food inflationary pressures.
2.5 Conclusion
The Reserve Bank maintained a tight monetary policy stance in 2013. This coupled with favourable economic and fiscal developments were effective in containing inflationary pressures. Suspension of donor inflows during the last half of the year posed a challenge to the implementation of monetary policy and necessitated the adaptation of policy to safeguard the country’s foreign exchange reserves.
3 RBM Report and Accounts 2013
3.0 DEVELOPMENTS IN THE GLOBAL ECONOMY 3.1 International Economic Outlook According to the International Monetary Fund’s Wo rld Economic Outlook (WEO) for April 2014, the global growth slowed to 3.0 percent in 2013 from 3.2 percent in 2012. Global economic activity is expected to continue improving in 2014 and 2015. The gains are largely emanating from strong recovery in some advanced economies in spite of being uneven in some countries especially in the Eurozone. Growth in the Eurozone is two tier with strong performance among G7 member states. Global inflation is generally projected to be relatively low at about 3.0 percent up to 2015. Understandably, inflation in most advanced economies continues to undershoot their benchmarked inflation rates suggestive of large output gaps with second round effects being somewhat subdued long term expectations in the near term. The global inflation trajectory also is a reminiscence of the recent commodity price declines. It is worth mentioning that relatively weaker domestic demand augmented the global inflation trend. However, monetary policy is largely accommodative in advanced economies whilst fiscal policies are moderately loosening adjoining fiscal consolidation measures. Global growth is projected to edge up from 3.0 percent in 2013 to 3.6 percent and 3.9 percent in 2014 and 2015, respectively. Growth in emerging markets increased modestly whereas that of low income countries is projected to grow at a rate above 6 percent in 2014 and 2015. The down side risks to the world output are a possibility of protracted low growth and a slowdown in global trade volume growth but global current account imbalances have narrowed down. Capacity constraints still persist in most emerging markets. The foregoing entail a more favourable external demand for Malawi’s goods and services
Table 1: World Output: Annual Percentage Changes
2007 2008 2009 2010 2011 2012 2013 2014
World Output……………………. 5.3 2.7 -0.4 5.2 3.9 3.2 3.0 3.6 Advanced Economies…………… 2.7 0.1 -3.4 3.0 1.7 1.4 1.3 2.2 United States……………………. 1.8 -0.3 -2.8 2.5 1.8 2.8 1.9 2.8 Euro Area………………………. 3.0 0.4 -4.4 2.0 1.6 -0.7 -0.5 1.2 Japan……………………………. 2.2 -1.0 -5.5 4.7 -0.5 1.4 1.5 1.4 Sub-Saharan Africa……………………… 7.1 5.7 2.6 5.6 5.5 4.9 4.9 5.4 Developing Asia……………….. 11.5 7.3 7.7 9.7 7.9 6.7 6.5 6.7 Middle East and North Africa………………. 6.0 5.1 3.0 5.5 3.9 4.1 2.2 3.2 Source: I.M.F World Economic Outlook
3.2 Growth in Advanced Economies Growth in advanced economies rebounded by 1.3 percent in 2013 and is expected to strengthen further in 2014 and 2015. However, the relatively large output gaps point to the instability of economic recovery among advanced economies. The United States of America is projected to grow at a pace higher than its potential momentum in 2014 largely on account of relatively strong fundamentals for private domestic demand. It is expected that the USA economy will grow by 2.2 percent and 2.3 percent in 2014 and 2015, respectively. In the Euro area, a much stronger rebound in economic activity is projected to be registered in 2014 and 2015 with growth projected at 1.2 percent and 1.5 percent, respectively. Thus the euro area has finally emerged from recession. This
4 Report and Accounts 2013 RBM growth is largely spurred by that of Germany and France. Growth in the PIIGS1 is projected to a record a reasonable uptick. However, corporate debt overhand and banking sector weaknesses continue to weigh negatively on consumer confidence and demand in some parts of Europe. In the United Kingdom, relatively easier credit conditions have encouraged household spending. Hence growth is projected to rise to rise to 2.9 percent in 2014 from 1.8 percent in 2013. GDP growth is expected to moderate to 1.4 percent in Japan but growth is being dragged due to slow recovery in the export sector while the import demand remains relatively strong on account of energy imports. Monetary policy space is also somewhat limited. 3.3 Emerging and Developing Economies Emerging market economies continue to stage relatively stronger performance. Growth in BRICS2 remains strong with stimulus packages being implemented in China while India is enjoying relatively stronger global demand. Growth in India is projected to pick up to 5.4 percent in 2014 from 4.4 percent in 2013. China is projected to grow at 7.5 percent in 2014. In South Africa, growth is forecasted to rise moderately in 2015 largely driven by improvements in external demand as well as weakening of the South African rand in the last twelve months. However, industrial relations tensions in the mining sector are currently weighing in on real activity. The Asian tigers ar e also projected to grow strongly. Developing Asia’s growth is expected to be robust at 5.3 percent in 2014 supported by strong external demand and relatively weaker currencies.
Table 2: Percentage Changes in Terms of Trade
2006 2007 2008 2009 2010 2011 2012 2013 Advanced economies…………………...... -1.3 0.5 -2.4 4.0 -1.2 -1.8 -1.1 0.7 Other emerging and developing countries 3.4 0.5 3.3 -5.9 2.6 4.1 -0.2 -0.3 Middle East and North Africa...... 6.0 1.9 13.9 -18.3 12.4 14.8 0.5 -1.7 Sub-Saharan Africa...... 9.1 3.2 7.7 -12.2 10.5 8.5 -1.6 -1.8 Fuel exporters…………………………...... 9.2 2.8 15.7 -22.3 15.8 15.6 0.9 -1.9 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 Robust growth of 4.9 percent was attained in the Sub-Saharan Africa (SSA) region in 2013. Growth in the region is projected at 5.4 percent in 2014, and is evenly spread throughout the region particularly in low income and fragile states. In 2015, growth is projected to continue accelerating in the region on account of improved supply and a relatively improved global economic outlook. In Mozambique, growth is being spurred by maturing investments and is expected to remain above median growth for the region. Similarly, Zambia, Tanzania and Kenya are e xpected to stage an upper tier growth in the region. While world global growth is expected to pick up supported by both advanced and emerging market economies and overall commodity consumption is also expected to continue rising, demand growth rates for some primary commodities such as copper and iron ore are expected to moderate. This could adversely affect countries such as Zambia and Mozambique who have big investments in these minerals. Inflation is expected to
1 Portugal, Italy, Ireland, Greece and Spain 2 Brazil, Russia, India, China and South Africa 5 RBM Report and Accounts 2013 maintain its downward trend in the region whilst fiscal drag is taking toll due to increased expenditures on investments and wages.
Table 3: Percentage Changes in Real Output and Consumer prices in Developing Countries
Real GDP Consumer Prices 2010 2011 2012 2013 2010 2011 2012 2013 Middle East and North Africa……………. 5.5 3.9 4.1 2.2 6.5 9.3 10.5 10.5 Oil Importers ………………………….. Oil Exporters…………………………… 5.1 4.8 4.4 2.4 7.8 9.8 9.0 10.2 Sub-Sahara Africa……….……. 5.6 5.5 4.9 4.9 7.5 9.4 9.0 6.3 Emerging Asia……………………….…… 9.7 7.9 6.7 6.5 5.3 6.5 4.6 4.5 China……………………………………… 10.4 9.3 7.7 7.7 3.3 5.4 2.6 2.6 Source: I.M.F World Economic Outlook and Sub-Saharan Economic Outlook
6 Report and Accounts 2013 RBM
4.0 DEVELOPMENTS IN THE MALAWIAN ECONOMY 4.1 Production Revised national accounts estimates portray that Malawi’s Gross Domestic Product (GDP) grew by 6.1 percent in 2013, compared to a growth of 2.1 percent in 2012. The turnaround in economic performance is attributable to a marked improvement in fuel availability as well as increased access to foreign exchange for industries requiring imported raw materials and intermediate goods. In addition, agricultural output improved, particularly tobacco production which grew by over 100 percent and led to higher disposable incomes and improved domestic demand compared to 2012. Resultantly, wholesale and retail activity, information and communication services, transport, and storage services, manufacturing and construction industries experienced solid growth rates. However, real estate activity experienced slower growth than expected due to weakening of the kwacha which made housing high-priced. GDP growth for 2014 is projected at 6.3 percent.
4.1.1 Agriculture Growth in Agriculture activity was estimated at 5.9 percent in 2013 following a contraction of 0.7 percent in 2012. The expansion in agriculture was attributed to an increase of over 100 percent in tobacco production from 79.8 million kilograms to 168.7 million kilograms. In 2014, agricultural production is projected to grow by 6.1 percent and will be underpinned by solid output growth of maize, groundnuts, tobacco, cassava and sweet potatoes.
Tobacco Tobacco output for 2013 rose to 168.7 million kilograms from 79.8 million kilograms produced in 2012, representing an increase of 111.4 percent. The marked upturn in tobacco production was attributed to relatively good prices fetched in the 2012 tobacco marketing season that motivated farmers to increase tobacco production. Tobacco prices averaged US$2.15 per kilogram in the 2013 tobacco marketing season compared to US$2.23 per kilogram fetched in 2012. As a result total proceeds from tobacco sales amounted to US$361.7 million, 103.4 percent higher than US$177.8 million earned in 2012. Tobacco production for 2014 is projected to increase to 190 million kilograms.
Tea Tea production in 2013 rose by 9.6 percent to 46.5 million kilograms from 42.4 million kilograms produced in 2012. The relatively higher production is on account of favourable rainfall pattern conducive to tea farming. Notwithstanding this, production levels for tea are still considerably below a peak of 52.6 million kilograms attained in 2009 reflective of declining interest in the youth to engage in tea picking combined with the lack of new tea estates in the country as investors prefer to buy existing tea estates.
Sugar Sugar production in 2013 dropped to 293,528 tonnes in 2013 from 295,701 tonnes produced in 2012 representing a decline of 0.7 percent. This was due to comparatively lower rainfall in the sugar growing areas.
7 RBM Report and Accounts 2013
4.1.2 Mining and Quarrying Mining and quarrying activity grew by 7.6 percent in 2013 compared to a higher growth of 14.9 percent in 2013. Notwithstanding the fact that uranium prices have been tumbling on the global market ever since the nuclear reactor tragedy in Japan, uranium output grew by 19.4 percent in 2013. Coal production at Mchenga coal mine grew by 41.9 percent whereas growth rates for agricultural lime, gemstones and phosphates were revised downwards. The sector is projected to contract by 7.8 following the suspension of mining at the Kayerekela mine on account of the low international uranium prices.
4.1.3 Manufacturing The Manufacturing sector grew by 5.7 percent in 2013 compared to a decline of 1.1 percent in 2012. The improved performance is partly due to increased agricultural output that spurred agro-processing activity. Additionally, the re covery in manufacturing portrays significant improvements in access to foreign exchange and increased fuel supplies in 2013. Manufacturing activity is projected to expand by 5.5 percent in 2014.
4.1.4 Construction Construction activity expanded by 5.5 percent in 2013 compared to 2.5 percent growth recorded in 2012. The higher growth is explained by the recommencing of construction works that were put on hold in 2012 due to the acute scarcity of foreign exchange and fuel. Key construction projects in 2013 comprised the national stadium, the gateway shopping mall, two new housing estates in area 49 in Lilongwe, the Nacala-Tete railway line being constructed by Vale Logistics Company, road constructions across the country and private construction of residential houses in the major cities. In 2014, construction is expected to continue expanding and register a growth of 5.6 percent.
4.1.5 Information and Communication Activity in information and communication services grew by 7.6 percent in 2013, an increase from 6.7 percent growth recorded in the preceding year. The improved performance is attributed to increased access to mobile phones and internet services across the country. Information and communications services are projected to grow by 10.9 percent in 2014 due to an expected rise in advertising and awareness campaigns related to the May 2014 general elections
4.1.6 Financial and Insurance Services Financial and insurance services expanded by at 5.2 percent in 2013, compared to a growth of 6.1 percent growth in 2012. The sector benefited from increased foreign exchange transactions, high interest rates and other innovations. Nevertheless, an increase in non-performing loans negatively affected the industry. Insurance firms registered increased returns from insurance premiums but however this was somewhat counteracted by increasing incidences of spurious claims. The industry is expected to maintain a stable growth of 5.3 percent in 2014.
8 Report and Accounts 2013 RBM
4.1.7 Accommodation and Food Services The hospitality industry grew by 4.5 percent in 2013 from a 5.2 percent in 2012. The growth is explained by an improvement in utilization of hotels and resorts due to uninterrupted supply of fuel and improved economic activity. Demand for hospitality services is anticipated to shift upwards during the upcoming general elections period. As such, growth for 2014 is projected at 7.0 percent.
4.1.8 Wholesale and Retail Trade Wholesale and retail trade grew by 4.3 percent in 2013 from 2.2 percent in the previous year 2012. The better performance was attributable to an improved macroeconomic environment that characterised increased availability of foreign exchange, consistent fuel supplies and comparatively lower inflation. Wholesale and retail activity is expected to grow by 6.2 percent in 2014.
4.1.9 Transportation and Storage Services Transportation and storage services expanded by 5.6 percent in 2013 compared to 4.9 percent growth registered in 2012. The growth is due to an increase shipping of agricultural produce following an improved agricultural outturn as well as recovery of wholesale and retail activities. Rail transport registered a growth of 16.6 percent in freight and 10.0 percent in passenger volume. The sector is projected to expand by 5.2 percent in 2014 due to an anticipated commencement of haulage of coal and other goods by Vale Logistics company from Moatize through Malawi to Nacala.
4.1.10 Electricity, Gas and Water Activity in the utilities sector grew by 2.7 percent in 2013, compared to 2.4 percent growth rate in the preceding year. The growth largely arose from improved water production. Nevertheless, electricity production declined in 2013 due to the rehabilitation at Nkula B which affected supply during the first half of the year. In 2014, the sector is expected to grow by 8.3 percent with an anticipated expansion of water production as well as increased electricity output due to completion of the rehabilitation of the Kapichila II Power station that has added 50 megawatts to the national power network since end December 2013.
4.2 Domestic Consumer Inflation Inflationary pressures increased in 2013 as headline inflation averaged 28.1 percent compared to an annual average of 21.3 percent observed in 2012 and 7.6 percent in 2011. The considerable rise in inflation in 2013 was largely attributed to the effects of the adoption of a free floating exchange rate in May 2012 which resulted in high pass through effects into domestic prices. In addition, logistical bottlenecks in transporting maize to areas with major shortages drove maize prices up, albeit not as high as in 2012. As a result, food inflation averaged 23.4 percent in 2013 compared to an average of 18.8 percent in the previous year. The weakening of the kwacha against the US dollar resulted in costs of imported foods rising.
9 RBM Report and Accounts 2013
Non-food inflation in 2013 stood at an average of 32.4 percent compared to 23.6 percent in the preceding year. This was mainly the result of the weakening of the kwacha against currencies of its trading partners for a better part of the year that in turn resulted in price hikes in imported items. Further to this fuel and electricity prices were increased a number of times in 2013 and this had ripple effects to prices of other goods and services, considering that energy products are key to the economy. Looking ahead, food prices are expected to come down beyond March 2014 due to an anticipated bumper yield for maize and other major crops. Additionally, the exchange rate, which is the major inflationary factor for many components of non-food inflation, is envisaged to strengthen up to around August 2014 as the kwacha appears to be gravitating to its steady state after experiencing high volatility in 2012 and 2013. Further to this, expectations from the market are that inflation will decline after the harvest and continue to fall for four subsequent months as they are expecting a good crop and a relatively stable kwacha. Nevertheless, downside risks to inflation will emerge from expected increases in the electricity tariff and fuel pump prices, the latter due to rising international crude oil prices. Further risks to inflation are expected to arise from increased public expenditures related to the general elections in May 2014. Economic agents expressed concern of the impact of the Cashgate scandal and the donor aid freeze on fiscal operations. In view of the foregoing, inflation is expected to drop from 23.5percent recorded in December 2013 and fall within the range of 14 and 17 percent by end December 2014.
4.3 Balance of payments 4.3.1 Current and Capital Account Balances The country’s overall balance of payments (BOP) position, as measured by the change in net foreign assets of the banking system, is indicative of a surplus of K62.8 billion in 2013 from a surplus of K6.3 billion estimated in 2012.
The current account balance registered an estimated deficit of K447.3 billion in 2013 compared to a deficit of K208.9 in 2012. The increasing deficit was largely explained by worsening of the trade balance to K503.9 billion from K268.5 billion in 2012. The value of exports increased marginally to K554.8 billion from K345.6 billion in the preceding year. Imports were valued K1, 101.6 billion at end 2013 compared to K643.9 billion recorded in 2012.
The capital account registered K80.2 billion worth of inflows in 2013, compared to K89.6 billion inflows for 2012. These are predominantly government project grants from development partners. The financial account registered an estimated K42.3 billion net inflows in 2013, of which K26.8 billion was Foreign Direct Investment (FDI).
4.3.2 Exchange Rate Movements Malawi shifted from a fixed exchange rate to a free floating regime in May 2012. Typical of a floating regime, the Malawi kwacha was unstable against the US dollar during 2013. It traded at a low of K329.15 per US dollar at end May 2013 and a high of K435.23 per US dollar at end December 2013 compared to K335.13 per dollar at end
10 Report and Accounts 2013 RBM
December 2012. The strengthening of the kwacha in May 2013 was on account of increased supply of foreign exchange from tobacco sales whilst withholding of donor aid exacerbated the shortage of foreign exchange during the last quarter of 2013. Similarly, the kwacha weakened against the British pound, euro, and rand by 32.5 percent, 35.6 percent and 5.7 percent to trade at K718.17 per pound, K600.66 per euro and K41.76 at end 2013. 4.4 Money and Credit 4.4.1 Broad Money and its Components During the year 2013, developments in the economy led to creation of K135.5 billion broad money (M2) liabilities, bringing the annual M2 growth to 35.1 percent in 2013 against 25.4 percent recorded in 2012. This growth in M2 to K522.0 billion at the end of 2013 was supported by inflows into all deposit liabilities, which mirrored effectiveness of aggressive deposit mobilisation campaigns by the banks during the period. The accumulation of deposits was more pronounced in foreign currency denominated (FCD) deposits that grew by K69.2 billion following largely receipts of multinationals from their parent companies, in addition to donor project funds. Demand deposits and term (time and savings) deposits also recorded increases of K26.9 billion and K18.8 billion, respectively, whereas currency in circulation rose by K20.6 billion. 4.4.2 Counterparts to Broad Money On the counterparts, the K135.5 billion growth in M2 reflected developments in both the external and domestic sectors. In the external sector, for instance, the FCD inflows mentioned above boosted commercial banks’ net foreign assets (NFA) which grew by K41.1 billion during the period. Similarly, the central bank’s NFA rose by K62.8 billion in 2013 mainly due to foreign exchange purchases from donor-supported projects that were enhanced by reduced liabilities. Resultantly, the banking system’s total NFA recorded an annual increase of K103.9 billion to K134.2 billion in 2013, hence contributing 26.9 percentage points to the M2 growth, which compares to a contribution of 3.7 percentage points registered in 2012.
