Malawiâ€™s commercial banks expect to benefit from lower premiums on lines of credit from corresponding banks which will be passed on to the customers following the implementation of Basel II.
Most of the banks are required to take a number of steps in anticipation of the introduction of the recommendations on banking laws and regulations issued by the Basel Committee on Banking Supervision.
To meet the requirements of the recommendations to be effective in the next 18 months, banks are expected to boost their capital base so that the Tier One Capital Ratioâ€”the ratio of a bankâ€™s core equity capital to its total risks weighted assets (RWA)â€”is 15 percent.
Bankers Association of Malawi (BAM) president William Chatsala, however, in an interview on Wednesday, observed that capitalisation under Basel II is dependent on several factors such as the structure of the balance sheet, collateral for loans and advances and management of various risks.
“It is, therefore, difficult for me to say how much each individual bank will need to recapitalise. Some banks already have high levels of capital, their need to recapitalise will be lower than those that have lower levels,” said Chatsala when asked how much capital will an individual bank require to recapitalise.
But Chatsala said with the introduction of Basel II, Malawi would benefit from an improved sovereign rating, either through increased foreign investment or access to international borrowing.
“Bank customers would benefit from bank credit even in times of business downturns as adequately capitalised banks would be more resilient to economic shocks.
“The public will benefit from improved disclosures that will help them to assess risk management practices in each bank,” he said.
Already, some banks have put in place strategies in anticipation of Basel II.
NBS Bank board chairperson Felix Mlusu said, among others, they will be moderating dividend payment to retain more equity, slow down on acquisition of assets with high capital charge and enhancing risk management in all processes and business lines.