Business NewsFront Page

Govt takes over MSB toxic assets

  • Bank’s net value likely to go up—Analyst

Government has unveiled plans to issue K6 billion promissory notes to clear  Malawi Savings Bank (MSB) toxic assets in a move a financial analyst says could significantly increase the net value of the State-owned bank.

Mangani: Government has taken the decision to clear these toxic assets
Mangani: Government has taken the decision to clear these toxic assets

Treasury has stepped in to write off toxic assets that have been in MSB books by asking the Reserve Bank of Malawi (RBM) to issue K6 billion promissory notes to take the toxic loans off the bank’s books.

A promissory note is a document that is signed by parties containing a written promise to pay a stated sum to a specified person or the bearer at an agreed date or on demand.

This is the second time for Treasury to issue promissory notes to hive off some toxic assets in MSB in a space of two years.

In a letter reference number ST/3/10 dated April 20 2015 seen by The Nation, Secretary to the Treasury Ronald Mangani instructed RBM Governor Charles Chuka to issue the promissory note to MSB to clear the toxic assets.

Mangani said the maturity of the promissory notes have been spread from 2016 to 2019 and will be maturing at K759 million every quarter.

Reads the letter: “As you are aware that Malawi Savings Bank Limited which government wishes to dispose of had toxic assets amounting to K6 074 773 871.70 as at 31st March 2015. The government has, therefore, taken the decision to clear these toxic assets through the issuance of an interest bearing promissory note.”

Requested to issue interest bearing promissory: Chuka
Requested to issue interest bearing promissory: Chuka

In a letter to MSB chief executive officer Ian Bonongwe, Mangani said: “I write, therefore, to inform you that the government has resolved to hive off MSB toxic assets amounting to K6 074 773 871.70 and to replace  them with a promissory note in this regard, I have already requested the Reserve Bank of Malawi to issue the promissory note for this purpose.”

RBM spokesperson Mbane Ngwira said the said letters had not reached the central bank at the time we went to press.

On the other hand, Ministry of Finance spokesperson Nations Msowoya, in an e-mail response yesterday, said government had no comment.

Msowoya was asked to explain why government was issuing promissory notes instead of recapitalising MSB as well as which loans government was covering in the new promissory notes considering that in 2013 authorities also issued to the bank K6.4 billion in promissory notes for the loans that government guaranteed.

But a senior banker who opted not to be mentioned said by taking the K6 billion off MSB books, automatically the net value of the bank has increased by the same value that has been taken off.

Government is seeking financial strategic partners to finance MSB which is struggling to meet Basel II requirement and the bank needs a financial injection of K23 billion.

The Public Private Partnership Commission (PPPC) recently unveiled FDH Financial Holdings Limited, owners of FDH Bank, as the only bidder to become the strategic partner after offering K4.9 billion for the 75 percent of the bank’s shares.

The toxic loans covered in the promissory notes issued in 2013 included K3.7 billion of the K5 billion the Smallholders Farmers Fertiliser Revolving Fund of Malawi (SFFRFM) obtained in 2009 to buy 40 000 tonnes of fertliser.

Other loans included K1.2 billion obtained by the Agricultural Development and Marketing Corporation (Admarc), K1 billion that was obtained by Malawi Defence Force (MDF), K162 million for Public University Students’ Loan Scheme tuitions, K244 million that was obtained by Malawi Rural Finance Company and K13 million obtained by Air Malawi.

It was not immediately clear whether by issuing the promissory notes, government was writing off the loans, most of which were borrowed by private businesses and individuals. n

 

Related Articles

Back to top button