From the domestic sector, the growth in M2 was underpinned by demand for financing by institutional units, particularly, government and the private sector, which resulted in a K72.5 billion rise in net domestic credit in 2013. In contrast, unclassified assets (net) of the banking system contracted by K40.8 billion, leading to a net increase in net domestic assets of K31.7 billion to K387.7 billion in 2013 from K356.1 billion in 2012. 4.4.3 Net Domestic Credit 4.4.3.1 Net Credit to Central Government Towards the end of 2013 development partners suspended their pledged general budgetary support to the Malawi Government, awaiting results of some on-going investigations in the public service. In order to meet some of its outstanding obligations, government had to increase its recourse to domestic financing leading to net borrowing from the banking system growing by K42.4 billion to K184.1 billion at the end of 2013. Of the total borrowed funds, K14.6 billion was sourced from the central bank mainly through uptake of K77.7 billion Ways and Means advances. The fiscal position worsened further due to a K28.5 billion promissory note that was issued to cover the losses incurred by the Reserve Bank (RBM) as a result of the May 2012 kwacha devaluation and its subsequent faster than anticipated depreciation. The foregoing
11 RBM Report and Accounts 2013 expansionary effects were partly offset by a K30.3 billion decrease in RBM holdings of OMO Treasury bills, maturity of K2.0 billion Treasury notes and accumulation of K61.1 billion deposits following receipt of donor project funds, the bulk of which were for activities of Health SWAp and the Agriculture SWAp. Concurrently, commercial banks’ net claims on the central government grew by K27.9 billion in 2013. The increase was attributed to issuance of K30.5 billion Treasury bills, which were partly offset by maturity of K1.9 billion Treasury notes and accumulation of K675.3 million deposits.
4.4.3.2 Private Sector Credit By end-December 2013, the kwacha had depreciated by 29.8 percent compared to the end-December 2012 exchange rate of K335.1267 per US dollar. This and other factors such as the prevailing high lending rates raised the stock of private sector borrowing from the banking system by K31.6 billion to K250.4 billion at the end of 2013 from K218.9 billion in 2012. In terms of sectoral distribution, foreign currency denominated loans increased by K16.2 billion, whereas agricultural sector and commercial and industrial sector loans grew by K12.9 billion and K7.2 billion, respectively. Loans extended to the real estate sector rose marginally by K952.4 million during the year under review. Meanwhile, the banking system recovered K6.0 billion of its outstanding claims on the individuals and households sector during the year 2013.
Table 4: Monetary Survey (K'mn)
End Period Balances Changes During Period 2010 2011 2012 2013 2010 2011 2012 2013 A. Net domestic Credit 1. Credit to government (i+ii)……… 90,582.2 140,693.2 140,609.6 184,117.0 -21,855.9 45660.6 -83.6 42,441.9 i. Monetary Authorities……….. 72,514.6 143,634.5 139,568.1 126,057.6 13,230.9 30,414.1 7,512.2 14,551.2 ii. Commercial Banks………….. 18,067.7 37,764.6 30,168.7 58,059.4 -7,185.2 15,246.5 -7,595.9 27,890.7 2. Credit to statutory bodies………… 4,662.4 20024.0 19,069.5 17,839.8 -1577.0 15,361.7 -666.6 -1,517.7 3. Credit to private sector (gross)….. 121,632.5 174,538.0 218,866.4 250,445.7 26,588.9 29695.5 44,328.5 31,579.2 B. Narrow Money (M1) 102,112.2 163,962.2 222,365.1 201,052.6 20,211.9 38,768.9 58,402.9 47,535.0 4. Currency outside banks……….… 31,848.3 42,251.0 55,377.5 76,000.1 4,355.2 11,588.0 13,126.5 20,622.6 5. Private sector demand deposits…. 70,263.9 121,711.2 166,987.6 125,052.6 15,856.7 27,180.9 45,276.4 26,912.4 C. Quasi-money…………………….. 101,785.8 150,368.5 164,070.6 320,909.9 10,632.7 43,851.2 13,702.0 87,991.9 D. Money Supply (M2)1 (B+C)…….. 203,898.0 314,330.7 386,435.6 521,962.5 30,847.6 82,620.0 72,104.9 135,526.9 E. Net Foreign Assets 20,376.8 2,589.9 31,406.4 134,234.1 22,419.9 -18,381.6 28,816.6 103,853.3 6. Monetary Authorities……………. 8,076.1 -8,840.4 -19,957.7 41,819.0 17,520.5 -16,916.5 -11,117.3 62,802.2 7. Commercial banks……………….. 12,300.7 11,430.2 51,364.1 92,415.1 4899.4 -1,465.2 39,933.8 41,051.1 Source: Reserve Bank of Malawi 1Time, savings and foreign currency deposits of the private sector with commercial banks Note: From December 2001, monetary survey encompasses data on the central bank and four commercial banks: National Bank, Stanbic Bank, Finance Bank (Malawi) Limited and First Merchant Bank (Malawi) Limited. But from January 2006, Finance Bank (Malawi) Limited was excluded.
4.4.4 Activities of the Commercial Banks The resource envelope of the commercial banks expanded by K157.8 billion to K634.0 billion in 2013, from K478.2 billion in 2012. The source of this growth was domestically generated resources, the bulk of which were private sector deposits that amounted to K107.6 billion, reflecting aggressive deposits mobilisation campaigns by banks. Commercial banks’ capital account further contributed K30.8 billion to the accumulated resources owing to profit and retained earnings realised by the banks during the period. These were complemented by accumulation of K8.0 billion official sector deposits, and K13.9 billion unclassified liabilities that reflected largely borrowed funds. Meanwhile,
12 Report and Accounts 2013 RBM
commercial banks reduced their outstanding liabilities to non-residents by K2.5 billion during the year under review. In terms of utilisation, commercial banks invested K38.5 billion of the resources in foreign banks as fixed-term deposit placements. Further, K31.6 billion was used to extend credit to the private sector, whereas K28.6 billion was lent to the central government. Commercial banks also increased their deposits with RBM which together with till money accounted for K38.5 billion of the generated resources. Further, commercial banks allocated K25.5 billion of the resources to unclassified assets, which largely comprised fixed assets and interbank investments. Meanwhile, commercial banks lending to the state-owned enterprises dropped by K1.5 billion in 2013.
Table 5: Commercial Banks: Sources and Uses of Funds (K'mn)
End Period Balances Changes during period 2010 2011 2012 2013 2010 2011 2012 2013 A Sources of Funds Private sector…………………… 167980.8 266,686.2 323,556.6 431,134.7 26,108.6 70,921.7 56,870.4 107,578.1 1. Official Sector Deposits1 …. 10,113.5 12,039.4 14,303.8 22,305.2 2,644.8 -818.3 2,264.4 8,001.5 2. Borrowing from the RBM ------3. Foreign Borrowing………… 1,577.6 6,039.6 15,508.0 12,961.0 -2,389 4,444.6 9,468.5 -2547.1 4. Capital Accounts…………….. 39,908.2 54,911.6 69,719.7 100,512.1 7,150.8 9,752.7 14,808.1 30,792.3 5. All other liabilities2 ………….. 25,586.9 33,354.3 55,128.3 69,059.3 6,404.3 2,583.3 21,774.0 13,931.0 6. Total (1+2+3+4+5)………….. 245,166.9 373,031.1 478,216.4 635,972.3 39,919.2 86,884.0 105,185.4 157,755.9 B. Uses of Funds I. Domestic credit to: 7. Private sector gross)………… 121,632.5 174,538.0 218,866.4 250,445.7 26,588.9 29,695.5 44,328.5 31,579.2 8. Statutory bodies (gross)…… 3,963.3 20,024.0 19,357.4 65,537.0 -1,297.9 16,060.7 -666.6 28,566.0 9. Central Government (gross) 24112.3 44,410.4 36,970.9 17,839.8 -4,924.2 14,317.9 -7,439.5 -1,517.7 10. Sub-total (7+8+9+10)……… 149,708.2 238,972.5 275,194.8 333,822.4 20,366.7 60,074.0 36,222.3 58,627.6 II. Deposits with Reserve Bank plus currency in banks……………... 21,849.6 37,280.8 42,000.5 77,081.8 1,229.2 13,270.9 4,719.7 35,081.3
III. Foreign assets………………… 13,878.3 17,469.8 66,872.0 105,376.1 2,510.1 2,970.4 49,402.3 38,504.0 IV. All other assets 2 ……………… 59,730.9 79,308.0 94,149.1 119,692.1 15,813.1 10,559.6 14,841.1 25,543.0 V. Total (I+II+III+IV)…………… 245,166.9 373,031.1 478,216.4 635,972.3 39,919.2 86,884.0 105,185.4 157,755.9 Source: Reserve Bank of Malawi 1Statutory bodies and local authorities 2Including inter-bank accounts
4.4.5 Reserve Bank of Malawi: Sources and Uses of Funds In tandem with developments at the commercial banks, the resource base of the Reserve Bank of Malawi increased by K181.5 billion to K435.0 billion in 2013. This growth reflected accumulation of K61.1 billion official sector deposits owing to receipt of donor funding mainly for the activities of Health SWAp and the Agriculture SWAp; commercial banks deposits amounting to K23.1 billion, and K36.7 billion liabilities to non-residents. Unclassified liabilities grew by K40.0 billion in 2013, which reflected largely RBM’s income losses from the depreciation of the kwacha. Currency in circulation constituted K20.6 billion of resources generated by the RBM. With regard to usage, the bulk of RBM’s resources, amounting to K99.5 billion, were invested in banks abroad as term deposits placements. The Bank further used K75.7 billion of the resources to extend credit to the central government, whereas unclassified assets drained K6.3 billion of the resources.
13 RBM Report and Accounts 2013
Table 6: Reserve Bank of Malawi: Sources and Uses of Funds (K'mn)
End period balance Changes during period 2012 2013 2012 2013 1st half 2nd half Year 1st half 2nd half Year A. Sources of Funds i. Private sector: 55,377.5 76,000.1 19272.9 -6146.4 13,126.5 30,302.6 -9680.0 20622.6 1. Currency outside banks………… 55,377.5 76,000.1 19272.9 -6146.4 13,126.5 30,302.6 -9680.0 20622.6 ii. Official sector deposits: 28,061.6 89,180.0 -12158.8 14.3 -12,144.6 29970.5 31147.9 61118.4 2. Statutory bodies………………… - - 3. Central Government……………. 28,061.6 89,180.0 -12158.8 14.3 -12,144.6 29970.5 31147.9 61118.4 4. Sub-total (1+2+3)….…………… 141,260.4 246,079.4 16019.7 11814.7 28,834.4 43341.6 61477.4 104819.0 iii. Banks: 5. Currency in banks………………. 15,636.0 19,325.5 411.6 3973.0 4,384.6 -1930.2 -15636.0 3689.5 6. Deposits in Reserve Bank………. 42,185.2 57,756.3 8494.0 13973.9 22,467.8 -1417.0 -26364.4 31,391.8 7. Capital reserves and all other liabilities1 ……………… 16,399.3 56,357.9 -6229.8 -20662.7 -26,892.6 43,667.7 -3709.1 39,958.6 8. Foreign Liabilities 95,876.0 132568.0 25988.9 29396.8 55,384.7 5547.5 31,144.6 36,692.1 iv. Total (4+5+6+7+8) ……………. 253,535.6 435,005.3 35778.8 20549.7 56,326.5 92,556.8 88,912.9 181,469.7 B. Uses of Funds i. Domestic credit (gross):…………. 139,569.2 215,238.8 41440.3 4506.8 -4,066.5 35,533.8 40,135.8 75,669.6 1. Statutory bodies……………….. - 0.0 0.0 - 2. Central Government2 ………….. 139,568.1 215,237.6 21531.6 -25598.1 -4,066.5 29,159.2 46,510.3 75,669.6 3. Commercial Banks…………….. 1.2 1.2 19908.7 19908.7 0.0 6374.5 -6374.5 0.0 ii. Foreign assets (gross)…………….. 74,852.8 174,387.0 -8578.7 52280.3 43,701.5 76,024.1 23,470.1 99,494.3 iii. All other uses…………………….. 39,113.5 45,379.5 2917.2 13774.2 16,691.4 -19,001.1 25,307.0 6,305.9 iv. Total………………………….… 253,535.6 435,005.3 3577 8.8 20547.7 56,326.5 92,556.8 88,912.9 181,469.7 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 Subscriptions to Treasury bills auctions conducted during the year amounted to K294.69 billion compared to a volume of K141.77 billion registered in 2012, representing a year- on-year increase of 107.86 percent. This significant improvement in 2013 was indicative of a fully adjusted financial system to the policy decisions of the previous year that saw 2012 characterised by acute shortage of liquidity in the banking system. During the year, a total of K288.04 billion worth of Treasury Bills were issued of which K153.33 billion was issued on the primary market and K134.70 billion through conversions of Ways and Means advances. This issuance compares with a sum of K191.20 billion issued in 2012 which consisted of K73.83 billion issued through weekly auctions while K117.37 billion through Ways and Means conversion. Maturities totaled K219.82 billion during the review period compared to total maturities of K213.22 billion recorded in the preceding year. Accordingly, in 2013 there was a net issuance of K68.22 billion of Treasury bills which pushed the year’s closing stock position to K228.06 billion.
4.4.6.1 Government Securities Market Average yields rose across all tenors in 2013. The 91, 182 and 364 day tenors averaged 28.39, 30.94 and 33.52 percent after gaining 14.14, 15.08 and 15.90 percentage points, respectively. This compares with respective average yields of 14.25 percent, 15.86 and 17.62 percent registered in the previous year. Overall the all type yield in 2013 averaged 31.28 percent in comparison to an average of 15.91 percent in 2013. High yields were recorded during the first half and last quarter of 2013. High yields in the first half were carryovers from effects of liquidity squeeze of 2012 while the high yields of last quarter were due to mismanagement of government finances which resulted in withholding and/or withdrawal of donor funding. This increased market sentiments that government would resort to domestic borrowing to finance its operations.
14 Report and Accounts 2013 RBM
4.4.6.2 Inter-Bank Money Market Monetary authorities systematically pursued a contractionary monetary policy during 2013 in a bid to counter inflationary pressure that persisted throughout the year while helping the banking system to recover from structural liquidity problems experienced during 2012. In effect, the liquidity situation stabilized and remained fairly tight during most part of the year. Consequently, the weighted average interbank market rate remained relatively high close to the bank rate and stood at 25.23 percent as at 31st December 2013.
Table 7: Banking System Liquidity
(K’bn)) 2007 2008 2009 2010 2011 2012 2013 Daily Average Total Reserves 11.39 15.50 21.03 23.49 33.43 40.20 44.02 Daily Average Required Reserves 9.33 13.29 18.97 22.64 26.90 33.97 39.10 Daily Average Excess Reserves 2.06 2.22 2.06 0.89 6.52 6.24 4.92 Daily Average Inter-bank Borrowing 0.79 1.43 2.74 2.48 2.10 2.79 3.04 Daily Average Discount Window Trading 1.30 1.49 1.19 2.28 0.41 10.28 3.55
Inter-bank Market Rate (End Period) 9.40 8.11 8.45 10.58 7.05 26.45 25.23 4.4.6.3 Open Market Operations Government expenditure considerably increased during 2013 following the implementation of the approved 2013/14 fiscal framework. Government revenue collections and net issuance of treasury bills partly sterilized the injections resulting into a net injection of about K77 billion into the banking system. Further injection of about K34 billion was recorded on account of purchases of foreign exchange from the market as the monetary authorities enhanced efforts to build reserves. Overall, K103.8 billion was injected into the banking system.
15 RBM Report and Accounts 2013
Table 8: Open Market Operations
(K’bn) (Net operations supplying 2007 2008 2009 2010 2011 2012 2013 liquidity +) Net Government Operations (+=injection) -2.96 42.74 58.33 37.84 11.33 73.00 76.89 Government deficit excluding grants 0.70 31.22 36.48 -10.42 14.05 57.39 106.95 Revenue 140.95 170.91 224.43 328.09 254.81 298.81 381.56 MRA 89.15 107.58 142.52 225.87 198.54 225.60 337.65 Other, not including grants 51.80 63.33 81.91 102.21 56.27 73.21 43.91 Expenditure 141.65 202.13 260.91 317.67 268.86 356.20 488.51 Net Government Domestic Borrowing -3.66 11.52 21.85 48.25 -2.72 15.61 -30.06 TB issues 101.78 121.35 142.81 107.28 99.28 77.96 128.23 TB maturity 98.12 132.87 164.66 155.53 96.55 93.57 98.17 Net Forex Operations -16.74 -40.14 -66.70 -48.56 -10.71 -75.32 33.57 Sales 32.81 83.45 124.69 60.38 63.97 105.53 110.36 Purchases 16.07 43.31 57.99 11.82 53.26 30.21 143.92 Net OMO -5.25 -11.04 35.73 22.57 5.86 19.29 -6.64 Injections 188.57 253.65 316.60 672.93 66.52 2,662.60 1,044.34 RBM bill maturities 7.79 22.61 3.74 0.00 0.00 0.00 0.00 Maturity of 3-YR RBM bond 0.00 0.00 0.00 0.00 5.33 0.00 0.21 Purchase of securities 0.00 4.98 6.08 3.83 1.95 26.77 34.46 Maturity of OMO T-bills 0.00 0.00 0.00 0.00 7.63 0.00 21.60 Discount window accommodation 145.72 113.83 200.67 601.81 16.74 2,617.32 874.12 Repo maturities 35.06 112.23 106.11 67.30 34.87 18.51 97.37 Withdrawals 193.82 264.69 280.87 650.36 60.66 2,643.31 1,050.98 RBM bill issues 9.20 22.72 0.00 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 0.00 Issue of RBM Bond 0.00 4.27 0.00 0.00 4.24 0.00 0.00 Sale of securities 0.00 0.00 0.00 2.99 7.03 43.31 69.08 Maturing Discount window 145.51 112.58 198.16 589.12 16.79 2,585.09 884.03 accommodation Repos 39.11 120.81 82.71 58.25 32.60 14.91 97.86 Net Operations -24.95 -8.44 27.36 11.85 6.47 16.97 103.82
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4.4.7 Capital Markets 4.4.7.1 Primary Share Market There was no new stock listed on the local bourse in 2013. The number of counters on the Malawi Stock Exchange remained at fourteen (14).
