Tread carefully on Indebank, MSB
Finally, Government of Malawi (GoM) through the Public Private Partnership Commission (PPPC) is inviting offers from eligible private sector investors wishing to buy its stakes in two commercial banks, Malawi Savings Bank (MSB) and Indebank Limited.
Currently, GoM holds 100 percent in MSB and 41.38 percent in Indebank.
It is not strange for government to let go of its interest in financial institutions. For example, previously, Capital Hill also held equity stakes in Standard Bank (Malawi) Limited’s forerunner Commercial Bank of Malawi (CBM), NBS Bank when it was The New Building Society as well as National Bank of Malawi (NBM).
Shares in the three entities were disposed of through the Malawi Stock Exchange (MSE). They were bought by individual investors as well as corporations such as Standard Bank Group in the case of CBM.
In the case of MSB and Indebank, however, the decision to let go has come under different circumstances as government has literally been forced to take that path to save the two institutions and ensure that they meet minimum capital requirements under Basel II.
Basel II is an international standard for banking regulators such as the Reserve Bank of Malawi (RBM) to guard against financial and operational risks. It rolled out in earnest on January 1 2014.
In other words, Basel II requires that Tier One Capital Ratio—the ratio of a bank’s core equity capital to its total risks weighted assets (RWA)—should be at least 15 percent.
By August last year, according to an RBM Financial Stability Report for June 30 2014, four out of the 11 commercial banks operating in the country were yet to meet the new minimum capital requirement of $5 million (about K2.3 billion ).
No names of banks that did not meet the requirements were mentioned. However, at that time, Nedbank (Malawi) Limited, MSB, Indebank Limited, CDH Investment Bank and Opportunity Bank of Malawi had not publicly indicated having increased their capital in line with the new regulations. The rest made public announcements about attaining the milestone.
I am a firm believer in the principle that governments are poor entrepreneurs; hence, they should leavebusiness to businesses. It is in this regard that over the years I have been advocating the dilution of Capital Hill’s stake in MSB, for example.
In Indebank, established as a development and investment bank in 1972 before converting to a commercial bank in 2001, government joined the fray, more recently in 2010, when it bought the 41.38 percent stake held by Trans Africa Holdings Limited of Mauritius to become a majority shareholder. Other equity holders in Indebank are Press Trust with 30 percent, Admarc Investments Limited with 25.67 percent and Indebank employees who hold a 2.95 percent stake.
For the record, Trans Africa Holdings Limited divested from Indebank to concentrate on CDH Group, owners of CDH Investment Bank, where it holds 84 percent whereas Press Trust has 15 percent and the bank’s employees one percent stake.
When Capital Hill bought the Indebank stake it holds to this day, I was one of the people who felt the disposal of the shares should have been through an initial public offer (IPO) on MSE. Such a move could have allowed many Malawians to take part in the ownership.
By purchasing the Indebank stake in 2010, Capital Hill also created a regulatory dilemma which has been seen in the present case of MSB where the regulator, RBM, has been acting with kid gloves, so to speak, despite the bank failing to meet some benchmarks. Surely, if MSB was a private entity, RBM could not tolerate some of the things.
From the look of things, it appears the move to dilute the shareholding in the two banks has been undertaken out of panic to raise money for new capital requirements. There is too much firefighting. It is my plea that no short cuts will be taken and let the investments go for a song.
Banking being a sensitive business it is, the players involved in the transaction, including the PPPC, Capital Hill and the concerned institutions, should have embarked on a public relations and awareness drive, issuing cautionary statements, among others.
