Investment banker and strategist Misheck Esau says the country’s financial sector could face major cultural and organisational issues in the ongoing bank consolidation drive.
He said this in the context of the current banks consolidation in which large and stable banks are growing steadily while small and inefficient banks are being swallowed up by the big banks.
Over the past six years, Reserve Bank of Malawi’s (RBM) sustained increase in capital requirements has sent the country’s financial sector into a rapid consolidation drive, reducing the number of banks from 13 to eight.
RBM has since announced that it will effective January 2020 hike the capital requirement for commercial banks from K3.7 billion to K10 billion.
Esau said not all consolidations end up successful to produce increased profitability, adding that some consolidations end up producing sub-optimal output.
He said: “There could be increased competition, which could result in banks taking more risks to survive. The central bank is quite alert and capable to pick risky tendencies.
“It must be mentioned though that generally the Malawi financial sector is conservative, coupled with the tight regulatory environment in which it operates.”
Esau said commercial banks will continue to rationalise their operations to compete better.
He said it will not be surprising to see larger banks re-modelling their operations to face competition better and this could come with job losses in the short-term.
On the other hand, Esau believes banks consolidation would create a more robust competition to challenge the bigger players in the sector, which will benefit the private sector.
“We have seen more investments being done in digital banking as banks try to increase their reach to the rural masses as an affordable cost.
“In other words, the increased capital that banks find themselves with has resulted in increased investment in e-banking channels, which are already increasing the reach of financial sector to becoming more inclusive,” he said.
RBM spokesperson Mbane Ngwira said the central bank wants banks to have an adequate cushion of capital to absorb losses and protect interests of depositors and creditors.
He said RBM wants to ensure that banks maintain internationally recognised prudent capital requirement and promote self-discipline in management of banks. In 2014, RBM started implementing Basel II, the second international bank regulatory accord.