4.4.7.2 Secondary Share Market During the year the market was bullish. It registered a return on investment of 108.3 percent compared to 12.0 percent registered in 2012 with an increase in both traded volume and value. In US Dollar terms, the market registered a return on investment of 97.3 percent in 2013 compared to negative 44.3 percent registered in 2012. A total of 4.4 billion shares valued at K13, 321.0 million (US$34.6 million) were transacted in 1,264 deals compared to 667.1 million shares valued at K4, 000.0 million (US$16.2 million) in 1,004 deals in the preceding year.
The Malawi All Share Index (MASI) closed off 6,515.53 points higher at 12,531.04 points from 6,015.51 points recorded at the opening of the review period representing a year on year increase of 108.3 percent. During the same period in the corresponding year, the MASI closed off at 5,369.42 points.
The increase in MASI is attributed to a rise in both the Domestic Share Index (DSI) and the Foreign Share Index (FSI). The DSI closed higher from 4,725.51 to 9,850.19 points representing a year on year increase of 108.4 percent while the FSI registered a 100.0 percent increase from 854.67 points to 1,709.34 points during the review period. The upward movement in all the indicators is on account of share price gains across twelve (12) listed stocks out of a total of fourteen (14) for a summary of share price movements).
Market capitalization grew by 101.6 percent and closed off at K7, 179.9 billion compared to K3, 562.3 billion recorded in the preceding year due to price increases. In the corresponding year, market capitalisation stood at K2, 681.0 billion.
17 RBM Report and Accounts 2013
5.0 NATIONAL PAYMENT SYSTEMS 5.1 Introduction In 2013, the Reserve Bank of Malawi (RBM) was engaged in a number of activities to ensure that the National Payment System (NPS) is safe and efficient. This was done with the continued support from the National Payments Council (NPC), the Bankers Association of Malawi (BAM), World Bank, Government of Malawi and other stakeholders for the successful implementation of the NPS projects and activities.
Key activities during the period under review included commencement of the implementation of the Automated Transfer System (ATS), Central Securities Depository (CSD) and the National Switch projects, issuing a no objection to the second mobile payment company, going live in the COMESA Regional Payment and Settlement System (REPSS), completion of the NPS Draft Bill and on-site oversight activities.
5.2 Operational Issues The RBM continued to publish various reports aimed at information dissemination to stakeholders regarding developments in national payments reform activities. 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 2013 and the Annual National Payments System Report for 2012 was published in August 2013. Additional activities included contributions to various issues of Financial Stability Reports for 2013 and RBM Reports and Accounts 2012.
In April 2013, the RBM in conjunction with COMESA Secretariat conducted a COMESA Regional Payments and Settlement System (REPSS) implementation workshop in Blantyre for all commercial banks. The workshop was aimed at providing an overview of the system and its benefits which include among others; speeding up overall payment process, efficient liquidity management and reducing transaction costs. In July 2013, the RBM conducted a workshop at RBM Blantyre Branch for all commercial banks that submit payment systems data to the RBM. The workshop’s objective was to promote accuracy in data compilation by reviewing the template used for data collection.
The RBM seeks to promote usage of electronic payment systems to achieve the financial inclusion agenda. In the reporting period, the RBM conducted a Financial Literacy week at COMESA Hall in Blantyre from 9th to 13th December 2013. During the event, the National Payments System Department (NPSD) promoted awareness of the payment systems products and services offered by the various parties to the general public.
18 Report and Accounts 2013 RBM
5.3 Settlement System Developments and Projects 5.3.1 Availability and Utilisation of MITASS3 Overall MITASS availability for the period under review was 99.8%, against the targeted uptime of 96%. This represents a 2.2 percentage increase from the rate recorded in 2012 (i.e. 96%). The increase was mainly attributable to improvements in MALSWITCH4 operations due to service level agreements (SLAs) review meetings between the RBM and MALSWITCH which were intensified during the period. However, the industry’s average funds settlements instructions (FSIs) contribution to throughput stood at 74.7 percent which was just below the minimum requirement of 75 percent, compared to 80.8 percent during the previous period. This implies that most payments by commercial banks were done through high value cheques. This posed a settlement risk to the system since, unlike FSIs, cheques are not settled in real time.
5.3.2 Automated Transfer System (ATS) an d Central Securities Depository (CSD) Project5 During the year, the banking community led by RBM made tangible progress in the implementation of the ATS and CSD Projec ts which are being funded by the World Bank under the Financial Sector Technical Assistance Pr ogram (FSTAP). The ATS will replace the current RTGS and ECCH systems. The CSD, which will be integrated with the ATS, will be the first au tomated securities clearing and settlement system in the country. Apart from RBM and commercial banks, the ATS and CSD will also connect the Malawi Revenue Authority (MRA) and Ministry of Finance (MoF) as direct participants but with limited functionality. The National Switch will also be linked to the ATS for settlement of ATM and POS transactions. In 2013, the ATS and CSD project successfu lly completed key milestones. These were the Initial Study, involving requirements gathering and Initial Report, paving the way for the project to enter into the design phase. Similarly, contract negotiations with Montran Corporation, which is the selected supplier of the ATS and CSD, and project signing-off, were also completed. Actual implementation of the project is expected to commence early 2014. The ATS is expected to go live by December 2014
5.4 Retail System Developments and Projects 5.4.1 National Switch Project6 The National Switch Project is also one of the World Bank funded projects under FSTAP. The switch, which w ill be owned and operated by commercial banks, will be rolled out in phases. The first phase will involve attaining interoperability of auto-teller machines (ATMs) and point of sale (POS) devices currently owned and operated by
3 The Malawi Interbank Transfers and Settlement System (MITASS) is the country’s RTGS system, owned and operated by RBM 4 Technical management of MITASS is outsourced to the Malawi Switch Centre (MALSWITCH) 5 For a brief background and functionalities of the ATS and CSD read RBM Report and Accounts 2012. 6 For the background and functions of the Switch read RBM Report and Accounts 2012
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different institutions in the country. The second phase of the project will involve rolling out of switching services to support internet and mobile banking, international payment cards (such as Visa and MasterCard) and microfinance transactions. By December 2013, contract negotiations and design for the switch, which will be supplied by Banking Production Centre (BPC) in partnership with a local company, Business Computer Solutions (BCS), had been finalised. Procurement and installation of hardware had also been successfully completed. The National Switch is expected to be rolled out by December 2014. 5.4.2 Developments in Mobile Payment Systems The year in review saw the launch of the second telco-led mobile payment solution in the country, called TNM Mpamba, being operated by Telekom Networks Malawi Limited. The service was launched in May 2013 and there has since been a remarkable uptake of mobile money service both in transaction volume and value. The total number of registered subscribers for mobile payments services also increased significantly. This was attributed to continued popularity of utility bill payment services and other marketing promotions offered by the two mobile payment services.
The above development, shows that Mobile Networks Operators (MNO)-led mobile payments services have grown at a very significant rate, in fact at a much faster rate than the mobile banking services offered by the commercial banks, in terms of both transactions (volumes and value) and number of subscribers. This development confirms the potential for MNO-led mobiles financial services as a significant tool in the financial inclusion agenda, as they cater to a wider section of the population including the unbanked.
Another crucial lesson from the developments above is the positive effect of competition on the overall growth of the industry. The industry experienced significant growth after RBM approved the second mobile payment service. The presence of more players in the industry would therefore be beneficial to the industry both in the short and long term.
5.5 Other Supporting Initiatives to Enhance Financial Inclusion 5.5.1 The FinScope Consumer Survey 2013 The FinScope Survey is a survey of how individuals source their income and manage their financial lives and the attitudes and perceptions regarding financial products and services. The survey was developed by FinMark Trust and so far it has been conducted in 16 countries. It was first conducted in Malawi in 2008. The Government of Malawi, through the technical and financial assistance from FinMark Trust, conducted its second survey called the FinScope 2013 Survey in December 2013, the results of which are expected in April 2014. The results of the survey are expected to lead to effective public and private sector interventions that will increase and deepen financial inclusion strategies.
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The Reserve Bank participated in preparation of this survey through its representation in the Financial Inclusion Subsector Technical Working Group, which draws membership from a cross-section of key stakeholders in financial inclusion.
5.5.2 Baseline household survey on financial literacy and capability Most Malawians lack necessary knowledge and financial skills to effectively manage their income. This explains why most people are reluctant to participate in the financial sector through savings, accessing credit and other financial facilities. Uptake of financial services depends on awareness, knowledge and financial capability so that both existing and prospective financial consumers are able to make informed decisions and know their rights and obligations.
In view of the above, the Reserve Bank, with funding from FSTAP, engaged a consultant to carry out a baseline household survey on financial literacy and capability. The survey will assist authorities to design appropriate interventions and to increase the level of financial literacy. The baseline analysis will also help to outline policy priorities.
5.6 Oversight Issues During the period under review, the RBM assessed compliance to the regulatory requirements of participants in the critical payment systems i.e. MITASS and ECCH. In this respect, the RBM carried out bilateral on-site oversight visits to the premises of participants in these systems in April 2013. These included 12 commercial banks and 1 discount house. During the meetings, participants’ compliance to system rules and procedures and performance for the year was discussed. RBM accordingly provided recommendations to improve performance where necessary.
On-site inspection was also carried out to the premises of Airtel Mobile money Commerce Limited and TNM Mpamba in November 2013. The inspection included tracking Trust Account movements which the MNOs hold with the various commercial banks in support of the mobile money services since inception. All MNOs were accordingly urged to implement recommendations based on the RBM findings.
5.7 Integration with Cross Border Infrastructure SADC Integrated Regional Electronic Settlement System (SIRESS) The pilot phase of the SIRESS Project was carried out in 2013 and involved countries in the Common Monetary Area (CMA), these included South Africa, Namibia, Lesotho and Swaziland.
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During the year, Malawi has been preparing for the implementation of the second phase of the SIRESS Project as most commercial banks in the country had successfully conducted integration tests in readiness for connectivity to SIRESS. As such, Malawi was among the three non-CMA countries in SADC (others being Tanzania and Zimbabwe) earmarked to join SIRESS during Phase II of implementation scheduled for the first quarter of 2014.
COMESA Regional Payment and Settlement System (REPSS) Malawi went live in the REPSS on 19th November 2013. This made Malawi the fourth country, after Mauritius, Rwanda and Swaziland, to get connected to REPSS. The system is expected to improve regional trade and investment for COMESA member states as more countries are expected to get connected to the system in 2014. This follows a decision made by the Council of Ministers during the 32nd COMESA meeting held in Kinshasa, DRC, requiring all COMESA member states to settle all trade transactions in the region through REPSS.
5.8 Challenges Inadequate legal framework in the oversight of the national payments system remains one major challenge facing the RBM. However, in collaboration with stakeholders, the RBM will work towards tabling the Bill in the year 2014. The proposed Payment Systems Bill will provide clarity, transparency and more authority to the RBM necessary to carry out its oversight function over the payment systems including the mobile money service. Meanwhile, the RBM will finalise the drafting process of the E-money Regulations in addition to carrying out its routine oversight activities.
Efforts to expand access to financial services through innovative interventions and consumer education face many challenges but the most important and immediate one is lack of a national ID system. Work already underway in this regard needs to be expedited. In addition, lack of key infrastructural support in most rural areas, such as good road network, utilities and information communication technology platform continued to hamper the financial inclusion agenda.
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5.9 Conclusion The usual collaboration between the RBM and relevant stakeholders was key to the success of several National Payments Infrastructure reforms during the period under review. Tremendous progress was made in the implementation of the ATS, CSD and National Switch projects. In addition there was progress in retail payments initiatives, financial inclusion activities and completion of the NPS Draft Bill.
NPS information dissemination is done through, among others, publication of annual reports on RBM website www.rbm.mw, SADC website and relevant chapters in the Reserve Bank Annual Reports and Accounts and Financial Stability reports.
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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 2012.
6.1 Ongoing 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 2013, 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.
Based on the Risk Based Supervision methodology, the Department conducted four full scope prudential on-site examinations of Opportunity Bank of Malawi, Nedbank, CDH Investment Bank and National Bank. The department furthermore, conducted four tripartite meetings with Leasing and Finance Company, FDH Bank, Indebank and NBS Bank as a follow up on prudential issues noted in offsite surveillance.
Six Anti Money Laundering/ Combating Financial Terrorism (AML/CFT) full scope on- site examinations were conducted at Leasing and Finance Company, Stockbrokers Malawi Limited, National Bank of Malawi, African Alliance Securities Malawi Limited, NBS Bank and NICO Life Insurance Company. The examination of National Bank of Malawi and NICO Life Insurance Ltd were jointly conducted by the Reserve Bank of Malawi and the Financial Intelligence Unit following the resolution between the two parties. Although the institutions have made positive strides to comply with most of the AML/CFT requirements, they are yet to carry out a comprehensive AML/CFT risk assessment of customers, services, delivery methods and geographic locations. Further, the institutions are yet to automate monitoring systems. They are also required to improve their training programs to include specialized training for various categories of staff. In addition, they need to enhance Customer Due Diligence (CDD) to be deemed fully compliant with AML/CFT requirements. Further, during the year, the department in collaboration with Financial Intelligence Unit with technical support from World Bank (FSTAP) commenced the review of the Money Laundering & financing of Terrorism Act (2006) as a result of the gaps and inconsistencies that were identified in the legislation. The department further collaborated efforts with the FIU to conduct AML sensitisation workshops for Directors, Chief Executive Officers and compliance officers from the insurance and capital market sectors. The department was also involved in AML/CFT national risk assessment exercise which mainly aimed at understanding the level of proceeds of crime generated in Malawi or coming into Malawi and the threat posed by terrorist financing (TF); and to determine ML and TF vulnerability of the economic and financial sectors. Lastly, the department continued to participate in quarterly meetings with FIU and National Steering Committee.
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6.2 Laws and Regulations The Registrar continued to strengthen the legal and regulatory framework in line with international standards and best practice. During 2013, the following directives came into force: Banking a) Financial Services (Licensing of Banks) Directive; b) Banking (Foreign Currency Exposure Limits) Directive, replacing the Directive on Foreign Exposure Limits Number DO1-97/FX EX; c) Banking (Premises Inspection) Directive, replacing the Directive on Premises Inspection Number D01-2008/PID; d) Financial Services (Large Exposure and Credit Concentration Limits) Directive, replacing the Directive on Large Exposure Number D02-06/LA EX; e) Financial Services (Transactions of Banks with Related Parties) Directive, replacing the Directive on Transactions with Related Parties Number D04- 06/TRP. The Banking Act 2010 and the Financial Services Act 2010 were reviewed in a bid to strengthen the resolution powers of the Registrar and enhance prompt resolution of distressed banks. Furthermore, the Prompt Corrective Action Directive was drafted outlining the various corrective actions that the Registrar of Financial Institutions may take or impose on banks and the circumstances under which such actions may be taken. The Amendment Bills and draft directive were submitted to Government for further processing. The Registrar issued Basel II Guidelines covering the following areas: Credit Risk Guidelines, Market Risk Guidelines, Operational Risk Guidelines, Internal Capital Adequacy Assessment Process (ICAAP) Guidelines, Stress Testing Guidelines, and Market Disclosures Guidelines. Microfinance Draft directives to guide operations of deposit taking MFIs were submitted to the Ministry of Justice for further processing. Applicants for deposit taking MFI licence will be required to make submissions once the directives are published in the government gazette. Financial Cooperatives The Registrar published the following directives to guide operations of financial cooperatives (SACCOs); a) Financial Cooperatives (Premises Inspection) Directive, 2013; b) Financial Services (External Borrowing Requirements for Savings and Credit Cooperative Societies) Directive, 2013;
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c) Financial Services (Asset Classification Requirements For Savings And Credit Cooperative Societies) Directive, 2013; d) Financial Services (Minimum Capital Requirements For Savings And Credit Cooperative Societies) Directive, 2013; e) Financial Services (Prudential Liquidity Requirements For Savings And Credit Cooperative Societies) Directive, 2013; f) Financial Services (Reporting Requirements For Savings And Credit Cooperative Societies) Directive, 2013; and g) Financial Services (Licensing Of Savings And Credit Cooperative Societies) Directive, 2013. Insurance The Registrar adopted a new licensing approach for insurance companies whereby licences for insurance companies and reinsurance companies will no longer be subject to annual renewals. Capital Markets Malawi was admitted to Appendix A of th e International Organisation of Securities Commissions (IOSCO) after signing a Multilateral Memorandum of Understanding (MMoU). Under this MMoU, the Registrar of Financial Institutions is able to exchange information and cooperation with other securities market regulators in combating securities crime.
The minimum net capital requirements for Broker/Dealers and Portfolio Managers were revised and set in Malawi Kwacha at K25.0 million and K50.0 million respectively, from an equivalent of U$100,000 for both intermediaries.
The Registrar championed the development of a strategy and implementation plan for capital market development to enhance stock market trading. The plan focuses on the critical need to develop the supply side in both the equity and debt market in order to deepen and broaden Malawi’s capital market. Review of Money Laundering Act The Registrar in collaboration with all concerned stakeholders participated in the review of Money Laundering and Proceeds of Serious Crime Act, 2006. An Amendment Bill to the Act has since been submitted to Government for further processing.
6.3 Licensing The Registrar issued a banking licence to New Finance Bank Limited on 30th October 2013. First Merchant Bank Limited was granted approval to acquire 100 percent stake in ICB Malawi, 49.0 percent stake in ICB Zambia and 54.9 percent stake in ICB Mozambique.
In line with the requirements of the Financial Cooperatives Act 2011, the Registrar granted provisional licenses to all existing SACCOs. These SACCOs were give a deadline of 1st March 2015 to meet licensing requirements and apply for a substantive licence. 26 Report and Accounts 2013 RBM
The Registrar issued new licences to one insurance broker, five insurance agents and one agent for broker7. Licenses for existing insurance market players were successfully renewed with the exception of D H Gelu Insurance Agency and Concorde Insurance Loss Assessors that did not submit applications for renewal.
The Registrar struck off Swift Insurance Brokers from the Register of Financial Institutions for failure to remit to insurers the premiums collected from policy holders. The case in which the Registrar appealed against the Commercial Court’s ruling on the winding up of Citizen Insurance Company Limited is still pending before the Supreme Court of Malawi.
In the pension sector, the Registrar continued to face legal challenges to implement licensing and registration guidelines for entry into the pension industry. However, a no objection was granted to NBC Malawi Pension Administrators to conduct business as administrators.
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 frameworks. Pilot stress testing exercises are however still ongoing, and results are 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 is 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 were issued to the market in 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.
7 This a typically a bank licensed to carry out bank assurance activities
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6.6 Financial Inclusion Initiatives Agent banking regulations were gazetted during the year, after thorough consultations with various stake holders for 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. Prior to gazetting of the regulations, two banks had been granted approval to roll out agent banking operations on a pilot basis, and follow up assessments are yet to be conducted on the same. As a starting point, Malawi has adopted a bank based model for agent banking business.
