Wednesday, April 14, 2010

NBS Bank,Reserve Bank of Malawi, Blue Financial Services: From Owings Chawanda

NBS BANK: That is what it means to move and change with the winds of the times.
It is a story that started as The New Building Society- formed after amalgamation of the Central African Building Society, Commonworth Century Building Society and First Building Society- had been incorporated under the Building Societies Act on February 7, 1964.
Since then, .the Society continued to operate raising funds from the public and advancing them by way of mortgage loans against the security of lands and buildings.
This state of affairs, where it operated almost monopolistically in mortgages, lasted until the liberation of the financial market in Malawi opened the mortgage business to financial institutions registered under The Banking Act, 1989.
The society could, however, not offer products traditionally marketed by banks. This made it increasingly difficult to compete and satisfy the expectations of its customers. A decision was thus made to convert the building society to an authorized dealer (commercial) bank.
And so begun a new story of NBS Bank.
NBS Bank was incorporated as a Limited Liability company on March 14, 2003 and was registered under the Banking Act of 1989 on March 1, 2004. Commercial banking operations started on July 1, 2004.
The Bank was listed on the Malawi Stock Exchange on June 25, 2007. The objective of listing was to increase the Bank’s productive capital base to be deployed in expanding core banking operations. Another objective was to increase the public ownership of the Bank.
A broader shareholder base, including staff participation, is expected to enhance NBS’s image. The listing has improved access to lines of credit and greater ability to attract deposits, apart from extending loan and advances’ opportunities.
The listing was also in line with National Insurance Company Limited’s (NICO) philosophy of diversifying shareholdings in its companies through the public.
Before listing, the shareholding was as follows;
NICO Holdings Limited: 74%
Malawi Government: 16%
National Investments Trust Limited (NITL): 10%.
Now, after listing, the shareholding is as follows:
NICO: Holdings Limited: 60%
Public members: 28.7%
NITL: 8.1%
ESOP: 3.2%
NBS Bank total deposits, on average, amount to K2, 000, 000, 000.
On average, net operating profits hover above K413, 000, 000. Profits growth has consistently been over 55%, raising prospects for more growth.
The general picture is that of improving trends after the government of Malawi, through the Privatization Commission, made available 48, 000, 000 shares for the Initial Public Offer, while NBS Bank offered a further 93, 333, 000, resulting in a total of 141, 333, 000 being available for subscription by the public at an offer price of K2.60 per share.
The offer started on May 28,m 2007 and closed on June 15, 2007. The total number of applicants received was 11, 304. Shares offered were 141, 333, 000 amounted to 367, 465, 800 and shares applied for were 1, 252, 125, 700 amounted to 3, 255, 526, 820. This translated to a subscription rate of 8.9 times. It remains on of the highest IPO subscriptions on Malawi Stock Exchange, save for TNM shares, which were scrambled for.
On investment opportunities that exist, share holding comes quickly to mind. The bank also has good conditions for real estate investments, and has seen an increased customer base, mostly rural farmers and low-income town dwellers.
Like all Authorized Dealer Banks, Ministry of Finance and Reserve Bank of Malawi remain some of the influential institutions.

Blue Financial Services is one of the financial institutions established during the past five years, following government’s loosening of government’s loan borrowing procedures for its workers (civil servants).
In the past, money borrowing processes took long, partly because of government’s long-chain of command (bureaucracy) and a poor credit payment culture. This is a hangover from the sad reality that a savings culture remains a luxury for much of the country’s population.
It thus follows that, because people do not save (bank), they cannot borrow and repay loans successfully.
However, this status quo seemed to change with the establishment of various government loan initiatives, including the Malawi Rural Development Fund (MARDEF). Officials have been reporting improving trends, with the repayment reaching as high as 95%.
Financial services companies such as Blue then started coming in, eager to cultivate from improved loan repayment culture, and increased demand for loans as not all citizens could get access to public loans.
At first, the main borrowers were civil servants, a trend that fell in line with one of the conditions for the immerging financial services providers: the need for borrowers to be in stable employment.
Civil servants flocked to Blue and other service providers. However, because government gave them the much needed go ahead and acted as the guarantor (surety), 56% of government workers went for the loans.
Some of them, however, started flouting on the loans, prompting government to stop guaranteeing the loans.
Here were financial service providers that were millions, in excess of K2 billion a year, facing a new financial challenge. When Chief Secretary to the President and Cabinet, Bright Nsaka, announced that government would no longer play the ‘I-know-them’ tag, shock waves kissed comfortable temples.
The hope was gone.
This has not gone unfelt in Blue. Officials at Blantyre’s Blue offices (adjacent to National Bank of Malawi- Henderson Street Branch) confided that, where as they would receive at least 250 people a day, they are now lucky to receive 50.
They blame government’s decision in 2009 for that.
For example, in January 2009, Blue Blantyre made K60.8 million in interest rates; in February, the figure was K64.6 million, while in March the figure reached K67.2 million.
The case is different this year. In January, Blantyre Blue offices made K8.1 million, in February K6.7 million, while in March the figure rose to K8 million. Things are not good, said employees.
In January 2009, Blue Blantyre had 13 workers. Six have lost their work in the wake of government’s decision.
Blue Financial Services was clearly affected by government’s decision, as evidenced by the fact that the company was failing to offer the house it promised in a ‘Win a House’ Promotion. The promotion took place in late 2008, with the company promising to build a house for the winner in Salima, a Central Malawi Lakeshore district.
When a Lilongwe woman won, the company had no funds, and started negotiating for a new deal: it wanted to pay cash, instead of the house.
Blue officials, however, said the delays were because they wanted their officials from South Africa to attend the hand over ceremony.
It took the efforts of the Malawi Lotteries Board, the body mandated to regulate promotional competitions, to intervene. NLB Operations Manager, Ofwa Alide, worked over-time to make sure that Blue paid.
As it is, Blue’s line of work is on the road back to normal, before government’s decision. Investors would, however, kill a fortune if they include non-permanent employees- so long as there are proper loan repayment mechanisms.
The Reserve Bank governor and Chief Secretary to the President have control over the operations of financial services. For RBM, the role is direct while the Chief Secretary does so through government directives.
Overall, it has not been a good time for financial service providers. What with RBM’s decision to close Foreign Exchange Bureaus, initiate new mechanisms for authorized dealer banks, low import cover, and a neck-breaking global financial crisis from whose effects Malawi is still reeling?
There is sunshine, however, and this is one area to invest. Only that borrowers/operators should not depend on one sector of employees but diversify.



