Basel II rollout: Ecobank Malawi ups capital

With only two months to Basel II roll-out in January 2014, shareholders of Ecobank Malawi Limited have pumped in $5 million (K1.9 billion) into the financial institution.

This will enable the bank, a subsidiary of Lome-headquartered Ecobank Group, to fully comply with capital adequacy requirements under the second of Basel accords which are recommendations on banking laws and regulations to come into force January 1 2014.

“It [the recapitalisation] will also enable the bank to increase its support for the economy and reposition it for accelerated growth,” said Ecobank Malawi board chairperson Masauko Msungama in a published statement.

To meet the requirements of the recommendations under Basel II, the country’s 11 commercial banks are expected to boost their capital base so that their Tier One Capital Ratio—the ratio of a bank’s core equity capital to its total risks weighted assets (RWA)—is at 15 percent.

Msungama said the injection of capital is also in line with Ecobank Group’s vision of supporting the economic and financial integration of Africa.

“Specifically, the injection of the additional capital signifies the confidence that the shareholders have in the country,” he said.

Financial market experts argue that the overarching goal of the Basel II framework is to promote adequate capitalisation of banking institutions and encourage improvement in risk management, thereby strengthening the stability of the banking system.

This is on the premise that a stable banking sector benefits its customers, shareholders and the entire economy.

Some banks already have high levels of capital; hence, their need to recapitalise will be lower than those that have lower levels.

Malawi Savings Bank (MSB) chief executive officer Ian Bonongwe, in an earlier interview, noted that the bank’s capital ratio is currently at 10 percent and are working towards hitting the 15 percent mark to be in line with Basel II.

Standard Bank Malawi board member Rex Harawa earlier also said they already have a sound financial base.

NBS Bank board chairperson Felix Mlusu also earlier told Business News they have put in place some strategies in anticipation of Basel II roll-out citing, among others, moderation of 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.

According to the Reserve Bank of Malawi (RBM), Basel II will see Malawi benefiting from an improved sovereign rating, either through increased foreign investment or access to international borrowing.

The public, as a whole, will also benefit from improved disclosures that will help them to assess risk management practices in each bank and enable them to make informed banking or investment decisions.