TNM Mpamba was also another initiative spearheaded during the year 2013. This is a phone based payment system involving a Mobile Network Operator (TNM), a bank and the MNO's agents. TNM has since been issued a license to officially rollout the product on the market, having undergone some piloting early in the year. 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 at appreciating 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.
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SECTION TWO 7.0 ANNUAL FINANCIAL STATEMENTS 2013
DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES For the year ended 31 December 2013
INTRODUCTION The directors present the Reserve Bank of Malawi (‘‘the Bank’’) consolidated and separate annual financial statements for the year ended 31 December 2013.
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
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RESERVE BANK OF MALAWI DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES (Continued) For the year ended 31st December 2013
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 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.
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 99.99% equity in EDF. However, it is expected that Government 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.
COMPLIANCE WITH THE REQUIREMENTS OF THE RESERVE BANK OF MALAWI ACT, 1989 Government borrowing from the Reserve Bank of Malawi is guided by section 40 of the Reserve Bank of Malawi Act 1989, which stipulates that the total amount of advances outstanding at any time made by the Bank under this section shall not exceed 20 percent of the annual budgeted revenues of the Government for that particular year. As at 31 December 2013 the outstanding advances to government exceeded the stipulated limit. This development was largely due to shortfalls in received vis-a-vis expected grants.
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RESERVE BANK OF MALAWI DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES (Continued) For the year ended 31st December 2013
In order for Government to remain within the legal borrowing limit, the Reserve Bank of Malawi monitors Government financial position on a daily basis, and reports accordingly. Detailed statistics and reports are produced and sent daily to senior officials of the Reserve Bank of Malawi and Government. The reports contain information on revenue collected, expenditure incurred, overall net position, financing, current and outstanding net position of Ways and Means advances, among others. Currently, borrowing arrangements by Government from the Reserve Bank of Malawi are being reviewed and are awaiting parliamentary approval.
BOARD OF DIRECTORS The following directors served on the Board
Mr. Charles Chuka - Governor & Chairman (All year) Mrs. Mary C. Nkosi - Deputy Governor, Operations (up to 13th April,2013) Ms. Meg Kajiyanike - Deputy Governor, Operations (from 14th April,2013) Dr. Naomi Ngwira - Deputy Governor, Economics (All year) Dr. Grant Kabango - Deputy Governor, Supervision (All year) Mrs. Betty Mahuka - Member (All year) Dr. Patrick Kambewa - Member (All year) Mr. Ted Sitima-wina - Secretary for Economic Planning and Development Ex-Officio member (All year) Mr. Dixies Kambauwa - Member (All year) Mr. Patrice Nkhono - Member (All year) Mr. David Leslie Grimes - Member (All year) Mr. Randson Mwadiwa - Secretary to the Treasury - Ex Officio member (up to October 2013) Mr. Newby Kumwembe - Secretary to the Treasury-Ex Officio member (from November 2013)
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RESERVE BANK OF MALAWI DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES (Continued) For the year ended 31st December 2013
FINANCIAL POSITION The balance sheet appears on pages 6 and 7. Total assets of the Bank increased by K178, 342 million during the year. Major increases were in balances with foreign banks (K92, 378m), advances to Government (K79, 853m) and fixed assets (K12, 967m). The increases were offset by a decrease in treasury bills (K25, 286m).
Major increases in the liabilities were in Government deposits (K59,796m), borrowings (K25,406m), other deposits (K25,314m), bankers’ deposits (K19,383m), notes & coins in circulation (K24,312m), and allocation of special drawing rights (K11,345m). The increases were offset by a decrease in other open market operation instruments (K10, 359m).
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.
DEMONETISATION During the year the Bank embarked in an exercise to replace the old currency notes with new notes. The exercise commenced from January 2013 and the closing date was 23 August 2013. At the end of the exercise a total of K1.3 billion of old notes representing unredeemed notes from circulation was written off.
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 fulfils 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
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RESERVE BANK OF MALAWI DIRECTORS’ REPORT AND STATEMENT OF DIRECTORS’ RESPONSIBILITIES (Continued) For the year ended 31st December 2013 recommend their approval by the Board. The Committee is mandated by its Charter to meet management, and internal and external auditors. 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 consolidated and separate 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 consolidated and separate annual financial statements on pages 50 to 134 have been approved by the Board on 7 April 2014 and are signed on its behalf by:
______Governor and Chairman of the Board Chairperson, Board Audit Committee
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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 50 to 134, which comprise the consolidated and separate balance sheets as at 31 December 2013, 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 consolidated and separate 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.
Auditors’ 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 consolidated and separate financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated and separate 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.
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Opinioon In our opinion,the t consoliidated and separatefinancial f sttatements present faiirly, in all materiaal respects,, the consoolidated andd separate financial pposition of the Reservve Bank off Malawwi and its suubsidiary aas at 31 Deecember 20013, and off the consoolidated annd separate financiial performmance andd cash flowws for thee year theen ended in accordaance with Internaational Finaancial Repoorting Stanndards.
Reportt on Complliance withh Legislation Sectionn40ofthee Reserve Bank ofMalawi M Actt stipulatessthatGovvernment borrowings throughh advancees shall noot exceed 20% ofBudgeted B Domestic D Revenue. As at 31 Decemmber 2013, the 20% limit was K72.6 billlion, whilee the closinng waysand a means balanceewasK1005 billionindicating i that the Bank was inn breach oof this secttion of the Reservve Bank of Malawi Acct.
Deloittte DeloitteD & Touche Lilongwwe, Malawwi Registeredd Auditors 7 Aprill 2014 Per: Thabbang Magarre Johannesbburg, Repubblic of Souuth Africa 7 April 20014
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RESERVE BANK OF MALAWI BALANCE SHEETS At 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 Notes K’m K’m K’m K’m
ASSETS Foreign Assets Cash and cash equivalents 6 890 890 827 827 Balances with foreign banks 7 160,064 160, 064 67, 686 67, 686 Special drawing rights 3,675 3, 675 295 295 Gold reserves 6,482 6,482 7,135 7,135 Investment in Norsad Finance Limited 8 1,400 - 1,163 -
Total Foreign Assets 172,511 171,111 77,106 75,943
Domestic Assets Cash and cash equivalents 6 1,482 178 1,412 2 10 Advances to Malawi Government 9 25,442 105,295 105,295 25,442 Loans to commercial banks 10 - - 7,207 7,207 Other assets 11 13,931 13,909 13,736 13,806 Investments in Malawi Government: - Promissory notes 12 58,503 58,503 29,527 29,527 - Treasury notes 13 31,596 31,596 32,333 32,333 - Treasury bills 14 62,965 62,965 88,251 88,251 Property and equipment 15 28,838 28,772 22,306 22,264 Intangible assets 16 2,778 2,778 1,790 1,790 Investment in Export Development 17 - 1,100 - 1,100 Fund Investment in Malswitch 18 17 17 17 17 Assets classified as held for sale 15 77 77 69 69
Total Domestic Assets 305,482 305,190 222,090 222,016
TOTAL ASSETS 477,993 476,301 299,196 297,959
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RESERVE BANK OF MALAWI BALANCE SHEETS (Continued) Group Bank Group Bank At 31 December 2013
Notes 2013 2013 2012 2012 K’m K’m K’m K’m LIABILITIES AND EQUITY Foreign Liabilities Government deposits 19 86,001 86,001 31,966 31,966 Bankers' deposits 20 30,603 30,603 22,945 22,945 Other deposits 25,315 25,315 1 1 Borrowings 21 86,650 86,650 61,244 61,244 Allocation of Special Drawing Rights 22 45,868 45,868 34,523 34,523
Total Foreign Liabilities 274,437 274,437 150,679 150,679
Domestic Liabilities Notes and coins in circulation 23 95,326 95,326 71,014 71,014 Government deposits 5,729 5,729 - - Bankers' deposits 20 30,978 30,978 19,244 19,244 Other liabilities 24 22,340 22,217 6,421 6,390 Ex – Gratia benefit provision 25 2,746 2,746 3,202 3,202 Other OMO instruments 26 4,842 4,842 15,201 15,201
Total Domestic Liabilities 161,961 161,838 115,082 115,051
Equity Attributable to Parent Capital 19,484 19,484 19,484 19,484 General reserve fund 12,065 12,065 4,184 4,184 Revaluation reserve 8,477 8,477 8,561 8,561 Retained profit 169 - 43 - Capital Reserve 1,400 - 1,163 -
41,595 40,026 33,435 32,229 Total TOTAL LIABILITIES AND EQUITY 477,993 476,301 299,196 297,95
The annual financial statements on pages 6 to 70 were approved and authorised for issue by the Board of Directors on 7 April 2014 and were signed on its behalf by:
______Governor & Chairman of the Board Mr Charles Chuka
Chairperson, Board Audit Committee, Mrs. Betty Mahuka
37 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI STATEMENTS OF COMPREHENSIVE INCOME For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K’m K’m K’m K’m
Income Money market operations 35,244 35,244 20,850 20,850 Banking operations 18,073 18,073 1,695 1,695 Interest on foreign exchange operations 108 108 176 176 Sundry 2,143 1,737 199 68 Property 23 23 28 28
55,591 55,185 22,948 22,817 Total income Expenses General and administration expenses 17,130 16,945 13,867 13,782 Interest payable on money market operations 3,560 3,560 3,105 3,105 Depreciation of property and equipment 567 543 489 486 Other interest payable 2,927 2,927 882 882 Impairment of staff loans 629 558 203 203 Malswitch expenses - - 55 55
Total expenses 24,813 24,533 18,601 18,513 Profit for the year before foreign exchange revaluations 30,778 30,652 4,347 4,304
STATEMENTS OF COMPREHENS IVE INCOME (Continued)
Foreign exchange revaluations Loss on revaluation of IMF facilities (31,373) (31,373) (43,069) (43,069) Loss on revaluation of other foreign exchange balances (672) (672) (430) (430)
Loss for the year (1,267) (1,393) (39,152) (39,195) Other comprehensive income Items that will not be reclassified subsequently to profit & loss: Property revaluation surplus - - 1,794 1,794 Re-measurement of ex-gratia benefit 875 875 - - 875 875 1,794 1,794
Items that may be reclassified subsequently to profit & loss: (Loss)/gain on revaluation of gold holdings (653) (653) 3,881 3,881 Net fair value loss on available for sale financial assets (84) (84) - -
(737) (737) 3,881 3,881
Total other comprehensive income for the year 138 138 5,675 5,675 Total comprehensive loss for the year (1,129) (1,255) (33,477) (33,520)
38 1,163
37,229
(33,477) K’m - Total 28,520 33,435 - - -
Report and Accounts 2013
430
(3,881) (3,228) (1,076) (1,794)
43,069
(33,477) Retained - earnings -
K’m K’m Capital - - reserve - - - 1,163 43 - 1,163 -
K’m
reserve
Gold Revaluation
(430)
(430) 430
7,870
7,870
K’m Special account
(43,069)
(43,069)
ABLE TO SHAREHOLDER
K’m
Revaluation reserve
K’m
General reserve fund
Capital K’m
IN NET AMOUNT ATTRIBUT
loss on other foreign exchange balances - - - - loss on revaluation of IMF facilities ------
RBM
2012 Net loss for the yearStatutory transfer of - - - - - At the beginning of the yearStatutory transfer of Transfer of gain on revaluation of gold holdings - 19,484 3,108 - 6,767 - 3,827 - 54 Transfers to Malawi GovernmentAt the end of the year - - 19,484 4,184 - 8,561 31,802 - (54) - Statutory transfer to general reserve fundInterest in Norsad Finance Limited - 1,076 ------Transfers to revaluation reserve - - 1,794 - -
RESERVE BANK OF MALAWI STATEMENTS OF CHANGES For the year ended 31 December 2013 GROUP
39 237
28,976 41,595
(1,129)
(19,924)
K’m - Total ------
Report and Accounts 2013
84
672 653
(875)
(3,065)
(1,129) Retained 31,373 earnings
(7,663) - (19,924) -
237
K’m K’m
- Capital - reserve ------
1,400 169
reserve
K’m
Gold Revaluation
K’m
Special account
K’m
Revaluation reserve
K’m
General reserve fund
.
K’m
Capital
of loss on revaluation of IMF facilities - - - (31,373) - of loss on other foreign exchange balances - - - (672) -
RBM
2013 At the beginning of the year
Net loss for the year - - - - - Statutory transfer Statutory transfer Transfer of gain on revaluation of Gold Holdings - - - 1,664 (2,317) Statutory transfer to general reserve fundTransfer to Malawi Government - 7,663 ------Transfer to revaluation reserveRemeasurement of ex-gratiaPromissory note issued - - - (84) - 218 - - - - - 657 - 26,659 2,317 Interest in Norsad Finance LimitedTransfer to special account ------3,065 - At the end of the year 19,484 12,065 8,477 - -
40 K’m
Total
32,229
40,026
Report and Accounts 2013
69
K’m
Retained earnings
43,0
430
K’m
reserve
Gold Revaluation
69)
K’m
Special account
(430) 430
(43,0
(43,069) 43,069
(430)
K’m
reserve
Revaluation
K’m
General reserve fund
K’m
Capital
RBM
At the beginning of the year2013 At the beginning of the year 19,484 3,108 6,767 7,870 19,484 - 4,184 8,561 - - 37,229 - - 32,229 Transfer of gain on revaluation of gold holdings - - - 3,827 54 (3,881) - Net loss for the yearNet loss for the year ------(33,520) - (33,520) - (1,255) (1,255) Statutory transfer of gain on other foreign exchange balancesStatutory transfer to general reserve fund - - - - 1,076 - - - - (1,076) - - Statutory transfer of loss on revaluation of IMF facilities -Statutory transfer of loss on revaluation of IMF facilities ------(31,373) - - 31,373 - 2012 Transfers to revaluation reserve - - 1,794 - - (1,794) - Statutory transfer of loss on other foreign exchange balances - - - (672) - 672 - Transfers to Malawi Government - - - 31,802 (54) (3,228) 28,520 At the end of the yearTransfer of gain on revaluation of Gold Holdings - 19,484 4,184 - 8,561 - - 1,664 - (2,317) - 653 - Statutory transfer to general reserve fund - 7,663 - - - (7,663) - Transfer to Revaluation reserve - - (84) - - 84 - Transfer to special account - - - 3,065 - (3,065) - Remeasurement of ex-gratia - 218 - 657 - (875) - Transfer to Malawi Government - - - - - (19,924) (19,924) Promissory note issued - - - 26,659 2,317 - 28,976 At the end of the year 19,484 12,065 8,477 - - -
RESERVE BANK OF MALAWI STATEMENTS OF CHANGES IN NET AMOUNT ATTRIBUTABLE TO SHAREHOLDER (continued) For the year ended 31 December 2013
Bank
41 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI STATEMENT OF CASHFLOWS For the year ended 31 December 2013
Notes Group Bank Group Bank
2013 2013 2012 2012 K’m K’m K’m K’m Cash flows from operating activities Interest and commission receipts 53,425 53,425 22,721 22,721 Interest payments (6,487) (6,487) (3,987) (3,987) Cash payments to employees and suppliers (17,129) (16,945) (13,923) (13,837) Operating profit/(loss) before changes in operating assets 27 29,809 29,993 4,811 4,897 Decrease/(increase) in operating assets: Securities held for regulatory or monetary control purposes 25,940 25,940 26,481 26,481 Other short-term negotiable securities/assets (821) (662) (3,940) (3,999) Holding of Special Drawing Rights (3,380) (3,380) (225) (225) Loans to commercial banks 7,207 7,207 (7,207) (7,207) Funds advanced to Government (79,853) (79,853) (25,442) (25,442) Increase/(decrease) in operating liabilities: Deposits from customers 104,471 104,471 11,520 11,520 Other liabilities 16,334 16,247 4,831 4,788 Net cash from other operating activities 2,160 1,754 218 87 Deposits held for regulatory or monetary control purposes (10,359) (10,359) 6,911 6,911 Notes and coin in circulation 24,312 24,312 17,512 17,512 Net cash flow from operating activities 115,820 115,670 35,470 35,323 Cash flow from investing activities Purchase of property and equipment (8,135) (8,087) (7,538) (7,493) Proceeds from sale of property and equipment 44 44 54 54 Net cash flow from investing activities (8,091) (8,043) (7,484) (7,439) Cash flow from financing activities Appropriation due to Malawi Government (19,924) (19,924) - - Investments made - - - (1,100) Proceeds of long-term borrowings 36,751 36,751 55,366 55,366 Effects of exchange rate changes on liquid assets` Revaluation of IMF facilities (31,373) (31,373) (43,069) (43,069) Revaluation of other foreign exchange balances (672) (672) (430) (430) Net cash flow from financing activities (15,218) (15,218) 11,867 10,767
Net increase in liquid assets 92,511 92,409 39,853 38,651
69,925 68,723 30,072 30,072 Liquid assets at the beginning of the year Liquid assets at the end of the year 162,436 161,132 69,925 68,723 Liquid assets comprised of: Foreign Assets Cash and cash equivalents 890 890 827 827 Balance with foreign banks 160,064 160,064 67,686 67,686 Domestic assets Cash and cash equivalents 1,482 178 1,412 210 Total liquid assets 162,436 161,132 69,925 68,723
42 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS For the year ended 31 December 2013
1.0 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 706 (2012: 691) employees as at 31 December 2013.
2.0 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 2013.The adoption of these new and revised Standards and Interpretations had an impact on the financial statements of the group.
2.1 New Standards and Interpretations in issue effective from 1 January 2013 A number of new standards, interpretations and amendments effective for the first time for period beginning on 1 January 2013 have been adopted in these financial statements. Below are details of the revised standards that have been applied in 2013.
2.1.1 IAS 1-Presentation of items of other comprehensive Income-Amendments to IAS 1 The amendment requires that items of other comprehensive income must be grouped together into two sections: a) Those that will or may be reclassified into profit or loss b) Those that will not. The amendment only affects presentation, hence there is no effect on the group’s financial position or performance.
2.1.2 IAS 19-Employee benefits (Revised 2011) The amendments to IAS 19 effective for period starting on or after 1 January 2013 have been applied for the first time. The amendments require the recognition of changes in defined benefits obligation and fair value of plan assets when they occur, hence eliminate the corridor approach permitted under the previous version of IAS 19 and accelerate the recognition of past service cost. All actuarial gains/losses on re- measuring the defined benefits planned obligation/asset to be recognized in other comprehensive income rather than in profit or loss and cannot be reclassified in subsequent periods. Employee benefits expected to be settled (as opposed to due to be settled) wholly within 12 months after the end of the reporting period are short term
43 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
benefits and are not discounted. The effect of the revision in relation to the group’s defined benefits schemes is detailed in note 25.
