Malawi: Directive on Minimum Capital Ratios for Financial Institutions

This directive, issued by the Reserve Bank of Malawi, applies to all financial institutions operating in the country. The directive is divided into the following parts:

Part I, the preliminary section, contains information about the short title, the authorization and application of the directive as well as the interpretation of key terms.

Part II, the "Statement of Policy":

• Lists the following objectives of the directive:
  • To ensure that financial institutions have an adequate cushion of capital to absorb losses;
  • To protect the interests of depositors, creditors and the public;
  • To promote self-discipline in the management of financial institutions.
• Explains the rationale of the directive:
  • Financial institutions need to maintain a specified level of capital to promote public confidence and help ensure the safety of depositors' funds;
  • Sufficient capital adequacy enables financial institutions to absorb adverse events.

Part III, "Capital Requirements for financial Institutions", specifies:

• The capital requirements for financial institutions;
• The computation of capital adequacy.

Part IV lists remedial measures and administrative sanctions that the Reserve Bank may impose on those financial institutions that have not met the capital adequacy requirements that the directive specifies. These include:

• Prohibition from declaring and/or paying dividends;
• Suspension of access to the credit facilities of the Reserve Bank;
• Suspension of lending activities, etc.

Part V Concludes by stating the effective date of the directive.