by Z Allan Ntata
This document outlines salient issues on the impending sale of Malawi Savings Bank limited. In the sale there are a lot of selfish motives sugar coated as if they are beneficial to the Bank but in the process the country will lose yet another important asset. The document covers the objectives of MSB, coverage, the agenda to sale under the disguise of compliance to Basel II, the tactics deployed, controversies surrounding the sale, consequences and the proposed ideal way forward.
2. Objectives of MSB
MSB is a former POSB established in 1910 with the objectives to:-
a) Provide Financial Services to both urban and the rural population.
b) Strategic partner to government in social and economic development. Where necessary the Bank is used to deliver government initiatives such as payment of government salaries in rural areas, facilitate importation of critical commodities such as fertilizers, medicines, etc.
c) Pursue the Financial inclusion agenda of Government. This is achieved through its wide network throughout the country so that people especially in rural areas do not travel long distances to access banking services.
d) Inculcate a culture of savings among Malawians especially in the rural areas.
The Bank operates in all districts of the country. It is the largest financial institution in terms of Branch Network and outreach to the rural population. In total it has over 63 outlets inclusive of the forex bureaus, MRA onsite revenue collection, Immigration onsite revenues collection and Registrar General Collection points.
4. The illicit Sale Agenda.
The agenda of selling the Bank is propagated by selfish individuals under the disguise of meeting the :-
a) Conditionality of World Bank/IMF. The World Bank/IMF believes Government should not run Business such as Banks but the same Government is required to provide social economic services to the rural communities which are not that profitable many times. MSB plays that role.
b) Compliance to Basel II. Basel II is a framework to assist Banks manage financial risks well by maintaining a certain level of capital. In Malawi the RBM put minimum capital at the equivalent of US$5million (K2.2billion). MSB meets the minimum capital but not the optimum capital to meet the prescribed liquidity and capital adequacy ratios The irony is that there are very few countries in Africa that have adopted Basel II. None of our neighbours has implemented Basel II and yet their economies are stronger and bigger than Malawi’s economy.
c) Bad Debts that are eroding the Bank’s capital. The Bulk of MSB non performing loans belong to Mulli Brothers Limited. Why can’t Government intervene and have Mulli Brothers Limited forced to repay. Why should the whole nation lose a Bank just because of an individual company? In any case, the Mulli loan was granted through the previous DPP administration interference.
The reality and objectives of the proposed sale are:-
i) Enrich a few individuals. There are few people in position of influence that want to rob Malawians of their Asset (MSB) for their personal gains. The Governor of RBM, FDH Officials, Key Ministry of Finance Officials, MSB CEO and others are conniving to have the Bank sold so that they buy it for their own gains through the backdoor.
ii) Enrich a tribe at the pinnacle of power at the expense of the whole nation. All the influential people interested to buy MSB belong to a particular tribe. This is designed to enrich that tribe at the expense of the whole Nation. Why should the Asset of the whole Nation benefit one tribe?
ii) Pay off Mulli Brothers Debt through write off of the Bad debt. There is a proposal that as part of the sale process of MSB, the bad debts (Toxic Assets) must be removed before the buyer buys off. This translates to Government paying off the bad loan on behalf of Mulli Brothers (currently about K5billion). Why should tax payers’ money be used to pay off debt of an individual company?
5. The tactics.
The RBM Governor has deployed the following tactics to influence the sale:-
a) Scare off Government by inflating the Capital requirement for MSB to comply to Basel II. In reality the Bank already meets the minimum capital requirements for Basel II. To meet the optimal requirement, the Bank needs approximately K4billion only. When Government expressed willingness to pay K4 billion, the RBM Governor advised government that the Bank requires K23.7billion additional capital as a deliberate effort to scare off government. The RBM should be called to explain how they got to K23.7billion. Management of MSB can also be called to explain why they only need K4 to K5 billion.
b) Exert pressure on the Bank to meet Liquidity Reserve Requirement (LRR). MSB as part of serving Malawians in rural areas does operate in some unprofitable locations. It needed to be exempted from full compliance with LRR requirements. The RBM Governor is uplifting the exemption on LRR so that the Bank is seen to be failing, in order to justify the sale or closure of the Bank.
c) Capitalising on knowledge gap at Ministry of Finance. The current Secretary to Treasury is coming from the Academic background and not yet exposed to the politicking and machination that takes place in Government. Consequently the RBM Governor and Finance Ministry are exerting undue pressure to force him issue out instructions to sale the Bank to FDH at the expense of Malawians. The ST’s office is being manipulated by the Finance Minister and RBM Governor in selling the Bank without him knowing that he is promoting the interests of few individuals at the expense of the whole Nation.