2.0 Adoption of new and revised International Financial Reporting Standards (continued)
2.1.3 IFRS 12- Disclosure of Interest in Other Entities IFRS 12 sets out a disclosure requirement to entities that have interests in subsidiaries, joint arrangements, associates and/or unconsolidated structured entities. The standard requires a reporting entity to disclose information that helps users to assess the nature and financial effects of the reporting entity’s relationship with other entities. As the new standard affect only disclosure, there is no effect on the group’s financial position or performance.
2.1.4 IFRS 13- Fair value Measurement The group has applied IFRS 13 for the first time in the current year. IFRS 13 establishes a single source of guidance for fair value measurements and disclosure of information relating to fair value measurement, when fair value measurement and or disclosures are required or permitted by other IFRSs. In this regard, the guidance and requirement relating to fair value measurements that were previously located in other IFRSs have now been relocated to IFRS 13.
IFRS 13 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or most advantages) market at the measurement date under current market conditions. While there has been some rewording of the previous guidance, there are few changes to the previous fair value measurement requirements. Instead, IFRS13 is intended to clarify the measurement objective, harmonize the disclosure requirement, and improve consistency in application of fair value measurement. IFRS 13 has not significantly affected the group’s assets or liabilities, presentation and disclosure. In addition, IFRS 13 is to be applied prospectively and therefore comparative disclosures have not been presented. The effect of the revision in relation to the group’s assets held at fair value is detailed in notes 5.5.1 and 5.5.2.
44 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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 2 Share Based Payments- Amendments resulting from annual improvements 2010-2012 cycle (Definition of ‘vesting condition’) (effective for annual periods beginning on or after 1 July, 2014).
2.0Adoption of new and revised International Financial Reporting Standards (continued)
2.2.2 IFRS 3 Business Combination- Amendments resulting from annual improvements 2010-2012 cycle (Scope exception for joint ventures) (effective for annual periods beginning on or after 1 July, 2014). 2.2.3 IFRS 3 Business Combination- Amendments resulting from annual improvements 2010-2012 cycle (accounting for contingent consideration) (effective for annual periods beginning on or after 1 July, 2014). 2.2.4 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 2017). 2.2.5 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 2017 (or otherwise when IFRS 9 is first applied). 2.2.6 IFRS 7 Financial Instruments: Disclosures – Additional hedge accounting disclosures (and consequential amendments) resulting from the introduction of hedge accounting chapter in IFRS 9 (effective for annual periods beginning on or after 1 January 2017 (or otherwise when IFRS 9 is first applied). 2.2.7 IFRS 7 Financial Instruments: Disclosures – Deferral of mandatory effective date of IFRS 9 amendments to transition disclosures (effective date of IFRS 9 is first applied).
2.2.8 IFRS 8 Operating Segments– Amendments resulting from Annual Improvements 2010-2012 cycle (aggregation of segments, reconciliation of segments assets) (effective date of annual periods beginning on or after 1 July 2014).
45 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013 2.0 Adoption of new and revised International Financial Reporting Standards (continued)
2.2 Standards and Interpretations in issue, not yet effective (Continued) 2.2.9 IFRS 9 Financial Instruments - Classification and Measurement (effective for annual periods beginning on or after 1 January 2017) mandatory application date amended January 2015). 2.2.10 IFRS 9 Financial Instruments – Accounting for financial liabilities and derecognition (effective for annual periods beginning on or after 1 January 2017 – mandatory application date amended January 2015). 2.2.11 IFRS 9 Financial Instruments: Disclosures – Deferral of mandatory effective date of IFRS 9 amendments to transition disclosures (effective for annual periods beginning on or after 1 January 2017). 2.2.12 IFRS 9 Financial Instruments: Disclosures – Deferral of mandatory effective date of IFRS 9 amendments to transition disclosures (effective for annual periods beginning on or after 1 January 2017). 2.2.13 IFRS 10 Consolidated Financial Statements- Amendments for investment entities (effective for annual periods beginning on or after 1 January 2014). 2.2.14 IFRS 12 Consolidated Financial Statements- Amendments for investment entities (effective for annual periods beginning on or after 1 January 2014). 2.2.15 IFRS 13 Fair Value Measurement– Amendments resulting from Annual Improvements 2010-2012 cycle (scope of the portfolio exception in paragraph 52) (effective date of annual periods beginning on or after 1 July 2014). 2.2.16 IFRS 13 Fair Value Measurement– Amendments resulting from Annual Improvements 2010-2012 cycle (scope of the portfolio exception in paragraph 52) (effective date of annual periods beginning on or after 1 July 2014). 2.2.17 IFRS 14 Regulatory Deferral Accounts– Applies to entity’s first annual IFRS financial statements for a period beginning on after 1 January 2016). 2.2.18 IAS 16– Property, Plant and equipment -Amendments resulting from Annual Improvements 2010-2012 cycle (proportionate restatement of accumulated depreciation on revaluation) (effective date of annual periods beginning on or after 1 July 2014). 2.2.19 IAS 19–Employee Benefits Amendments to clarify the requirement that relate to how contributions from employees or third parties that are linked to services should be attributed to periods of services (effective date of annual periods beginning on or after 1 July 2014). 2.2.20 IAS 24–Related Party Disclosures - - Amendments for investment entities (effective date of annual periods beginning on or after 1 January 2014).
46 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
2.0 Adoption of new and revised International Financial Reporting Standards (continued)
2.2 Standards and Interpretations in issue, not yet effective (Continued)
2.2.21 IAS 27- Separate Financial Statements-Amendments resulting from Annual Improvements 2010-2012 cycle (management entities) (effective date of annual periods beginning on or after 1 July 2014). 2.2.22 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). 2.2.23 IAS 38 Intangible Assets- Amendments resulting from annual improvements 2010-2012 cycle (proportionate restatement of accumulated depreciation on revaluation) (effective for annual periods beginning on or after 1 July 2014). 2.2.24 IAS 39 Financial Instruments – Recognition and Measurements- Amendments for novations of derivatives (effective for annual periods beginning on or after 1 January 2014). 2.2.25 IAS 40 Investment Property – Amendments resulting from annual improvements 2011-2013 cycles (interrelationship between IFRS3 and IAS 40) (effective for annual periods beginning on or after 1 July 2014).
47 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
3.0 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 cert ain 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.
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. The group prior year figures have been restated to take into account adjustments for Export Development Funds that were discovered in 2013. As a consequence of the revision Sundry Income, General and Administration expenses and other liabilities figures have been changed to K199m, K13, 867m, K6, 422m respectively. Further to these changes, Export Development Fund was allotted 400 Ordinary shares in Norsad Finance Limited through Malawi Government in 2012 and these changes have been made retrospectively in line with IAS 8(Accounting Policies, Changes in Accounting Estimates and Errors). The corresponding impact was effected in the group’s Statement of Comprehensive Income, Balance Sheet and related disclosures.All intra- group transactions, balances, income and expenses are eliminated in full on consolidation.
48 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
3.0 Accounting policies (continued)
3.1 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.
3.2 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. 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.
49 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
3.0 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.
50 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
3.0 Accounting policies (Continued) 3.2 Property and equipment (continued) 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.
3.3 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.
3.4 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.
51 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013 3.0 Accounting policies (Continued) 3.4 Impairment of property and equipment
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 rec ognised 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.
52 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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.
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.
53 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
3. Accounting policies (Continued)
3.6 Financial instruments (Continued)
Classification (Continued)
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.
54 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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.
55 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
3. Accounting policies (Continued)
3.6 Financial instruments (Continued)
Measurement (Continued)
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.
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 2013.)
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 2013 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.
56 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013 3. Accounting policies (Continued)
3.7 Foreign currencies (Continued)
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.
57 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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 reporting 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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013 3. Accounting policies (Continued) 3.11 Cost of new notes and coins (Continued) 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. 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 tran slation 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.
59 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
3. Accounting policies (Continued)
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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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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
61 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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) 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.
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 and whenever there is significant evidence that the value of land and building have changed. The last valuation exercise was conducted in May 2012 following the significant devaluation of the Malawi Kwacha (see note 15).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.
In the current year, an impairment assessment was also done on Mzuzu branch project considering the escalation in costs that have been incurred. A conclusion was reached that the asset is not impaired as its value in use as a cash generating unit exceeds its carrying amount.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
4. Critical accounting judgements and key sources of estimation uncertainty (Continued)
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 except for available for sale investments. The fair value measurement of the group’s financial and non-financial assets and liabilities utilizes market observable inputs and data as far as possible. Inputs used in determining fair value measurements are categorized into different levels based on how observable the inputs used in the valuation techniques used are (the fair value hierarchy):
Level 1: Quoted prices in active markets for identical items; Level 2: Observable direct or indirect inputs other than Level 1 inputs; and Level 3:Unobservable inputs (i.e. not derived from the market data) Information about the valuation techniques and inputs used in determining the fair value of various assets and liabilities are disclosed in notes 5 and 15.
4.2.4 Provision for ex–gratia benefit The group has provided for ex-gratia benefit allowance as at 31 December 2013 (see note 25). Management considers the estimate in arriving at the figure to be appropriate.
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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management(Continued) 5.1 Risk management governance structure (Continued) 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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.3 Financial instruments (Continued)
5.3.2 Categories of financial instruments
Group Bank Group Bank 2013 2013 2012 2012 K’m K’m K’m K’m Financial assets
Held to maturity investments Treasury notes (notes 12) 31,596 31,596 32,333 32,333 Interest bearing promissory notes (note 11) 58,503 58,503 29,527 29,527
90,099 90,099 61,860 61,860 Total
Available for sale financial assets Investment in Malswitch 17 17 17 17 Investment in Export Development Fund - 1,100 - 1,100 Investment in Norsad Finance Limited 1,400 - 1,163 - Treasury bills 62,965 62,965 88,251 88,251
64,382 64,082 89,431 89,368 Total Loans and receivables (including cash and cash equivalents Special drawing rights 3,675 3,675 295 295 Loans to commercial banks - - 7,207 7,207 Staff loans and advances 2,029 2,029 959 959 Balances with foreign Banks 135,124 135,124 60,184 60,184 Cash and cash equivalent 2,372 1,068 2,237 1,037
143,200 141,896 70,882 69,682 Total Fair value through Profit and Loss (FVTPL) Investment with fund managers Bonds-Floating 5,662 5,662 5,560 5,560 Bond-Fixed 19,278 19,278 1,942 1,942
24,940 24,940 7,502 7,502 Total
65 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.3 Financial instruments (Continued)
5.3.2 Categories of financial instruments (Continued)
Group Bank Group Bank 2013 2013 2012 2012 K’m K’m K’m K’m Financial liabilities Financial liabilities measured at amortised cost Notes and coins in circulation 95,326 95,326 71,014 71,014 Other OMO instruments 4,842 4,842 15,201 15,201 Borrowing (IMF loans) 86,650 86,650 61,244 61,244 Allocations of special drawing 45,868 45,868 34,523 34,523 rights Bankers deposits 61,582 61,582 42,189 42,189 Government deposits 91,762 91,730 31,966 31,966 Other liabilities 22,340 22,217 6,422 6,390 408,370 408,215 262,559 262,527 Total
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
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.4 Financial risk management objectives (Continued)
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. 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.
67 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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. The Bank has used Fitch in its credit rating for corresponding banks as 31st December, 2013, except for Federal Reserve Bank which has been rated using Standard and Pools ratings.
Credit limits and balances with major central and commercial banks and other institutions at 31 December 2013
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 0.00 781 North Bank of Canada America AAA No limit 0.00 30 Deutche Bundesbank Europe AAA No limit 0.02 2,409 Reserve Bank of South Africa Africa BBB+ No limit 0.00 214 Federal Reserve Bank of North New York America AA+ No limit 0.13 20,103 Bank of Tokyo Mitsubishi Asia A- No limit 0.00 10 North Citibank America A 25.00 0.04 5,707 HSBC Bank Africa AA- 25.00 0.00 - Standard Chartered Bank Europe AA- 25.00 0.23 36,603 Crown Agents Fund Managers* Europe BBB+ 25.00 0.16 25,326 Crown Agents Bank Europe BBB+ 25.00 0.13 20,180 Commerz Bank Europe A 25.00 10.00 15,397 No rating could be Bank of Mauritius Africa obtained 25.00 0.00 100 First Rand Bank Africa BBB+ 25.00 0.2 31,618
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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 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 AA 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
69 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued) 5.4 Financial risk management objectives (Continued)
5.4.2 Credit risk (Continued) The 16 percent (2012: 10 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 it s 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 21) the Bank agrees with the IMF monetary targets that are to be achieved for macroeconomic stability.
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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.4 Financial risk management objectives (Continued) 5.4.3 Liquidity risk (Continued) Group At 31 December 2013 Up to 1 to 3 4 to 12 Over Carrying
1 month months Months 12 Total Value months K’m K’m K’m K’m K’m K’m Assets Gold reserves 6,482 - - - 6,482 6,482 Special Drawing Rights - - - 3,675 3,675 3,675 Investments in Norsad Finance Ltd 1,400 1,400 1,400 Investments in Malswitch - - - 17 17 17 Investments in Malawi Government - promissory notes 71 - - 58,432 58,503 58,503 - treasury notes - - - 31,596 31,596 31,596 - treasury bills - 30,349 32,616 - 62,965 62,965 Advances to Malawi Government 105,295 - - 105,295 105,295 Liquid assets -Balances with foreign banks - 160,064 - - 160,064 160,064 -Cash and cash equivalents 2,372 - - - 2,372 2,372 Other assets - 13,931 - - 13,931 13,931 Total assets 114,220 204,344 32,616 95,120 446,300 446,300
Liabilities Allocation of Special Drawing Rights - - - 45,868 45,868 45,868 Borrowings (IMF loans) - - - 86,650 86,650 86,650 Other OMO instruments - - 4,842 - 4,842 4,842 Notes and coins in circulation 95,326 - - - 95,326 95,326 Bankers’ deposits 61,582 - - - 61,582 61,582 Other d eposits 25,315 - - - 25,315 25,315 Government deposits 91,762 - - - 91,762 91,762 Other liabilities 22,340 - - - 22,340 22,340 Total liabilities 296,293 - 4,842 132,518 433,653 433,653
71 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.4 Financial risk management objectives (Continued) 5.4.3 Liquidity risk (Continued) Bank
At 31 December 2013 Up to 1 to 3 4 to 12 Over 12 Carrying 1 month months months months Total Value K’m K’m K’m K’m K’m K’m Assets Gold reserves 6,482 - - - 6,482 6,482 Special Drawing Rights - - - 3,675 3,675 3,675 Investments in Malswitch - - - 17 17 17 Investments in Malawi Government - promissory notes 71 - - 58,432 58,503 58,503 - treasury notes - - - 31,596 31,596 31,596 - treasury bills - 30,349 32,616 - 62,965 62,965 Advances to Malawi Government 105,295 - - - 105,295 105,295 Liquid assets -Balances with foreign banks - 160,064 - - 160,064 160,064 -Cash and cash equivalents 1,068 - - - 1,068 1,068 Other assets - 13,909 - - 13,909 13,909 Total assets 112,916 204,322 32,616 93,720 443,574 443,574
Liabilities Allocation of Special Drawing Rights - - - 45,868 45,868 45,868 Borrowings (IMF loans) - - - 86,650 86,650 86,650 Other OMO instruments - - 4,842 - 4,842 4,842 Notes and coins in circulation 95,326 - - - 95,326 95,326 Bankers’ deposits 61,582 - - - 61,582 61,582 Other deposits 25,315 - - - 25,315 25,315 Government deposits 91,762 - - - 91,762 91,762 Other liabilities 22,217 - - - 22,217 22,217 Total liabilities 296,202 - 4,842 132,518 433,562 433,562
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.4 Financial risk management objectives (Continued)
5.4.3 Liquidity risk (Continued) Group
At 31 December 2012 Up to 1 to 3 4 to 12 Over 12 Carrying 1 month months months 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 Norsad Finance Ltd 1,163 1,163 1,163 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 Liquid assets -Balances with foreign banks - 67,686 - - 67,686 67,686 -Cash and cash equivalents 2,237 - - - 2,237 2,237 Other assets - 13,806 - - 13,806 13,806 Total assets 34,885 100,247 75,579 57,181 267,892 267,892
Liabilities Allocation of Special Drawing - - - 34,523 34,523 34,523 Rights 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 6,422 - - - 6,422 6,422 Total liabilities 151,592 10,626 - 100,342 262,560 262,560
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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 12 Carrying 1 month months months 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 Liquid assets -Balances with foreign banks - 67,686 - - 67,686 67,686 -Cash and cash equivalents 1,037 - - - 1,037 1,037 Other assets - 13,736 - - 13,736 13,736 Total assets 33,685 100,177 75,579 57,118 266,559 266,559
Liabilities Allocation of Special Drawing - - - 34,523 34,523 34,523 Rights 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 There are more liabilities in the up to one month category for both the group and the bank. The in balance 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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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 K25,326m as at 31 December 2013 (2012: K7,640m).
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.
