By Andrew Bishop Mkandawire-Yr4 MC-Share World Open University Malawi
The
Legal aspects
are:
Commercial Bank Regulation;
According to (Laws of Malawi 1989-(Part
11 (56) of Chapter 44:02) it is argued that the ‘Minister may, after
consultation with the Bank, make regulations for the better carrying out of the
objectives and purposes of this Act, or to give force or effect to its
provisions, or for its better administration.
This shows that the regulation is more
interested in success of the commercial banks.
Limited entry; to start up a commercial
bank in Malawi, an investor can only enter the local banking market through
merging and acquisition as recommended by the Reserve bank of Malawi through
the Reserve Bank of Malawi Act.
According to (RBM 2008, p. 15), the
legal stipulates of such conditions are
3.4.2
Merger A
formal application by the merging banks/institutions addressed to the Governor
of the RBM and signed by the Chairpersons and Managing Directors/Chief
Executive Officers of each of the merging banks accompanied by the following:
Proposed name of the successor bank (where a
new entity will be formed). Resolution of each bank of the Boards and
shareholders of the merging banks approving the merger. List of Directors,
designation, curriculum vitae and interests they represent post merger.
List of significant shareholders of the
existing banks, showing their physical/residential addresses, pre and post
merger.
List of top management team of merging
banks and their designations after merger.
Draft Memorandum and Articles of
Association of the new bank or surviving bank (with proposed amendments if any).
Business Plan of the successor bank for
the next 3-5 years showing how the integration process will be managed, future
goals and operations, branch expansion, treatment of existing and surplus staff
etc.
3.4 Acquisition or Merger with an existing
banking institution
Should a prospective investor opt to acquire
or merge with an existing bank, the following
information will have to be submitted to
the Reserve Bank of Malawi. Full details on mergers
and acquisitions are contained in the
Guidelines on Mergers and Acquisitions document.
3.4.1
Acquisition A
formal application by the acquiring institution/bank addressed to the Governor
of the RBM and signed by the Chairman and Managing Director/Chief Executive
Officer accompanied by the following:
A take over application stating clearly
that the acquired bank(s) will cease to exist. An independent valuation/due
diligence report on the bank to be acquired.
A sale agreement between shareholders of
the acquired bank (seller) and acquiring institution (buyer) duly signed on a
seal by both parties.
Memorandum and Articles of Association
of the acquiring institution. Certificate of incorporation of the acquiring
institution. Approval letters from banking regulator of the buyer (if a bank)
confirming that the buyer has adequate resources to finance the transaction.
Board resolutions of the acquiring and
acquired institutions approving the acquisition.
And the fact that the government of
Malawi through the Reserve Bank of Malawi controls commercial bank entry into
local market through merging and acquiring, it may be argued that it is how it
can best measure or assess its performance eventually ensuring cheaper mode of
market entry
Political threats; this usually happens
when a ruling party just demand the commercial bank to deposit its moneys into
the party’s account without repayment. The bank usually does cough such moneys
in far of being stopped to operate.
This can be argued that it lowers
commercial bank’s profitability.
Economic
Low Capital; banks in Malawi are issued
license to start operation when they meet a minimum amount of total capital.
3.3.4 Assessment of Bank License
Application. (RBM 2008, p. 14) argues that in assessing an application, the
Reserve Bank takes into account all the above listed information as well as the
requirements stipulated under Section 6 of the Banking Act. A banking license
shall not be granted unless:
The proposed institution is incorporated
as a company under the Company’s Act.
The proposed bank will be managed by at
least two persons as executive officers, and,
The proposed institution
demonstrates that it will be adequately
capitalized at all times and meets the
minimum start up capital requirements of
Malawi Kwacha equivalent of US$5.0 million for a bank, and US$1.5 million for a
leasing company or discount house. Use of borrowed funds as start up capital to
be invested is discouraged.
It can be argued that if currently there
are 11 commercial banks there total minimum capital invested in the banking
industry is MK13, 750, 000, 000 or MK13, 750 billion against 14.5 million
people. This figure minus banks administration costs is small to serve the
developing country which lack financial resource. For example, the MK13, 750
billion divided by the 14.5 million people, everyone would get MK948. 28 loan.
It is therefore conspicuous that is why Malawian banks are found difficult to
issue loans. It is not only the issue of collateral but they do not have enough
money to invest. A better bank would rash to fund a profitable idea fully
assessed to would bring more assets other than insisting on little assets
already available for collateral. A developing country has more unbroken,
unused and unsaturated business opportunities and markets.
More GNP loss of local wealth; there is
observation that although the number of banks look so attractive (11 banks),
only New Building Society, Malawi Savings Bank and National Bank of Malawi
provide wealth accumulation to the nation of Malawi as 70% of their ownership
formality is Malawian. This means that Malawi loses wealth to 8 countries that
own Ned, OIBM, Standard, Eco, International Commercial, Inde, FDH and FMB
banks.
Low income generations
of civil servants; many civil servants and the general public particularly that
belong to the lower social class having more national population than the
middle and upper social class do not use much of the banking service. However it can be detected that it is because
they receive little that cannot be spared for savings. This may reduce bank
utility and bank industry growth. For example, in Malawi the minimum wage for
workers is MK176 per day (MK5, 456. 00 a month) which some have called it a
mockery to Malawians as (www.zodiakmalawi.com) argues that in the midst of the
high cost of living the approved MK176 minimum wage for Malawian laborers is a
mockery to them, the Center for Social Concern, a Social arm of the Catholic
Church, has said in Mangochi. In contrast The International Labor Organization
establishes minimum rates for able seamen. From January 1st 2012 the
minimum monthly wage for seafarers is 555US$ (MK138, 750.00 a month) US
dollars, rising to 568 US dollars on January 1st 2013 and to 585 US dollars on
December 31st 2013. Consolidated monthly wages, including overtime and annual
paid leave, are 975 US dollars and will rise to 998 US dollars and 1,028 US
dollars respectively (www.fedee.com).
The legal and economic issues discussed
above have Impact in a positive and
negative way.
For example, the positive impact may be
that the two are enabling the baking sector help Malawians save and safely
keeps their money thereby enhancing strategic use of finances. The two factors
are also important in enabling local business professional find jobs in
respective commercial banks.
The negative impacts are that the
interest rates are high for people like middles and lower classes people. And
the fact that banks are allowed to invest a minimum of not more than MK1.2
billion, they may realize little profit to grow the banking industry to meet
the banking service currently high in rural areas. The same problems may affect
the entrepreneurial growth. Many people may not access bank loans if banks may
remain investing less.
REFERENCES
Laws of Malawi (Part 11 (56)) 1989, Chapter 44: 02, Reserve Bank of Malawi Act,
Office of President & Cabinet
RBM 2008, The Malawi Economy and Its Banking System, Reserve Bank of Malawi,
Lilongwe
Federation of European Employers’
2012, FedEE Review of minimum wage
rates, viewed 27th September, 2012, http://www.fedee.com/pay-job-evaluation/minimum-wage-rates/
