Right now, the Reserve Bank of Malawi (RBM) is in the High Court seeking a stay order to review a determination by the Public Procurement and Disposal of Assets Authority (PPDA), which fault the central bank over a questionable contract award to buy information and communications technology equipment.
PPDA found that the firm that the bank awarded the contract to only had two years of experience when RBM’s own bidding documents specifically required a five-year track record. In other words, the bank ignored its own rules for this particular procurement.
As we write this, the central bank is in a mess over the K200 billion trade finance facility agreement known as Dual Tranche Strategic Structured Commodity and Trade Finance Facility, with allegations that the bank allowed some briefcase companies to benefit from the taxpayer backed initiative under an agreement with the Eastern and Southern Africa Trade and Development Bank (PTA Bank) in which RBM would secure funds under a sovereign guarantee for private sector companies to access for importation of petroleum products and fertiliser and repay RBM later.
That alleged lack of due diligence means the bank may have neglected to objectively assess the financial sustainability of the said companies, including their governance situations, capital adequacy, asset quality, management quality, earnings quality and even their liquidity levels.
If these alleged lapses are true—that the regulator of the financial institutions could be so sloppy with prudential issues—then what does this say about the state of Malawi’s banking industry?
Will RBM have the moral authority to penalise local financial market players for recklessly lending out depositors’ funds? Your guess is as good as mine.
Then, not long ago, the central bank woke up to one of the worst and most embarrassing governance crises it has ever experienced when information leaked that top dogs at the bank tinkered with the executive management salary structure to award themselves probably the highest pay packages not just in Malawi’s public sector, but in the private sector as well.
This was done through some dubious business process re-engineering exercise that saw salaries of top executives more than doubling, creating pay levels that were neither fair nor equitable and sparking outrage from demotivated lower level staff.
The person chairing the board that approved the outrageous salaries—the Governor—was a beneficiary himself.
Up to now, it remains unclear whether these self-made payouts were in line with the intentions of the appointing authority. One thing was clear though: at the rate salaries of executives at RBM were increasing, chances were that they would grow uncontrollably, distort staff costs and hit morale of other employees at the bank.
The exponential rise in salaries in executive management and the manner in which it was arrived at, then approved by the central bank board and implemented points to serious problems of governance at RBM in terms of how that institution is directed, controlled and conducts its business.
And the Basel Committee on Banking Supervision Guidelines makes it clear that “governance weaknesses at banks that play a significant role in the financial system can result in the transmission of problems across the banking sector and the economy as a whole.”
You just have to look at how Cashgate happened for you to appreciate the criticality of having a diligent central bank. Forget about what you heard, the truth is that RBM was complicit in Cashgate through its regulatory and procedural failures.
This is why we need a central bank with an effective governance structure that has in-built mechanisms for checking excesses and personal behaviour of top people at the bank to protect stakeholder interests. Central banks should be the epitome of good governance and integrity and RBM appears to have lost its way.
I hope that Vice President Saulos Chilima—who is currently running the Public Service Reforms Programme—will look at the case of Malawi’s central bank with the seriousness it deserves, starting with an ethics review then a critical look at the bank’s governance architecture.
Otherwise, this country cannot afford to have the public lose faith in RBM because then the country’s already wayward financial houses will run amok colluding, manipulating and exploiting depositors, borrowers—and even RBM itself.