75 Report and Accounts 2013
105,295
months Non-rate sensitive Total
Over 12
-- 3,675-- - 58,432 31,596 -- -- 3,675 -- - - 6,482 58,503 - - 31,596 - - - - 135,124 - 47,041 24,940 2,372 47,041
K’m K’m K’m K’m
32,616 - - 62,965
4 - 12 months
(Continued)
(Continued)
K’m K’m
FINANCIAL STATEMENTS
(Continued)
31 December 2013
5.4.4 Interest rate risk
5.4 Financial risk management objectives
ASSETS Special Drawing RightsGold ReservesInvestments in Malawi Government: - promissory notes- treasury note- treasury billsAdvances to Malawi GovernmentLiquid assets: - balances with foreign banks- investments with fund managers- - cash and cash equivalentsTotal interest bearing assets 6,482Non-interest bearing assetsTOTAL ASSETS 105,295 71 ------114,220 2,372 135,124 30,349 - 24,940 190,413 - 114,220 - 32,616 190,413 - 93,703 32,616 93,703 - 430,952 47,041 477,993 Group Interest rate sensitivity gap analysis
31 December 2013 On demand 1 - 3 months
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
5. Risk management For the year ended
RBM
76 Report and Accounts 2013
months Non-rate sensitive Total
Over 12
- 86,650-- - - - 86,650 299,038 41,595 299,038 41,595
K’m K’m K’m K’m
4,8424,842 132,518 -4,842 132,518 - - 340,633 137,360 4,842 477,993
27,774 (38,815) (293,592) -
332,407 293,592 - -
4 - 12 months
(Continued)
(Continued)
K’m K’m
(Continued)
FINANCIAL STATEMENTS
(Continued)
nsitivity gap 114,220 304,633
31 December 2013
5.4.4 Interest rate risk
5.1 Financial risk management objectives
31 December 2013LIABILITIES Allocation of Special Drawing RightsBorrowings (IMF loans)Other OMO InstrumentsTotal interest bearing liabilitiesNon-interest bearing liabilitiesShareholders’ funds On demandTOTAL LIABILITIES & SHAREHOLDERS' FUNDS 1Interest rate - 3 sensitivity months gap -Cumulative interest rate se ------114,220 - - 45,868 190,413 - - 45,868
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
For the year ended 5. Risk management
RBM
77 Report and Accounts 2013
-
sensitive Total
Non-rate
months
Over 12
-- 3,675-- - 58,432- 31,596 -- -- 3,675 - -- - 6,482 - 58,503 - - 31,596 - - - - 105,295 - 135,124 - 46,653 24,940 1,068 46,653
K’m K’m K’m K’m
32,616 - - 62,965
4 - 12 months
(Continued)
(Continued)
K’m K’m
FINANCIAL STATEMENTS
nsitivity gap analysis
(Continued)
31 December 2013
5.4.4 Interest rate risk
5.4 Financial risk management objectives
31 December 2013ASSETS Special Drawing RightsGold ReservesInvestments in Malawi Government: - promissory notes- treasury note On demand- treasury bills 1 - 3Advances months to Malawi GovernmentLiquid assets: - balances with foreign banks -- investments with fund managers- cash and cash equivalents 6,482Total interest bearing assetsNon-interest 105,295 bearing assets 71 - TOTAL ASSETS ------112,916 1,068 135,124 30,349 - 24,940 190,413 - 112,916 - 32,616 190,413 93,703 - 32,616 93,703 - 429,648 46,653 476,301
Bank Interest rate se
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
5. Risk management For the year ended
RBM
78 Report and Accounts 2013
sensitive Total
Non-rate
months
Over 12
- 86,650-- - - 86,650 - 298,915 40,026 298,915 40,026
4,8424,842 132,518 - - - 137,360 4,842 4,842 132,518 338,941 476,301
4-12
27,774 (38,815) (292,288) -
months
331,103 292,288 - -
(Continued)
(Continued)
On
K’m K’m K’m K’m K’m K’m
(Continued)
demand 1 - 3 months
(Continued)
FINANCIAL STATEMENTS
nsitivity gap analysis
(Continued)
31 December 2013
5.4.4 Interest rate risk
5.1 Financial risk management objectives
31 December 2013 LIABILITIES Allocation of Special Drawing RightsBorrowings (IMF loans)Other OMO InstrumentsTotal interest bearing liabilitiesNon-interest bearing liabilitiesShareholders’ funds -TOTAL LIABILITIES & SHAREHOLDERS' Interest rate sensitivity gap -Cumulative interest - rate sensitivity gap ------112,916 45,868 - 112,916 - - 303,329 190,413 - - 45,868 FUNDS - -
Bank Interest rate se
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
For the year ended 5. Risk management
RBM
79 Report and Accounts 2013
months Non-rate sensitive Total
Over 12
- - - 7,135
-- 295 29,456 --- -- 295 -- 29,527 ------60,184 39,083 7,502 2,237 39,083
- 26,250 - 32,333
K’m K’m K’m K’m
75,579 - - 88,251
4-12months
1 - 3 months
-- 6,083 12,672
71 -
K’m K’m
7,135 -
(Continued)
(Continued)
(Continued)
FINANCIAL STATEMENTS
nsitivity gap analysis
(Continued)
31 December 2013
5.4.4 Interest rate risk
5.4 Financial risk management objectives
31 December 2012ASSETS Special Drawing RightsGold Reserves Investments in Malawi Government: - promissory notes - treasury note - treasury bills Advances to Malawi GovernmentLoans to commercial banksLiquid assets: - balances with foreign banks- investments with fund managers- cash and cash equivalentsTotal interest On bearing demand assetsNon-interest bearing assetsTOTAL ASSETS - 25,442 - - - - - 7,207 34,885 2,237 60,184 - 7,502 93,648 - - 34,885 - 75,579 - 93,648 - - 56,001 75,579 - 56,001 - - 25,442 260,113 7,207 39,083 299,196
Group Interest rate se
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
5. Risk management For the year ended
RBM
80 Report and Accounts 2013
months Non-rate sensitive Total
Over 12
--- 61,244- 4,575 100,342-- - - 100,342 - - - 61,244 154,794 15,201 188,228 110,968 33,434 154,794 299,196 33,434
K’m K’m K’m K’m
75,579 (44,341) (149,145) -
193,486 149,145 - -
4 - 12 months
(Continued)
(Continued)
On
K’m K’m
demand 1 - 3 months
(Continued)
FINANCIAL STATEMENTS
(Continued)
31 December 2013
5.4.4 Interest rate risk
bearing liabilities - -
5.2 Financial risk management objectives
Continued)
Interest gap rate sensitivity analysis
31 December 2012 LIABILITIES Allocation of Special Drawing RightsBorrowings (IMF loans)Other OMO InstrumentsTotal interest bearing liabilitiesNon-interest Shareholders’ fundsTOTAL LIABILITIES & SHAREHOLDERS' FUNDSInterest rate sensitivity gap -Cumulative interest rate sensitivity gap - - - - - 10,626 10,626 - 10,626 - 34,885 - 34,885 34,523 117,907 83,022 - - 34,523
Group
(
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
For the year ended 5. Risk management
RBM
81 Report and Accounts 2013
- - 7,207
months Non-rate sensitive Total
Over 12
-
--- 295- - 29,456- 26,250 ------295 -- 7,135 29,527 -- 32,333 - - - 25,442 - - - - 60,184 39,046 7,502 1,037 39,046
K’m K’m K’m K’m
75,579 - - 88,251
4-12months
(Continued)
K’m K’m
(Continued)
(Continued)
FINANCIAL STATEMENTS
management objectives
nsitivity gap analysis
(Continued)
31 December 2013
5.4.4 Interest rate risk
31 December 2012ASSETS Special Drawing RightsGold ReservesInvestments in Malawi Government: - promissory notes- treasury note- treasury billsAdvances to Malawi GovernmentLoans to commercial banksLiquid assets: On demand- balances with foreign banks- investments with 1 fund - managers 3 months - cash and cash equivalentsTotal interest bearing assetsNon-interest - bearing assetsTOTAL ASSETS 7,135 25,442 71 ------6,083 7,207 12,672 33,685 1,037 60,184 7,502 93,648 - 33,685 - 75,579 93,648 - 56,001 75,579 56,001 - 258,913 39,046 297,959
Bank Interest rate se
5.4 Financial risk
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
5. Risk management For the year ended
RBM
82 Report and Accounts 2013
ld-spread (the difference between
rising or falling. In this regard,
months Non-rate sensitive Total
Over 12
-- 61,244- 4,575- 100,342-- - - 100,342 - - - 61,244 154,762 15,201 186,991 110,968 32,229 154,762 297,959 32,229
K’m K’m K’m K’m
4-12
75,579 (44,341) (147,945) -
months
192,286 147,945 - -
(Continued)
K’m K’m
gold benefits from low real interest rates, an increasing yie
(Continued)
ads, each of which can occur when nominal interest rates are
s
(Continued)
FINANCIAL STATEMENTS
(Continued)
nsitivity gap 33,685 116,707
31 December 2013
5.4.4 Interest rate risk
31 December 2012LIABILITIES Allocation of Special Drawing RightsBorrowings (IMF loans)Other OMO InstrumentsTotal interest bearing liabilitiesNon-interest bearing liabilitiesShareholders’ fundsTOTAL LIABILITIES & SHAREHOLDERS' FUNDSInterest rate sensitivity gap On demandCumulative interest rate se - 1 - 3 months - - - - - 10,626 - - 10,626 10,626 - 34,523 - 33,685 - 83,022 - - 34,523
(Continued)
Bank Interest rate sensitivity gap analysi
Gold is mainly affected by price and currency movements. However, long-term and short-term interest rates), and widening credit spre changes in interest rates have an impact on the valuation of gold.
5.1 Financial risk management objectives
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL
5. Risk management For the year ended
RBM
83 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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:
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RESERVEBANKOFMALAWI NOTES TO THE ANNUAL FINANCI AL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.4.5.1 Sensitivity Analysis of market risk (Continued)
2013 2012
Effect on profit of a +5% change in interest rates 2,814 537 Effect on profit of a -5% change in interest rates (2,814) (537) 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.
2013 2012 K’m K’m
Effect on profit of a +5% change in exchange rates 2,988 2,078 Effect on profit of a -5% change in exchange rates (2,988) 2,078
85 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For. the year ended 31 December 2013
5. Risk management (Continued) 5.4 Financial risk management objectives (Continued) 5.4.5 Market Risk ( 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. Th e Bank manages this risk by adhering to currency exposure limits as stipulated in Foreign Exchange Reserves Management Policy.
Currency composition as at 31 December 2013 Figures in Millions
Currency MWK USD GBP JPY EUR ZAR XDR Liabilities Government deposit 86,001 165 2 - 20 - - Bankers deposit 30,603 61 1 - 3 1 - Allocation of Special Drawing Rights 45,868 - - - - - 66 Other Deposits 25,315 56 - - - - -
Borrowings (IMF loans) 86,650 - - - - - 125 Total 274,437 282 3 - 23 1 191
Assets
Special Drawing Rights 3,675 - - - - - 6
Gold reserve account 6,482 15 - - - - -
Foreign nostros 29,235 62 1 3 4 - - IP-Time Deposits 90,511 140 45 - - - -
IMF - Reserve tranche 1,585 - - - - - 2
Funds under foreign management 38,015 60 18 - - - - IP – Foreign Special 718 1 - - - 5 - Total 170,221 278 64 3 4 5 8
The Bank had the following significant foreign currency positions as at 31 December 2013
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.4 Financial risk management objective (Continued) 5.4.5 Market Risk ( Continued) 5.4.5.2 Currency risk (Continued)
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
87 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
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.
5.5.1 Fair value measurements recognised in the statement of financial position Some of the group’s financial assets and liabilities are measured at fair value at the end of each reporting year. 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).
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.5 Fair value of financial assets and liabilities(Continued)
Level 1 Level 2 Level 3 Total 31 December 2013 K’m K’m K’m K’m Financial assets at fair value through profit and loss Crown Agents - Treasury Notes & Bonds 24,940 - - 24,940 Available for sale financial assets Treasury Bills 62,965 - - 62,965
31 December 2012 Financial assets at fair value through profit and loss Crown Agents - Treasury Notes & Bonds 7,502 - - 7,502 Available for sale financial assets
Treasury Bills 88,251 - - 88,251
There have been no movements in the ascribed value of the investment in Malswitch for the 2013 financial year.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
5. Risk management (Continued)
5.5 Fair value of financial assets and liabilities(Continued)
Financial Fair Value as Fair value Valuation Significant Relationship Assets at 31 hierarchy techniques(s) and unobservable unobservable December Key inputs(s) input(s) inputs to fair 2013 value
1 Financial Treasury Level 1 Quoted bid prices N/A N/A assets at fair Notes - in active market value through K24,940 profit and loss million
2 Available for Treasury Bills Level 1 Quoted bid prices N/A N/A sale securities - K62,965 in active market million
5.5.2 Fair value measurements of property Details of the group’s land and buildings and information about the fair value hierarchy as at 31 December 2013 are as follows:
Level 2 Fair value K’m K’m
Land and buildings 14,721 14,721
There were no transfers between level 1 and level 2 during the year.
90 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm 6. Cash and cash equivalents
Foreign Foreign cash 839 839 787 787 Travellers’ cheques 51 51 40 40 890 890 827 827 Sub-total
Domestic Cash 1,482 178 1,412 210 1,482 178 1,412 210 Sub-total
Total cash and cash equivalents 2,372 1,068 2,239 1,037
7. Balances with foreign banks
Balances with foreign banks are due to mature as follows:
Within 3 months 160,064 160,064 67,686 67,686
Analysis of deposits by geographical location:
- Africa 31,933 31,933 96 96
- Europe 100,697 100,697 55,147 55,147
- North America 27,424 27,424 12,407 12,407
- Asia 10 10 36 36
160,064 160,064 67,686 67,686
91 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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 (2012: 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 K25,326 million (2012: K7,640 million) with external fund managers are funds under management by Crown Agents amounting to K24,940 million (2012: K7,502 million) whose underlying investments were as follows:
Group Bank Group Bank 2013 2013 2012 2012 K'm K’m K'm K’m Bonds – Floating 5,662 5,662 5,560 5,560
Bonds – Fixed 19,278 19,278 1,942 1,942
24,940 24,940 7,502 7,502
Balances with foreign banks carry interest rates of between 0.01% and 1.00% (2012: 0.00% and 1.00%) per annum.
8. Investment in NORSAD Finance Limited The K1,400 million (2012: K1,163 million) relates to investment by the Export Development Fund (EDF) in Norsad Finance Limited. Norsad Finance Limited is a development finance institution established to contribute to private sector development of Southern African countries by way of availing funding to enterprises that are financially, socially and
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
8. Investment in NORSAD Finance Limited (Continued)
environmentally sustainable and which will create jobs with decent working conditions, adopt good governance and overall assist economic growth and poverty alleviation in Southern African countries. EDF was allotted 400 Ordinary shares in Norsad Finance Limited through Malawi Government in 2012, representing 4.5% of Ordinary shares in Norsad Finance Limited.
9. 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 2013. As at 31 December 2013 the Government had K105,295 million owing to the Bank as advances (2012: K25,442 million).
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm 10. Loans to commercial Bank
NBS loan - - 7,207 7,207
The loan that was extended to NBS Bank in prior year was rolled over on 15th February,2013 for another three months. Interest income from NBS Bank for the year was K1,217 million (2012: K175 million). As at 31 December 2013 all the loans were fully repaid.
93 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
11. Other assets
Prepayments 1,735 1,735 3,429 3,428 Staff loans and advances 2,029 2,029 1,342 1,342 Recoverable expenditure 443 430 373 444 Other receivables 9 - 1 1 Inventory currency notes 7,510 7,510 3,337 3,337 Accrued interest 5 5 5 5 Consumable stocks 337 337 123 123 Clearing and suspense accounts 3,058 3,0585,763 5,763 Impairment of staff loans (941) (941) (383) (383) Provision for bad and doubtful debts (254) (254) (254) (254)
Total other assets 13,931 13,909 13,736 13,806
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 approximate their fair values.
94 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm Malawi Government 12. promissory notes
31 December 2000 i) 71 71 71 71 31 December 2011 ii) 936 936 936 936
31 December 2012 iii) 28,520 28,520 28,520 28,520
31 December 2013 iv) 28,976 28,976 - -
Total Malawi Government promissory notes 58,503 58,503 29,527 29,527
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.
95 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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.
An interest bearing promissory note of K28, 976 million issued by the Malawi Government in settlement of the loss incurred by the Bank for the financial year ended 31 December 2013. The note is denominated in Malawi Kwacha and matures after five years from its effective date of 31 December 2013. It bears interest at the ruling Bank rate.
96 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
Malawi Government Treasury 13. notes
The treasury notes will mature as follows:
- Within three months - - 6,083 6,083 - Between one year and five years 31,596 31,596 26,250 26,250
Total Malawi Government treasury notes 31,596 31,596 32,333 32,333
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 Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm - Within three months - - 6,083 6,083 - Between one year and five years 25,262 25,262 19,179 19,179
- Total treasury notes arising on recapitalization 25,262 25,262 25,262 25,262
Treasury notes totalling K7, 282 million matured this year. Out of this total, a treasury note with the nominal value of K6, 083 million (2012: K6, 083 million) was rolled over on 1 January 2013 and will now mature in January 2018. The rest of the treasury bills amounting to K1, 200 million were disposed of.
97 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
13. Malawi Government treasury notes (Continued)
Total interest income from these treasury notes as at 31 December 2013 was K6,016 million (2012: K4,885 million). The interest is receivable semi-annually.
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
14. Malawi Government treasury bills
Treasury bills are due to mature as follows: -Within three months 30,349 30,349 12,672 12,672 -Between three months and one year 32,616 32,616 75,579 75,579
Total Malawi Government treasury bills 62,965 62,965 88,251 88,251
These treasury bills are held by the Bank as ‘available for sale financial assets’ and are carried at fair value. As at 31 December 2013 they carried an average interest rate of 30.4% (2012: 15.91%) per annum.
98 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
15. Property and equipment
Group Furniture, equipment & Land & Computer motor buildings hardware vehicles Total K’m K’m K’m K’m 2013 COST OR VALUATION At beginning of the year 19,976 571 3,383 23,930 Additions 6,022 181 798 7,001 Disposals - (33) (183) (216) Transfers - - 87 87
At end of the year 25,998 719 4,085 30,802
DEPRECIATION At beginning of the year 9 417 1,133 1,559 Charge for the year 89 47 431 567 Disposals - (33) (137) (170)
At end of the year 98 431 1,427 1,956
Assets classified as held for sale - - (8) (8) NET BOOK VALUE At end of the year 25,900 288 2,650 28,838
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
Asset held for sale (69) - - (69)
NET BOOK VALUE At end of the year 19,898 154 2,250 22,302
99 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
15. Property and equipment (Continued)
Bank Furniture, equipment & Land & Computer motor buildings hardware vehicles Total K’m K’m K’m K’m 2013 COST OR VALUATION At beginning of the year 19,976 566 3,348 23,890 Additions 6,022 181 746 6,949 Disposals - (33) (183) (216) Transfers - - 87 87
At end of the year 25,998 714 3,998 30,710
DEPRECIATION At beginning of the year 9 417 1,131 1,557 Charge for the year 89 47 407 543 Disposals - (33) (137) (170)
At end of the year 98 431 1,401 1,930
Assets classified as held for sale - - (8) (8)
NET BOOK VALUE At end of the year 25,900 283 2,589 28,772
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
Asset held for sale (69) - - (69)
NET BOOK VALUE At end of the year 19,898 149 2,217
100 Report and Accounts 2013 RBM
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
15. Property and equipment (Continued)
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 2012. However, in the year 2013 an assessment was done by the valuer and it was observed that the market value for properties have not changed from 2012 mainly due to the fact that the property market in general is very much depressed due to high cost of finance. In this regard, this has reduced demand and consequently made the prices to remain stagnate.
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, Club house, Guest houses, 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.The leases will be renewed by the Malawi Government Ministry responsible upon expiry.
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.
Included in land and buildings is the capital Work in Progress (WIP) relating to the construction of the Mzuzu Branch amounting to K16,641 million (2012: K10,546 million). The WIP is carried at cost in line with the policy note number 3.2.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
15. Property and equipment (Continued)
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
Assets classified as held for sale
Motor vehicle 8 8 - - Land and building 69 69 69 69
Total assets as classified as held for sale 77 77 69 69
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
15. Property and equipment (Continued)
In 2012 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. However, as at the reporting date a buyer was not yet identified. In addition, some motor vehicles were earmarked for sale towards the year end and as at 31 December 2013 the disposal process was not yet finalized. As such, the assets have been classified as held for sale and reported at their carrying amount which is the lower of fair value less costs to sale and carrying amount.
