Wholly State-owned Malawi Savings Bank (MSB), currently undergoing a recapitalisation process that will see government diluting its shareholding, has posted a pre-tax profit of K2.5 billion (US$6 million) between January and May 2015.
This represents a 221 percent increase compared to the same period last year when profit before tax was K773 million (US$2 million).
The bank’s unaudited management accounts ending May 31 2015, which The Nation has seen, show that MSB has made a consolidated pre-tax profit of K2.5 billion against a budget of K1.1 billion (US$2.4 million), beating the target by 126 percent.
The jump in profits—coming on the back of a messy recapitalisation process and threats of a bank run—has now prompted experts to ask for a revaluation of the bank.
The MSB management accounts report also show that MSB Forex Bureau, a wholly owned subsidiary of the bank, made a pre-tax profit of K186.4 million (US$414 222) against a budgeted pre-tax profit of K228.4 million (US$507 556).
Commenting on the change of fortunes, one senior official at the bank told The Nation the turn-around could be attributed to the conversion of the toxic assets into interest earning assets through the promissory notes.
The official, who questioned government’s decision to sell the bank at K4.4 billion (US$9.8 million), said: “As a result [of the removal of toxic assets], and despite the bad publicity, the bank has recorded a consolidated pre-tax profit of K2.5 billion just in five months.”
The official also dispelled government suggestions that MSB was making losses, saying in the past five years the bank only made a loss of K1.9 billion in 2014.
Abel Mwanyungwe, an economics lecturer at the Polytechnic—a constituent college of the University of Malawi, said on Tuesday that using any pricing model, the K4.4 billion being quoted for MSB was an under-valuation and it was of no value to the shareholder.
He observed: “Granted that there is bad publicity and toxic loans, one would look at the assets and the prospects of a functioning and a properly run bank and the quoted offer price is quite an insult to the owners of the bank. Any pricing model, in my view, would be unrealistic to attract an offer price of less than K100 billion [US$222.2 million).”
Mwanyungwe—a respected business and financial journalist before going to the academia—also said government’s argument that the State cannot run commercial entities and banks is not backed with any scientific and empirical evidence.
He said: “We may use both legal and political instruments, especially political leadership to prevent political parties from abusing national assets. Secondly, we need to carry a sober and independent evaluation of how best we can bring back sanity in the way we manage public assets. In my view, selling MSB cannot be the only viable solution.”
Head of economics department at Catholic University, Gilbert Kachamba, said the removal of toxic assets off MSB books entailed that the bank has to be revalued.
In an earlier interview with The Nation amid the controversy surrounding the bank’s recapitalisation, MSB chief executive officer Ian Bonongwe said the substitution of its toxic assets with promissory notes has improved its balance sheet and risk profile.
“The promissory notes have energised us. They have been a stabilising factor, our deposit mobilisation has improved and, above all, our balance sheet is now strong because we have performing assets following the removal of the toxic assets.
“In a nutshell, the substitution of toxic assets with promissory notes has improved our balance sheet and risk profile. We are able to settle transactions on the market… We are smiling,” said Bonongwe, whose public relations skills may have been the only thing that saved the bank during the crisis as he went on a charm offensive reassuring large depositors, especially institutional investors, that MSB was in a strong position to survive the turbulence.
In early May, revelations by The Nation that government had taken over MSB’s toxic loans worth K6.4 billion owed by politically linked companies and individuals attracted public anger as the move was seen as a bail-out package to those who got loans from the bank but failed to pay.
The MSB deal has faced resistance from several stakeholders, including opposition parties, the Budget and Finance Committee of Parliament, civil society organisations (CSOs) and more recently some concerned MSB employees who obtained an injunction against the sale. The court order has since been lifted.
In mid-May, a financial market analyst and the Economics Association of Malawi (Ecama) warned that the uncertainty surrounding the bank’s sale could attract a run on the institution.
They were reacting to a statement by the Ministry of Finance, Economic Planning and Development that negative publicity around the treatment of the toxic assets saw MSB face a threat of a bank run between February and April 2015 when deposits exceeding K11 billion were withdrawn without replacement.
Last week, government called a consultative meeting in Lilongwe where delegates generally agreed that the bank should be sold, but asked Capital Hill to restart the process of selling the bank and make the process transparent.
MSB has 74 points of representation across the country with a workforce of about 600.
Earlier this year, the Government of Malawi, through the Public Private Partnership Commission (PPPC), invited bids from strategic investors to buy its stakes in MSB and Indebank Limited.
Through the transactions, government wanted to, among other things, ensure that MSB and Indebank met new Basel II regulatory requirements in terms of capitalisation.
National Bank of Malawi (NBM) has since been named the preferred bidder for Indebank while FDH Financial Holdings Limited—owners of FDH Bank—were the sole bidder of MSB. FDH Bank offered K4.5 billion (US$10 million) representing the value of MSB’s 70 percent shares.