Though unrelated but it may be worth noting that the FDH Bank Zomba branch is housed in a building owned by the ST.
d) Media Sensational articles. Deliberately releasing sensitive and confidential information about the Bank in the print and other media. The confidential information published by the Nations Newspaper is privy to the office of RBM Governor, ST and Ministry of Finance. The release of such information to the print and other media is a calculated move to de-stabilise the Bank, create sensational news and scare away customers. Should that trigger run on the Bank, then that should justify closure of the Bank and sell it at a song, just as it was the case with David Whitehead and Sons (M) Ltd.
6. Controversies on Sale.
The proposed sale of MSB is embroiled in several controversies such as:
(a) The Sale price. The sale price of the Bank is being pegged between K400 million and K800 million. Yet the assets of the Bank are worth in excess of K46billion as end of November 2014. For instance, Head office building alone is worth more than K800 million. What about ICT equipment, staff skills and other assets. This is tantamount to day time robbery.
(b) Government is being informed by RBM to re-capitalise the Bank by pumping in K23.7 billion. If Government can realise K800 million only after sale of the bank, what is the justification to spend K23.7 billion? The two aspects do not reconcile.
(c) Government intends to clear off bad debts/toxic assets (about K6 billion) and yet it will receive about K800 million maximum when the Bank is finally sold. Where is the logic here?
(d) If Government pays off Toxic Assets then the Bank would comply with Basel II and therefore no need for selling it. If Government is keen to pay off toxic assets then why does it not pay K4 billion capital and let the Bank move forward.
(e) If the sale of MSB is through the tender process, why should ST’s office issue instructions to PPP to sell the Bank to a small and private local bank? The PPP is in possession of such instructions. The current bidding process being undertaken by the PPPC is just a farce to cover up for the hidden agenda being concluded behind the scenes.
(f) Government wants to sell MSB under the pretext that Govt should not run such Businesses but at the same time it wants to start yet another new Bank. Why not improve the current bank?
The controversies on sale of MSB, highlighted above points to the fact that few individuals are geared at stealing such an important asset from innocent and unsuspecting Malawians using their positions of influence. The Basel II compliance is just being used as a scapegoat. Not many countries have adopted Basel II.
7. Consequences of sale of MSB.
Malawi Savings Bank plays a unique role in reaching out to the elite and ordinary Malawians in provision of Banking services in both rural and urban areas. Its sale shall have the following consequences:-
(a) Loss of National Asset. The Government and Malawians will lose this important asset that was promoting financial inclusion and assisting in economic development of the country.
(b) Financial Exclusion. The Bank maintains minimum book balances of K500 which enables many Malawians open accounts with it. There is no guarantee that the new buyer will maintain such minimum book balance requirements.
(c) Many people will not be within reach of Banking services. Since these Banks will be concentrated in urban centres, they shall create a divide between rural and urban people in terms of access to financial services. The main objective of the new owners will be profit generation hence most rural outlets will be closed to cut costs operational costs hence making rural people suffer.
(d) Reduction of Banking network. Most of the Rural Branches will be closed and therefore many Malawians will not be within reach of Banking services.
(e) Loss of Jobs. The majority of staff will lose their jobs as a new shareholder comes in. It happened in Standard Bank in the past. The Bank has in excess of 600 employees that may not be absorbed by new share holders that will be focussed on financial gains (profits).
(f) Loss of MSB brand. MSB is a history from POSB. This will be lost. The unique services the Bank provide in the rural areas will be lost.
(g) Enrichment of few individuals. Greedy people will buy off a National Asset at the expense of the whole nation.
(h) Defeats purpose of privatisation. The privatisation of government assets was meant to benefit the Majority of Malawians. However the impending sale of the Bank to tribesmen and few individuals in positions of influence is an abuse of office and denies Malawians of share ownership.
8. Proposed way forward.
Malawi Savings Bank has contributed to National development since its inception as POSB and later as MSB. The best way of disposing it is not by giving it to a few individuals or tribesmen on a silver platter or for a song. The best way is through the Initial Public Listing (IPO) on the Malawi stock Exchange through public share ownership where the majority of Malawians can participate.
The following is a proposed way forward:-
(a) Government can re-capitalise the Bank by injecting K4 billion and not the exorbitant figures being deliberately propagated by RBM to scare off government.
(b) The Management of the Bank should be tasked to improve the performance of the Bank in the next three years by among other things ensuring that the bad/toxic assets are collected.
(c) The RBM should be instructed to grant a LRR waiver to MSB on the understanding that the bank plays a developmental role in assisting Government by operating in rural areas. This waiver could be for maximum period of 2 years to allow the bank recover fully.
(d) Government sales the Bank in the third or fourth year through IPO on the Malawi Stock Exchange. This will have a viable institution owned by the majority of Malawians.
(e) Government should consider pending the formation of another Bank and instead restructure and recapitalise MSB with a view to empowering it to undertake more roles which would otherwise be undertaken by the proposed Development Bank.
Z. Allan Ntata is a Barrister of Middle Temple, Governance Specialist, Ex-Counsel to the President of Malawi and author of “Trappings of Power”. More details about him can be found on his website