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm 16. Intangible assets
COST At the beginning of the year 2,353 2,353 1,667 1,667 Additions 988 988 686 686
At the end of the year 3,341 3,341 2,353 2,353
AMORTISATION At the beginning of the year 563 563 559 559 Chargefortheyear - - 4 4
At the end of the year 563 563 563 563
NET BOOK VALUE At the end of the year 2,778 2,778 1,790 1,790
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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
17. Investment in Export Development Fund
The K1,100 million (2012: K1,100 million) 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 99.99% of the shareholding in the company.
18. 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 (2012:K17 million).
19. 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 capaci ty, 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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
20. Bankers’ deposits Bankers’ deposits as at 31 December 2013 amounting to K30,978 million (2012: K19,244 million).
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 K30,603 million (2012: K8,815 million) with the following currency composition:
Currency Composition as at 31 December 2013
Currency MWK EUR GBP USD ZAR Bankers Deposits (million) 30,603 3 1 61 1
Currency Composition as at 31 December 2012
Currency MWK EUR GBP USD ZAR Bankers Deposits (million) 8,815 2 - 23 1
Other than the liquidity reserve requirement figure included in the bankers deposits are term deposits with commercial banks amounting to zero (2012:K14,130 million) as at 31 December 2013.
Term Deposit Composition as at 31 December 2012
Currency MWK EUR GBP USD ZAR Term Deposits (million) 14,130 8 4 25 -
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
21. Borrowings
International Monetary Fund (‘IMF’)
Exogenous Shock Facility (“ESF”) 23,982 23,982 18,050 18,050
Extended Credit Facility (“ECF”) 22,134 22,134 12,685 12,685 Poverty Reduction Growth Facility (“PRGF”) 40,534 40,534 30,509 30,509
Total borrowing 86,650 86,650 61,244 61,244
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
Instalments 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 instalments from September 2011. Final instalments for the loans are expected in the year 2018.
On 23 July 2012, the Executive Board of IMF approved a three-year arrangement for Malawi under the Extended Credit Facility (ECF) in an amount equivalent to
For the year ended 31 December 2013XDR 104.1 million (about US$ 156.2 million). Following the approval, the Bank was availed ECF loan tranches of XDR13 million in April, 2013.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
21. Borrowings (Continued)
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.
22. Allocation of Special Drawing Rights (“SDR”)
The allocation of SDR, which are due to the IMF, represents XDR66 million (K45, 868m) (2012: XDR66m (K34, 523m)) and bear interest at an average rate of 0.11% (2012: 0.11%) per annum. The liability represents an allocation and has no fixed repayment dates.
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
23. Notes and coins in circulation
Notes 94,651 94,651 70,408 70,408 Coins 675 675 606 606
Total notes and coins in circulation 95,326 95,326 71,014 71,014
107 RBM Report and Accounts 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K’m K'm K'm
24. Other liabilities
Payables 1,824 1,824 7,847 7,848 Appropriation due to Government 19,924 19,924 -- Payroll accruals 372 372 86 86 Other payables 220 97 (1,512) (1,544)
Total other liabilities 22,340 22,217 6,421 6,390
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
24. Other liabilities (Continued)
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.
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.
In 2012 the dividend due to Government of K3, 228m was offset with net revaluation losses on foreign balances. However, in 2013 Government received dividend of K19, 924m and issued a promissory note for the net revaluation losses on foreign balance.
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
25. Ex-Gratia benefit provision
At the beginning of the year 3,202 3,202 2,185 2,185
Adjustment/ provision made in the year (456) (456) 1,017 1,017
Total Ex-gratia benefit provision 2,746 2,746 3,202 3,202
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
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FI NANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
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 31 December 2013. Key assumptions underlying the computation of the provision are as follows:
2013 2012
-Inflation rate 28.6% 5.50% -Discount rate 37.5% 8.25% -Salary increase rate 29.6% 6.50%
There has been a significant change in the key assumptions underlying the computation as previously the actuary used indicators from their local environment whilst in the current year Malawian indicators have been used.
Sensitivity Analysis
The results of the valuation should be treated with caution, as they are extremely sensitive to the assumptions used. The value of the liability could turn out to be overstated or understated , depending on the extent to which actual experience differs from the assumptions adopted. The tables below show a recalculation of the ex-gratia liability to reflect the effect of:
The discount rate assumption on the ex-gratia liability by adding and subtracting 1% to the discount rate; and The inflation rate assumption on the ex-gratia liability by adding and subtracting 1% to the inflation rate.
Discount Result as above +1% (K’m) -1% (K’m) rate (K’m) Ex-gratia 2,746 2,546 2,970 liability Change - -7.3% 8.1%
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
25. Ex-Gratia benefit provision (continued)
Sensitivity Analysis (continued) Inflation Rate Result as above +1% (K’m) -1% (K’m) (K’m)
Ex-gratia liability 2,746 2,982 2,533
Change - 8.6% -7.8%
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
26. Other OMO instruments
Repurchase agreements - - 10,626 10,626
Reserve Bank of Malawi Bond 4,842 4,842 4,575 4,575
Total other OMO instruments 4,842 4,842 15,201 15,201
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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm Reconciliation of net profit for the year to operating 27. profit before changes in operating assets and liabilities
Profit before foreign exchange revaluation 30,778 30,652 4,347 4,304 Adjustments for:
Depreciation and amortization of assets 567 543 489 486 Impairment of staff loans 630 558 203 203 Property income (23) (23) (28) (28) Sundry income (2,143) (1,737) (199) (68)
Operating profit before changes in operating assets 29,809 29,993 4,812 4,897
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
28. Concentration of funding
The Bank’s significant end of year concentrations of funding were as follows:
2013
Figures in K'm Malawi Public & Foreign Government local Governments institutions & financial institutions Total Foreign Currency Financial liability Borrowings (IMF loans) - - 86,650 86,650 Allocation Special Drawings Rights (SDRs) - - 45,868 45,868 Other deposits - - 25,315 25,315 Government deposits 86,001 - - 86,001 Bankers’ deposits - 30,603 - 30,603
Total 86,001 30,603 157,833 274,437
Local Currency Financial liability Government deposits 5,729 - - 5,729
Bankers’ deposits - 30,97930,979 - Other deposits 4,842 4,842 Other OMO instruments - - - -
Total 5,729 30,979 4,842 41,550
Other liabilities Notes and coins in circulation - 95,326 - 95,326 Other liabilities - 22,217 - 22,217
Total - 117,543 - 117,543
TOTAL LIABILITIES 91,730 179,125 162,675 433,530
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
28. Concentration of funding (Continued)
2012
Figures in K'm Malawi Public & Foreign Government 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
Bankers’ deposits - 19,24419,244 - Other OMO instruments - 15,201 - 15,201
Total - 34,445 - 34,445
Other liabilities Notes and coins in circulation - 71,01471,014 -
Other liabilities - 6,398 - 6,398
Total - 77,412 - 77,412
TOTAL LIABILITIES 31,966 134,802 95,768 262,536
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
29. Capital and other commitment
Endorsed by senior management Capital commitments contracted 2,115 2,115 145 126
Capital commitments not contracted 4,382 4,382 18,039 17,940
Total capital and other commitments 6,497 6,497 18,184 18,066
Capital commitments are to be financed from internal resources.
30. Taxation
The Bank is exempt from payment of income tax under Section 57 of the Reserve Bank of Malawi Act, 1989.
31. 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 K820m (2012: K569m). The contributions are charged to profit or loss in the year they arise. Further, the Bank operates an Ex-Gratia benefits scheme 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.
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
32. 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; Cabinet Ministers and Head of State;
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
32. 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 2013 loans totaling K182m (2012: K16m) were advanced to employees in key positions (Executive Management). At 31 December 2013 the total loans outstanding from employees in key positions were K109m (201: K39m). 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 Group Bank 2013 2013 2012 2012 K’m K’m K’m K’m
Salary, gratuity and benefits 316 316 221 221
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
32. Related party transactions (Continued)
In addition to the related party balances disclosed in notes 8, 11, 12, 13, 17, 18, 19, 28 and 30, the following transactions took place with Government:
Group Bank Group Bank 2013 2013 2012 2012 K'm K'm K'm K'm
Interest income on advances to Malawi 16,565 Government 16,565 1,376 1,376 Interest on promissory notes 7,382 7,382 178 178 Interest on treasury bills 19,443 19,443 13,618 13,618 Cost of treasury bills issued and matured during the 43,390 year 43,390 15,172 15,172
The following were the closing balances in respect of Government Deposits:
88,43 39,58 Government institutions 2 88,432 28,638 3
Statutory corporations 3,330 3,330 3,33 3,330
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RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013
33. 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.
1USD 1GBP 1EURO 1XDR
31 December 417.82 682.85 568,49 641.42 2013
31 December 335.13 541.93 442.94 515.02 2012
At 31 December 2013, the Bank rate was 25.0% (2012: 25.0%) while the annual official rate of inflation was 23.5% (2012: 21.3%).
Subsequent to year-end, as at 5 March 2014 the exchange rates to the Malawi Kwacha and inflation rate had moved as follows:
USD : 420.8375 GBP : 701.2836 EURO : 578.3570 XDR : 650.6455 Inflation (for January 2014) : 25.9%
No adjustments arising from the movements of the exchange rates and inflation rate after 31 December 2013 have been made in the annual financial statements.
119 RBM Report and Accounts 2013
RESERVE BANK OF MALAWI NOTES TO THE ANNUAL FINANCIAL STATEMENTS (Continued) For the year ended 31 December 2013 34. 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. 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 2013, these encumbrances amounted to K3,266 million (2012: K2,708 million). Further to this, a letter of credit in favour of Nyiombo Zambia, established under the PTA Strate gic Commodities Facility had an undrawn balan ce of USD 11,168,000.00 as at 31 December 2013.
The bank is currently contesting various legal cases whose liabilities are estimated at a total cost of K507 million.
36. Subsequent events There are no events subsequent to the year end that require disclosure or adjustments to these financial statements.
120 Report and Accounts 2013 RBM
SECTION THREE 8.0 STATISTICAL ANNEX TABLES
Table 1: Reserve Bank of Malawi: Assets and Liabilities (K’mn) ...... 132
Table 2: Monetary Authorities: Assets and Liabilities (K’mn) ...... 133
Table 3: Commercial Banks: Assets and Liabilities (K’mn) ...... 134
Table 4: Monetary Survey: (K’mn ...... 135 Table 5: Official Foreign Exchange Reserves and Net Foreign Assets of Commercial Banks (K’mn)...... 135 Table 6: Money and Quasi-Money (K’mn)...... 136 Table 7a: Commercial Banks: Advances by Main Sector (K’mn) ...... 136
Table 7b: Commercial Banks: Demand Deposits by Main Sector (K’mn) ...... 136 Table 8: Principal Interest Rates ...... 137
Table 13: Balance of Payments Summary (K’mn) ...... 138
Table 14 Selected Foreign Exchange Rates1,2 ...... 139
Table 15: Commodity Imports and Exports1 Value f.o.b (K’mn) ...... 139
Table 16: Domestic Exports by Main Commodity (K’mn) ...... 140
Table 17: Gross Domestic Product by Economic Activity (K’mn) ...... 140
Table 18: The National Composite Price Index (2000=100) ...... 141
Table 19: The National Composite Price Index (2012=100) ...... 141
121 RBM Report and Accounts 2013
Table 1: Reserve Bank of Malawi: Assets and Liabilities (K’mn)
1.0 LIABILITIES 2007 2008 2009 2010 2011 2012 2013 .
1.1 Foreign Sector 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 132,568.0 1.1.1 Deposits of International Agencies 349.1 24.3 46.7 30.9 89.8 108.3 50.1 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 86,649.8 1.1.3 Allocation Of SDR 2,430.8 2,376.8 15,190.1 15,413.3 16,685.2 34,523.3 45,868.1 1.2 Official sector 23,466.5 29,288.4 23,874.2 30,198.2 40,206.2 28,061.6 89,180.0 1.2.1 Government deposits 23,466.5 29,288.4 23,874.2 30,198.2 40,206.2 28,061.3 89,180.0 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 80,893.2 1.3.1 Deposits with RBM 2,855.1 5,805.7 16,910.9 17,879.4 19,717.4 42,185.2 61,573.8 1.3.2 Currency in Banks 4,641.3 4,980.4 5,989.0 7,689.6 10,011.2 15,636.0 19,325.5 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 68,385.6 1.5 Capital Reserves Undistributed Income 13,716 58,121.3 44,402.9 46,223.4 43,291.8 16,399.3 28,556.0 Total Liabilities 71,365.2 143,388.4 152,434.0 171,306.1 197,209.1 25,535.6 389,488.7 2.0 ASSETS 2.1 Foreign sector 34,829.4 35,930.2 23,629.7 45,084.4 31,151.2 748,52.8 174,387.0 2.1.1 Balance with non-resident Bank 29,342.0 32,698.8 19,675.4 41,350.9 30,472.7 733,13.5 169,127.6 2.1.2 Bills and other Securities 4,959.0 2,715.1 3,116.4 2,926.7 0.0 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 5,259.4 2.2 Official Sector 24,503.0 88,369.4 111,053.9 103,870.5 143,634.5 139,568.1 215,237.6 2.2.1.Central Government 23,236.7 86,396.6 110,075.8 103,171.5 143,634.5 139,316.0 215,237.6 2.2.1.1 Treasury Bills and advances 22,936.7 56,247.7 78,298.9 73,923.7 114,386.7 108,316.0 142,976.1.3 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 29,250.3 2.2.2 Statutory Bodies 1,266.3 1,972.8 978.1 699.0 0.0 0.0 0.0 2.3 Banks including other Financial 108.5 1.2 2.3 11.8 1.2 1.2 1.2 2.3.1 Loans and Advances 1.5 1.2 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 0.0 2.4 Other Assets 11,924.2 19,087.7 17,748.2 22,339.3 22,422.16 39,113.5 45,379.5
Total Assets 71,365 143,388.4 152,434.0 171,306.1 197,209.1 253,535.6 435,005.3 Source: Reserve Bank of Malawi
122 Report and Accounts 2013 RBM
Table 2: Monetary Authorities: Assets and Liabilities (K’mn)
2007 2008 2009 2010 2011 2012 2013 1.0 LIABILITIES 1.1 Foreign Sector 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 132,568.0 1.1.1 Deposits of International Agencies 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 132,568.0 1.2 Official sector 24,053.2 29,691.2 24,330.3 30,656.9 40,705.9 29,127.2 89,180.0 1.2.1 Central Government deposits 24,053.2 29,691.2 24,330.3 30,656.9 40,705.9 29,127.2 89,180.0 1.2.1. Deposits with RBM 23,466.5 29,288.4 23,874.2 30,198.2 40,206.2 28,061.6 89,180.0 1.2.1.2 Treasury Holdings 586.8 402.8 456.2 458.7 499.7 1,065.5 0.0 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 80,893.2 1.3.1Deposits with RBM 2,855.1 5,805.7 16,910.9 17,879.4 19,717.4 42,185.2 61,573.8 1.3.2 Currency in Banks 4,641.3 4,980.4 5,989.0 7,689.6 10,011.2 15,636.0 19,325.5 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 76,000.1
1.5 Capital Reserves Undistributed Income 13,716.4 58,121.3 44,402.9 46,223.4 43,291.8 16,399.3 56,364.0
Total Liabilities 71,952.0 143,791.2 152,890.2 171,764.8 197,708.7 254,601.1 435,005.3 2.0 ASSETS 2.1 Foreign sector 35,416.2 36,333.0 24,085.9 45,543.1 31,650.9 75,918.3 174,387.0 2.1 1 Reserve Bank1 34,829.4 35,930.2 23,629.7 45,084.4 31,151.2 74,852.8 169,127.6
2.1.2 Treasury Crown Agents 586.8 402.8 456.2 458.7 499.7 1,065.5 0.0 2.1.3 Reserve Position In IMF - - - 5,259.4 2.1.4 Special Account Balance - - - 2.2 Official Sector 24,503.0 88,369.4 111,053.9 103,870.5 143,634.5 139,568.1 215,237.6 2.1 Reserve Bank Credit to Central Govt. 23,236.7 86,396.6 110,075.8 103,171.5 143,634.5 139,568.1 215,237.6 0.0 2.2 Reserve Bank Credit to Statutory Bodies 1,266.3 1,972.8 978.1 699.0 0 0.0 2.3 Banks including other Financial 108.5 1.2 2.3 11.8 1.2 1.2 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 45,379.5
