MSB, FDH to merge

Malawi Savings Bank (MSB) will surrender its banking licence and merge with FDH Bank within 12 months according to communication from FDH Financial Holdings chief executive officer Thom Mpinganjira.

In a circular to staff of both banks, which Weekend Nation has seen, Mpinganjira states that the decision has been made to comply with the Banking Act of 2010, which prohibits dual-control of banks.

Section 6 (4) of the Act reads: “A person who is a controlling party of a bank shall not be a controlling party of another bank.”

“Legislation does not allow for one bank to own shares in another bank, so FDH and MSB will merge into one bank, with one banking licence in time. In the interim, it is anticipated that FDH and MSB will continue to trade as separate banks for six months from the date of the purchase of the shares. Following this, MSB will surrender its banking licence, MSB employees will transfer to FDH and rebranding to the FDH brand will take place,” reads the memo Mpinganjira sent to staff.

Mpinganjira said in an interview on Thursday that the decision to merge the two banks will be guided by the decisions of the Registrar of Financial Institutions, who is the governor of the Reserve Bank of Malawi (RBM).

In a related development, National Bank of Malawi (NBM) head of strategy, marketing and corporate affairs Wilkins Mijiga said the merger process of NBM and Inde Bank has already started, saying it is being done in an orderly manner.

“We are handling the transition in a firm and orderly manner. The purchase of Inde Bank did not have any tempers,” he said.

But Sunduzwayo Madise, a lecturer in commercial law at Chancellor College, said the mergers of MSB and FDH on the one hand and NBM and Inde Bank on the other are long overdue and they should have been finalised soon after putting pen to paper and reaching a binding agreement to avoid flouting the law.

“However, this may not be possible in practice under the current legal framework. Mergers and acquisition are a complex area of corporate finance law and if not done properly can lead to problems. What these deals have done is expose a weakness and gap in our law. It would seem the Banking Act and Financial Services Act either never intended such deals to happen or they never envisaged that they would,” Madise said.

He said the law is  meant to prevent one entity from having   a controlling interest in more than one bank.

“This is a financial integrity and stability issue,” Madise said. “It is a safeguard measure to protect the financial sector (banking sector in this case) from being over-exposed to one entity. If that entity were to fail, for whatever reason, the effects to the financial system would be catastrophic. It may lead to a domino effect, what technically is called contagion.”

Madise, however, commended FDH and NBM for taking steps to rectify the matter, adding that earlier sentiments by Mpinganjira that the two banks would continue operating separately were a nonstarter.

“The process of merging is a complex one and ideally the law needs to open up a window for this to happen. I would say so far the new owners have done well in managing this complex issue.  .. So, in summary, the deal should never have been approved in the first place without a plan of how the merging and acquisition would roll out,” Madise said.

Mpinganjira’s circular also informed the employees that the management understood the anxiety created by the integration process of the two banks and assured them that there would be security of employment from middle management and below.

“We would like to assure staff members of both FDH and MSB that there will be security of employment from middle management and below,” reads the circular.

In the interview on the matter, Mpinganjira said: “In matters of employment a job can never be guaranteed; it depends on performance. To guarantee a job means whether one performs or not they will keep their job. That is not so in FDH and cannot be so in MSB and I doubt whether there is any organisation that does that.”

In a related development, MSB chief executive officer Ian Bonongwe has been relieved of his position as the head of the bank as the new management of the bank say they cannot guarantee jobs for senior managers.

In an internal communication to MSB staff, which Weekend Nation has seen, Bonongwe said he had been seconded to the FDH Financial Holdings’ Integration Management Office (IMO) effective September 7 2015.

“Following the impending merger of FDH Bank and Malawi Savings Bank (MSB), I have been seconded to the Integration Management Office, effective 7th September, 2015. I am currently in the process of finalising handovers to Teddie Chanza who has been acting since I went on leave,” he communicated to his team on September 11 2015.

Bonongwe then thanked his staff for the opportunity of working together and for the support provided and asked the team to render the same service to Chanza “as you sail through the transition to becoming a one bank and the ‘Number One Bank’.”

When contacted, Bonongwe said he was in a meeting and later he could not pick his phone but Mpinganjira confirmed of the relocation.

“Bonongwe has been appointed as banking strategy specialist in the IMO because of his vast banking background and experience. He joins a team of seasoned specialists including Ernest and Young from South Africa. Other specialists are IT, finance, legal, human capital and and cultural change. Ernest and Young are the overall integration specialists,” he said.

Mpinganjira said the IMO, a multi-disciplinary team headed by Nathan Mpinganjira, is coordinating a new operating model for the two institutions which will inform the decisions on jobs and people.

Mpinganjira said FDH bought MSB to tap into the strengths of the bank which has a network of 14 branches and 33 agencies and ATMs across the country, including rural and remote areas, as well as a personal and business customer base in excess of 420 000.

Government on July 2 2015 disposed of 75 percent of its shares in MSB which were acquired by FDH Financial Holdings Limited in a controversial deal that drew a backlash from members of Parliament (MPs) and civil society organisations (CSOs) who opposed the sale.