FDH Bank injects $4.8m for Basel II
FDH Bank Limited has increased its capital base by $4.8 million (K2.2 billion) in readiness for the rollout of Basel II—the second of Basel accords—to be effective today.
FDH, which is owned by FDH Financial Holdings Limited, in a statement yesterday, said the additional capital will enable the bank to comply with Basel II capital adequacy requirements.
To meet the requirements of the recommendations under Basel II, the country’s 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.
But FDH Bank has added that the capital injection will also allow the financial institution to continue growing while providing first-class banking services in Malawi.
About two months ago, another financial institution, Ecobank Malawi Limited also pumped in $5 million (K2.3 billion) into the financial institution.
Ecobank said this was to enable the bank, a subsidiary of Lome-headquartered Ecobank Group, to fully comply with capital adequacy requirements under Basel II.
Ecobank also said the capital injection was also in line with Ecobank Group’s vision of supporting the economic and financial integration in Africa and signifies the confidence that the shareholders have in the country.
Financial market experts argue that the overarching goal of 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.
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.
Bank customers also stand to benefit from bank credit even in times of business downturns as adequately capitalised banks would be more resilient to economic shocks.