Total Assets 71,952.0 143,791.2 152,890.2 171,764.8 197,708.7 254,601.1 435,005.3 Source: Reserve Bank of Malawi and Ministry of Finance 1Including holding of SDRs
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Table 3: Commercial Banks: Assets and Liabilities (K’mn)
2007 2008 2009 2010 2011 2012 2013 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 12,961.0 1.1.1 Deposits of nonresidents 827.4 870.0 999.8 654.3 1,115.0 1,921.0 8,341.3 1.1.2 Liabilities to banks abroad 5,018.1 3,298.4 2,967.0 923.3 4,681.0 13,587.0 4,619.6 1.2 Official sector 3,437.1 4,961.8 5,013.3 10,113.5 7,801.5 14,303.8 22,305.2 1.2.1 Government deposits 977.0 2,708.1 1,328.3 6,044.7 4,392.7 6,802.2 7,477.5
1.2.2 Statutory bodies deposits 2,460.2 2,253.7 3,685.0 4,068.8 3,408.8 7,501.6 14,827.7
1.3 Domestic Banks 352.1 1,859.4 1,922.0 2,640.1 3,141.3 7,162.2 6,377.7 1.3.1 Liabilities to RBM 0.0 0.0 0.0 0 84.3 0.0 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 6,377.7 1.4 Private sector deposits 82,858.3 112,128.3 142,854.1 167,980.8 219,575.1 323,556.6 431,134.7 1.4.1 Demand deposits 32,799.4 44,095.3 52,847.3 68,304.8 87,716.8 162,101.4 114,744.7 1.4.2 Time and Savings deposits 50,058.9 68,033.1 90,006.8 99,676.1 131,858.3 161,455.2 180,378.5 1.5 Capital accounts 16,577.6 25,232.4 32,757.4 39,908.2 47,298.4 69,719.7 100,512.1 1.6 Other Liabilities 10,842.9 16,385.9 18,734.2 22,946.8 22,242.8 47,966.2 62,681.6 Total Liabilities 119,913.6 164,736.2 205,247.8 245,166.9 305,854.6 478,216.4 635,972.3
Acceptances, Guarantees, etc. 13,685.0 18,050.3 17,299.8 17,370.6 14,623.2 8,214.7 86,015.6
2.0 ASSETS 2.1 Foreign sector 7,808.7 7,433.8 11,368.2 13,878.3 17,019.3 66,872.1 105,376.1 2.1.1 Claims on banks abroad 7,791.8 7,400.2 11,352.2 13,826.8 16,946.2 66,826.2 104,811.7
2.1.2 Bills payable abroad -58.0 2.9 -12.8 0.0 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 45.9 564.4 2.2 Official Sector 25,375.1 33,928.9 34,297.8 28,075.7 48,498.7 56,328.4 83,376.7
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 65,537.0 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 3,222.6 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 62,314
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 17,839.8 2.3 Domestic Banks 9,163.7 14,597.6 21,309.2 22,395.3 34,669.9 53,011.2 84,504.0 2.3.1 Claims on RBM 8,543.7 14,032.8 20,620.4 21,849.6 33,061.7 42,000.5 77,081.8 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 57,756.3 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 19,325.5 2.3.2 Claims on other domestic banks 620.0 564.9 688.8 545.7 1,608.3 11,010.7 7,422.2 2.4 Private sector loans and advances 47,267.1 68,143.5 95,043.6 121,632.5 140,737.5 218,866.4 250,445.7 2.5 Other 30,299.0 40,632.3 43,228.9 33,933.2 33,753.2 43,807.7 57,850.6
Total Assets 119,913.6 164,736.2 205,247.8 245,166.9 305,854.6 478,216.4 635,972.3 Source: Commercial banks’ reports 1Including Reserve Bank of Malawi Bills
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Table 4: Monetary Survey: (K’mn)
2007 2008 2009 2010 2011 2012 2013 1.0 Net foreign assets 30,254.6 19,667.1 (2,276.8) 20,376.8 2,383.3 31,406.4 134,234.1 1.1 Monetary authorities 28,291.5 16,401.7 (9,678.1) 8,076.1 (8,840.4) (19,957.7) 41,819.0 1.2 Commercial banks 1,963.1 3,265.5 7,401.3 12,300.7 11,223.7 51,364.1 92,415.1 2.0 Net domestic credit 72,115.1 158,042.4 214,736.7 216,877.1 287,772.1 378,833.5 452,402.5 2.1 Net Claims on the Official sector 24,848.0 89,898.9 119,693.1 95,244.6 147,034.7 159,967.0 201,956.8 2.1.1 Net claims on government 21,111.4 83,855.5 113,453.7 90,582.2 133,138.8 140,609.6 184,117.0 2.1.1.1 Monetary authorities (816.5) 56,705.4 85,745.5 72,514.6 102,928.7 110,440.9 126,057.6 2.1.1.2 Commercial banks 21,927.9 27,150.2 27,708.3 18,067.7 30,210.1 30,168.7 58,059.4 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 17,839.8 2.1.2.1 Monetary authorities 1,266.3 1,972.8 978.1 699.0 0.0 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 17,839.8 2.2 Gross claims on private sector 47,267.1 68,143.5 95,043.6 121,632.5 140,737.5 218,866.4 250,445.7 3.0 Total net domestic credit and net foreign assets 102,369.7 177,709.5 212,460.0 237,253.9 290,155.5 410,239.9 586,636.6 4.0 Liabilities to Private Sector 4.1 Money and quasi-money 104,879.8 139,643.3 174,032.2 203,898.0 266,475.1 386,435.6 521,962.5 4.1.1 Narrow Money 54,016.4 70,596.7 81,900.3 102,112.2 131,208.0 217,478.8 190,744.8 4.1.2 Quasi-money 50,863.4 69,046.6 92,132.0 101,785.8 131,858.3 161,455.2 316,390.0 5.0 Capital accounts 16,577.6 25,232.4 32,757.4 39,908.2 47,298.4 69,719.7 100,512.1 6.0 Unsectored accounts (net) (2,510.0) 38,066.2 38,427.7 33,355.9 23,680.4 23,804.3 (35,838.0) 7.0 Total Domestic Liabilities 74,625.1 119,976.2 176,309.0 203,898.0 266,475.1 386,435.6 521,962.5 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 2013 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 74,852.8 174,387.0 1.1.1.1 Balance with foreign Banks 34,301.0 35,413.9 22,791.8 44,277.6 30,472.7 73,313.5 169,127.6 1.1.1.2 SDR and RPF 528.4 516.3 837.9 806.8 678.5 1,539.2 5,259.4 1.1.2 Foreign Liabs. International Agencies 7,124.7 19,931.3 33,763.9 37,467.0 40,491.3 95,876.0 132,568.0 1.2 Net Foreign Exchange Reserves (RBM) 27,704.8 15,998.9 -10,134.2 7,617.4 -9340.1 -21,023.0 41,819.0 1.3 Balance with Crown Agents and Special 0.0 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 75,918.3 174,387.0 1.5 Net Official Reserves 28,291.5 16,401.7 -9,678.1 8,076.1 -8,840.4 -19,957.7 41,819.0 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 51,364.1 105,376.1 2.1.1 Claims on foreign Bank 7,808.7 7,433.8 11,368.2 13,826.8 16,946.2 66,826.2 104,811.7 2.1.2 Loan & Advances to non-residents 7,791.8 7,400.2 11,352.2 51.5 73.2 45.9 564.4 2.2 Foreign Liabilities 16.9 33.6 16.0 1,577.6 5,795.6 15,508.0 12,961.0 2.2.1 Liabilities to Foreign Banks 5,845.6 4,168.3 3,966.8 923.3 4,680.6 13,587.0 4,619.6 2.2.2 Deposits of non-residents 5,018.1 3,298.4 2,967.0 654.3 1,115.1 1,921.0 8,341.3 Total net foreign Assets 827.4 870.0 999.8 20,376.8 2,383.3 31,406.4 134,234.1 Source: Reserve Bank of Malawi
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Table 6: Money and Quasi-Money (K’mn) 2007 2008 2009 2010 2011 2012 2013 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 76,000.1 1.2 Demand deposits………….. 34,455.1 45,335.5 54,407.1 70,263.9 90,512.3 166,987.6 125,052.6 1.3 Total money (1.1+1.2)……. 54,016.4 70,596.7 81,900.3 102,112.2 134,003.5 222,365.1 201,052.6 2. Quasi-money …………………….. 50,863.4 69,046.6 92,132.0 101,785.8 132,471.6 164,070.6 320,909.9 3. Total money and quasi-money (1+2) 104,879.8 139,643.3 174,032.2 203,898.0 266,475.1 386,067.9 521,962.5 Source: Reserve Bank of Malawi
Table 7a: Commercial Banks: Advances by Main Sector (K’mn) 2006 2007 2008 2009 2010 2011 2012 2013 Agriculture 1 …………………………………. 4,593.9 6,109.9 12,811.5 10,694.7 14,163.2 34,140.1 44,353.9 54634.2 Mining and Quarrying……………………….. 56.8 127.0 1,270.4 2,485.2 31,186.5 936.0 85,554.2 739.6 Manufacturing……………………………….. 4,059.7 4,585.0 5,234.0 14,280.1 12,478.4 19,082.9 22,817.2 35605.6 Electricity, Water and Gas…………………… 475.0 595.2 75.5 1,807.8 762.7 1,266.2 3,156.0 1551.4 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 9899.7 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 58823.5 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 31084.4.6 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 15177.8 Community, Social and Personal Services………………………………………. 4,108.0 3,391.8 6,342.2 30,762.7 17,443.8 22547.4 4323.8 12491.2 Personal Accounts…………………………….. 4,445.7 5,999.4 12,481.0 16,709.9 20,672.7 26,708.8 39179.8 33246.0 Total2 …………………………………………. 30,122.0 37,548.1 64,359.7 101,983.8 128,096.9 158,080.4 233,832.1 259935.0 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 2013 Agriculture 1 …………………………………. 4,593.9 6,109.9 12,811.5 10,694.7 14,163.2 34,140.1 44,353.9 11,948.6 Mining and Quarrying……………………….. 56.8 127.0 1,270.4 2,485.2 31,186.5 936.0 85,554.2 1,811.0 Manufacturing……………………………….. 4,059.7 4,585.0 5,234.0 14,280.1 12,478.4 19,082.9 22,817.2 7,882.6 Electricity, Water and Gas…………………… 475.0 595.2 75.5 1,807.8 762.7 1,266.2 3,156.0 12,883.7 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 26,035.0 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 18,699.2 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 36,623.1 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 15,951.0 Community, Social and Personal Services………………………………………. 4,108.0 3,391.8 6,342.2 30,762.7 17,443.8 22547.4 4323.8 55,951.0 Personal Accounts…………………………….. 4,445.7 5,999.4 12,481.0 16,709.9 20,672.7 26,708.8 39179.8 72,812.9 Total2 …………………………………………. 30,122.0 37,548.1 64,359.7 101,983.8 128,096.9 158,080.4 233,832.1 261,144.3 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
2013 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec 1. Bank Rate……….……………….. 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 25.00 2. Treasury Bills 2.1 91 Days……………………... 26.77 29.55 39.82 42.19 31.88 32.97 31.80 24.17 15.70 21.02 26.50 32.32 2.2 182 Days……………….…… 27.16 32.26 43.66 41.32 32.88 33.79 32.20 24.40 18.36 24.28 28.33 31.89 2.3 271 Days……………………. 31.37 34.88 43.38 41.57 36.55 36.35 34.72 26.44 21.68 27.38 31.66 36.98 3. RBM Bills 3.1 63 Days……………….…….. 36.17 36.17 37.00 40.83 40.83 40.83 40.54 38.00 37.60 37.60 37.60 37.77 3.2 91 Days………………..…… 10.55 10.55 11.00 12.09 12.09 12.09 12.09 9.68 8.95 8.95.8. 8.95 8.98 4. Commercial Banks 4.1 Base rates………………….… 10.13 10.25 10.25 11.13 11.13 11.29 11.29 10.08 9.38 9.29 9.29 9.31 4.2 Savings Deposits……..…….. 13.05 13.27 13.55 14.45 14.45 14.45 14.45 12.95 11.59 11.45 11.45 12.17 4.3 Short Term deposit 4.3.1 7 Days call………….… 4.3.2 30 Days call….……..… 4.4 Fixed Deposits 4.4.1 3 months…………...…. 19.38 19.38 19.71 21.67 21.67 21.45 21..45 19.82 14.91 14.91 14.91 16.17 4.4.2 6 months…………….… 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……. 36.00 36.00 36.00 42.00 42.00 42.00 42.000 38.00 38.00 38.00 38.00 38.00 5.2.3 Flats and rented houses. 36.00 36.00 36.00 42.00 42.00 42.00 42.000 38.00 38.00 38.00 38.00 38.00 5.2.4 Commercial properties. 35.50 35.50 35.50 43.50 43.50 43.50 43.50 35.00 35.00 35.00 35.00 35.00
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Table 13: Balance of Payments Summary (K’mn)
2011 2012 2013 CURRENT ACCOUNT (208,871.1) (447,320.3) (610,774.3) A. GOODS (268,471.1) (503,898.8) (689,966.0) Credit 318,364.1 512,397.6 606,473.7 General merchandise: exports f.o.b. 313,845.7 497,180.7 589,415.0 Goods procured in ports by carriers 4,518.3 15,216.8 17,058.8 Debit (586,835.1) (1,016,296.4) (1,296,439.7) General merchandise: imports f.o.b. (584,544.4) (1,013,559.8) (1,293,523.6) Goods procured in ports by carriers (2,290.8) (2,736.5) (2,916.1) B. SERVICES (29,825.7) (42,894.3) (60,196.2) Total credit 27,234.1 42,361.5 45,589.4 Total debit (57,059.8) (85,255.8) (105,785.7) C. INCOME (27,616.1) (39,491.7) (49,523.1) Total credit 825.1 949.3 1,247.0 Total debit (28,441.2) (40,441.0) (50,770.1) D. CURRENT TRANSFERS 117,041.7 138,964.5 188,911.1 Credit 120,583.5 143,746.1 195,027.6 Debit (3,541.8) (4,781.5) (6,116.5) CAPITAL ACCOUNT 89,587.5 80,154.8 125,194.8 Total credit 89,625.0 80,205.5 125,259.1 Total debit (37.5) (50.7) (64.3) FINANCIAL ACCOUNT 51,746.0 42,281.6 29,764.0 A. DIRECT INVESTMENT 19,847.5 26,794.8 33,995.1 Direct investment abroad (12,409.9) (16,753.8) (21,255.8) Direct investment in Malawi 32,257.4 43,548.6 55,251.0 B. PORTFOLIO INVESTMENT 296.7 400.6 508.2 Assets 28.5 38.5 48.9 Liabilities 268.2 362.0 459.3 D. OTHER INVESTMENT 37,906.6 83,680.1 123,602.6 Assets (3,575.0) (28,312.0) (31,690.5) Trade credits (268.2) (362.1) (459.4) Loans (28.0) (304.7) (725.5) Banks (1.3) (268.6) (679.7) Other sectors (26.7) (36.1) (45.8) Currency and deposits (3,204.7) (27,545.1) (30,378.5) Banks 2,275.7 (19,746.9) (9,454.9) Other sectors (5,480.3) (7,798.2) (20,923.6) Liabilities 41,481.7 111,992.1 155,293.1 E. RESERVE ASSETS (6,304.9) (62,802.2) (128,341.9)
NET ERRORS AND OMISSIONS 271.1 880.0 1,060.5
MEMORANDUM ITEMS Conversion rates: Malawi Kwacha/U.S. dollar, period average 249.1 369.2 429.8 NEO as a % of Imports and Exports 7.5 21.5 24.2
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Table 14 Selected Foreign Exchange Rates1,2
Malawi Kwacha Malawi Kwacha Per U.S Malawi Kwacha Malawi Kwacha Malawi Kwacha Per Zambian End of Malawi Kwacha per Pound dollar Per Euro3 Per S.A Rand Per Zim dollar Kwacha Buying Selling Buying Selling Buying Selling Buying Selling Buying Selling Buying Selling
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 2013 563.24 591.96 360.13 378.23 478.51 503.86 37.45 39.30 0.00 0.00 65.37 68.69
Averages of daily rates quoted by the Reserve Bank for dealing with commercial banks in Malawi
Table 15: Commodity Imports and Exports1 Value f.o.b (K’mn) 2006 2007 2008 2009 2010 2011 2012 2013 1. Imports …………………… 174550.6 194,640.7 285,759.5 298,198.9 325,578.9 379,648.8 601,915.1 1,033,591.8 2. Domestic exports…………. 93,456.5 122,231.9 123,345.1 167,687.7 159,225.0 222,430.6 292,461.3 434,796.9 3. Re-exports……………….. 429.4 64.6 54.4 358.1 211.4 938.9 251.6 709.1 4. Total exports (2+3)……….. 3,885.9 122,296.5 123,399.5 168,045.9 159,436.4 223,369.6 292,712.9 435,505.9 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
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Table 16: Domestic Exports by Main Commodity (K’mn) 2006 2007 2008 2009 2010 2011 2012 2013 Tobacco…. 80,418.7 51,729.6 82,094.9 99,309.1 87,490.4 88,713.0 157,177.5 202,882.4 Tea………. 8,721.6 7,281.7 5,157.0 9,837.4 12,078.7 13,566.2 17,317.9 31,013.2 Cotton…… 3,689.7 3,062.2 3,070.4 3,319.8 1,751.5 7,359.9 13,443.1 8,541.0 Sugar…….. 10,333.6 8,227.9 7,341.5 9,779.5 10,324.3 33,516.1 10,334.3 41,175.9 Other…….. 36,283.2 28,037.8 24,911.6 43,912.9 22,642.1 24,706.8 44,661.7 61,370.1 Total……. 139,446.8 98,339.2 122,575.4 166,158.7 134,287.0 167,862.0 242,934.5 344,982.6 Source: National Statistical Offic
Table 17: Gross Domestic Product by Economic Activity (K’mn) 2009 2010* 2011* 2012 2013 A. Agriculture, forestry and fishing …………. 265,824.5 276,231.6 294,646.8 288,016.0 305,459.2 of which: i. Crop, animal production, hunting and related 173,935.6 178,745.3 192,356.7 180,380.0 194,766.2 services……………………………….. ii. Forestry and logging …………………….. 76,921.0 81,536.3 86,860.6 91,422.8 93,953.7 iii. Fishing and aquaculture...... 11,323.2 12,042.4 11,476.8 12102.8 12,102.3 B. Mining and Quarrying…………………………. 7,155.5 44,704.8 43,742.2 50,241.6 55,026.3 C. Manufacturing………………… 90,477.2 92,213.8 94,096.7 92,827.0 98,056.9 D+ E. Utilities………………………. 17,737.5 12,205.3 12,691.6 12,980.5 13,409.1 F. Construction……….. 24,385.0 28,092.1 27,492.9 28,212.1 29,930.9 G. Wholesale and retail……………………. 14,082.8 146,482.2 150,369.8 154,094.3 160,523.0 H. Transport and storage….. 17,267.6 18,163.5 18,570.3 19,439.5 20,477.0 I. Accommodation and food service activities….. 15,939.4 17,169.5 17,184.1 17,655.0 18,412.1 J. Information and communication……….. 30,968.8 33,312.5 34,747.0 37,093.7 40,411.0 K. Financial and Insurance activities…………. 36,038.4 39,754.2 43,530.4 46,258.3 48,754.7 L. Real estate activities………….…….. 64,689.3 71,766.2 73,076.4 75,758.9 77,735.0 M.+ N. Professional, scientific and technical activities, 1,240.7 1,348.2 1,388.1 1,419.3 1,494.5 administrative and support service activities….. O. Public administration and defence…. 28,572.7 30,448.0 29,881.7 31,531.2 32,837.9 P. Education…… 19,857.5 21,246.7 21,889.8 22,596.9 23,797.2 Q. Human health and social work activities 22,712.7 24,825.9 25,896.3 26,585.7 27,961.9 R+S+T+U Other services, nec 25,071.2 26,504.5 28,002.8 29,566.9 31,196.7 GDP in 2009 constant 848,035.3 941,810.1 969,141.7 987,471.0 1,040,669.9 GDP per capita (current market prices)………….. 62,817.4 72,772.5 77,804.9 93,567.5 122,570.8 GDP at current prices 848,035.3 1,011,537.5 1,120,391.2 1,384,799.2 1,875,333.9 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
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Table 18: The National Composite Price Index (2000=100)
Beverages and Clothing and Household All items Food costs 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 2013 127.3 123.3 127.0 124.2 141.5 125.0 123.5 118.1 Source: National Statistical Office
Table 19: The National Composite Price Index (2012=100) Housing Furnishing Transportation Commu Recreatio Education Restauran Food & Alcohol and Clothing and & & nication n & ts Miscellan All items Beverages Tobacco Foot wear Utilities Household Health culture eous Overall Weight 100.0 50.2 2.5 3.2 14.7 4.2 1.4 6.6 5.8 2.2 4.5 1.3 3.0 Period 2012 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 2013 127.3 123.3 127.0 124.2 141.5 125.0 118.9 123.5 129.6 139.5 126.9 194.4 118.1 Source: National Statistical Office
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