1. Revised minimum capital requirement
The RBM revised minimum paid up capital for banks and other financial institutions (leasing companies and discount houses) to K850.0 million and K250.0 million respectively. Therefore, all existing banks and other financial institutions whose paid up capital was less than K850.0 million and K250.0 million respectively are required to meet this new requirement which took effect on 1 January 2009 and exiting banking institutions were given a moratorium of 18 months from the effective date.

2. Credit Referencing
In a bid to improve credit risk assessment and preparation towards Basle II, banks, Bankers Association of Malawi and RBM have joined hands towards introduction of a credit reference unit. Efforts have been made towards endaging a service provider and drafting the enabling law. The Bill awaits enactment by Parliament.

3. Risk Based Supervision (RBS)
Pursuant to adoption of RBS by the RBM in 2007, the bank reviewed Risk Management Programmes (RMPs) from banks, held walk through presentations on RMPs by banks, conducted bank-wide presentations to give feed back to banks on generic observations on their submissions, conducted pilot risk based examinations, drafted the RBS examination manual and officially launched RBS on 9th January 2009. The RBM also issued guidelines on effective RMPs preparation.

4. Anti-Money Laundering and Combating of Terrorism (AML/CFT)
There have been several anti-money laundering and combating the financing of terrorism (AML/CFT) developments in the Reserve Bank of Malawi. The Reserve Bank of Malawi through Bank Supervision Department issued a Customer Due Diligence Directive (CDD Directive) in 2005 under the Banking Act. The Directive requires the banks to, inter-alia, appoint Anti-Money Laundering Compliance Officers, put in place Know Your Customer (KYC) policies and report any suspicious transactions to the Reserve Bank of Malawi. With the enactment of the Money Laundering, Proceeds of Serious Crime and Terrorist Financing Act, 2006 (ML & TF Act), the obligations placed on the banks through the Directive have been amplified.

In May this year considering the enormous task of monitoring AML/CFT compliance in the financial sector, the Reserve Bank through Bank Supervision Department created a separate section within the department to monitor compliance with AML/CFT obligations placed on the banks through the CDD Directive and the AML/CFT Act.

As at end December 2008, the banking sector comprised eleven banks. These are National Bank of Malawi, Standard Bank Limited, First Merchant Bank Limited, NBS Bank Limited, INDEbank Limited, NEDBANK Malawi Limited, Malawi Savings Bank Limited, Opportunity International Bank of Malawi Limited, ECOBANK (formerly Loita Bank), FDH Bank Limited and International Commercial Bank (ICB). FDH Bank and ICB were licensed in 2008. In addition, First Merchant Bank owns a subsidiary, Leasing and Finance Company.

It is not correct that RBM changed the rules on appointment of directors.
In approving appointments for commercial bank directors, the RBM is guided by the Banking Act (1989), Directive on Appointment of New Directors and Senior Management Officials (issued in March 2006) and International Standards pertaining to Fit and Proper Test for Directors embedded in the Core Principles for Effective Supervision.
In May 2009, all banks, discount houses and the leasing company were issued with a circular letter requesting them to regularize positions of any directors, and senior management officials who were already in those positions when the Directive was issued and were not vetted under the said Directive. Financial institutions were given 12 months from May 2009 to fully comply with the requirements of the Directive.

It is normal that after a thorough assessment, the Bank rejects names of persons proposed as directors of commercial banks who fail to pass the fit and proper test. Their side is heard from the information submitted by their banks. We are however not able to provide you will details and number of those rejected.


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