Malawi banks in consolidation drive

Bank consolidation seems to be on the  move in  the country, with large and stable banks growing steadily while small and inefficient banks being swallowed.

Reserve Bank of Malawi’s (RBM) sustained increase in capital requirement, has sent the local financial sector into a rapid consolidation drive, reducing the number of banks from 13 to eight over the past six years.

Meanwhile, RBM has announced that it will effective January this year hike capital requirement for commercial banks from K3.7 billion to K10 billion.

This consolidation drive started in 2014 when RBM rolled out Basel II, the second of Basel accords, which are recommendations on banking law and regulations issued by the Basel Committee on Banking Supervision. 

This meant that banks’ Tier One capital and total capital ratio needed to be at 10 percent and 15 percent respectively, in line with international business standards, requiring banks to have enough cash reserves to hedge against risks.

The Basel II regulations saw banks such as Indebank being acquired by National Bank of Malawi (NBM) plc in 2016.

NBM bought 97.05 percent stake in Indebank, which was then struggling to meet Basel II requirements.

This was followed by another merger of FDH Bank and Malawi Savings Bank (MSB) in July the same year.

In 2017, FMB, now First Capital Bank also bought and merged with Opportunity Bank of Malawi. In the same year, MyBucks S.A. acquired 50 percent stake in New Finance Bank Malawi Limited, which has now acquired a 100 percent stake in Nedbank Malawi. 

Bankers Association of Malawi chief executive officer Violette Santhe said the development, which is a key strategy by a number of banks to meet the capitalisation requirements by the RBM, is normal and acceptable given that it is solidifying the banks’ resilience.

She in an e-mail response that where the consolidation is making the industry much stronger and more resilient, larger banks are diversifying better and are less fragile.

“We are hopeful for banks which can be relied upon by different sectors of the economy to support economic development and growth.

“Banks which are innovative and able to provide reliable services and banks which are operationally sleek and are able to compete on many fronts such as footprint, pricing and products,” she said. 

Santhe said the existing banks have been progressive as they are competing on new products and services and distribution channels while still having excess capacity to support business growth in Malawi.

An investment banker and strategist Misheck Esau said the  economy would benefit from the financial sector consolation because the country will have more meaningful competition for private-sector business.

“The oligopolistic state of the financial sector for most part since 1995 meant the top two banks, carrying over 80 percent of total bank assets, had no meaningful competition from smaller and mostly not-so-well capitalised banks.

This is becoming a thing of the past with the move taken by the regulator to increase bank capital to K10 billion from January this year.

“The bigger banks, being created as a result of the consolidation, with higher capital could mark the start of more inclusive access to credit where banks will start looking at the private sector more favourably,” he said.

Esau said the drop in interest rates that has been happening so far should motivate banks to undertake innovations to stay afloat.

“The additional capital that shareholders have injected on bank balance sheets will mean more financing capacity for banks to support the private sector,” he said.

But Competition and Fair Trading Commission (CFTC) acting executive director Martha Kaukonde said given the current situation, competition would appear to be minimal in as far as pricing and quality of services are concerned.

“In terms of competitiveness, some quick facts would indicate that the acquiring banks improve their competitiveness post-merger when we consider their advancement in technology, as they almost lead the market on the technology front,” she said. RBM spokesperson Mbane Ngwira said the central bank is only trying to ensure that banks have an adequate cushion of capital to absorb losses and protect interests of depositors and creditors.