ARRANGEMENT OF SECTIONS
1. Short title
3. Application of the Financial Services Act
LICENSING OF BANKS
4. Licensing of banks
5. Conditions for licensing of banks
6. Limitation on shareholding
7. Licensing criteria
8. Suspension or revocation of licence
Obligations of Banks
10. Capital funds and minimum capital ratios
11. Directives related to accounting policies of banks and financial institutions
12. Restriction of cash dividends
13. Submission of periodic returns to the Registrar
14. Supervision of banks and financial institutions
15. Exchange of information
16. Appointment of external auditor
17. Duties of external auditors to a bank
18. Requirements on bad debt provisions
19. Records, books of account and information to be kept
Structural Matters and Limitations
20. Prohibited transactions
21. Equity investments privately held by liquidated or divested investor
22. Restricted transactions
23. Matters that may be covered by the Registrar's directives
24. Restrictions on loans to shareholders, directors, officers, employees and to their relations, etc.
25. Actions requiring prior approval
Enforcement and Other Remedial Measures
26. Enforcement actions by the Registrar
27. Provisions relating to statutory management or closure of banks
28. Registrar to determine action on bank placed under statutory management
29. Liquidation or winding-up of a bank
30. Powers of a liquidator
31. Liquidator to report on custodial assets and liabilities
32. Preference of certain claims
33. Financial records, audit and release of liquidator
34. Companies Act applicable in case of winding-up
35. Entries in bank books and evidence of depositor claim
36. Unclaimed funds after winding-up
37. Expenses relating to liquidation
38. Monetary directives
39. Administrative penalty
40. Abandoned property to be delivered
41. Fiduciary operations to be specially permitted
42. Identification of depositor by thumb impression
43. Use of the word “bank”
44. Advertisement of financial services
45. Board of directors for a bank
46. Conflict of interest
47. Additional responsibilities of the board
48. Additional duties of directors
49. Liability of executive officers, etc.
50. Prohibited remuneration of directors, officers and others
51. Customer due diligence
52. Violations of this Act to be published
53. Inconsistency with the Companies Act
54. General offence and penalty
56. Continuity of banking licence
57. Transition period
19 of 1989
12 of 1991
10 of 2010
An Act to provide for the regulation of the business of banking in Malawi, and to provide for matters incidental thereto and connected therewith
[11TH JANUARY 2010]
This Act may be cited as the Banking Act.
(1) In this Act, unless the context otherwise requires—
“bank” means a person who conducts banking business in Malawi, including by accepting funds withdrawable by cheque or transferable by other means;
“banking business” means the business of receiving deposits or deposit substitutes from the public that are—
(a) payable, with or without interest, on demand, or after the
expiration of a stated period; and
(b) transferable by cheque or by other means.
“banking licence” means a licence granted by the Reserve Bank of Malawi and issued under the Financial Services Act to carry on banking business;
“capital” includes paid-up capital and unimpaired reserves;
“close relation” means spouse, brother, sister, parent, child, child of the spouse and the spouse of any of these and also includes a business partner and the close relations of the business partner;
“controlling party” has the meaning ascribed to that term in the Financial Services Act;
“company” means any company incorporated or registered as such under the Companies Act;
“core capital” means paid-up share capital and disclosed reserves, with the latter being defined as the total of statutory reserves, retained profits from prior years, share premium, and sixty per cent (60%) of after tax profits in the current year to date (or in the case of loss, one hundred per cent (100%) of that loss), less unconsolidated investments in financial companies;
“credit facility” includes financing by means of loans, leases, advances, establishing a line of credit, factoring, hire purchase, accepting of trade and other bills, discounting of such bills and notes, the opening or confirming of documentary credit, the issue of other letters of standby, guarantee or surety, the undertaking to pay on account of another person, and such other similar undertakings as may be prescribed by the Registrar in the Registrar’s directives from time to time;
“deposit” means money entrusted to a bank and accepted by it for credit to a depositor’s account, which is payable, with or without interest, on demand or after the expiration of a stated period of time;
“deposit substitutes” means funds received from the public through the issue, endorsement or acceptance of debt instruments of any kind other than deposits, or through the issue of participations, certificate of assignment, repurchase agreements or similar instruments;
“executive officer” means an officer at the most senior levels of the management of a bank, whether or not the officer is a director, who effectively manages the affairs of the bank;
“group of related debtors” means a group of debtor companies or enterprises operating under common control of an individual or of a group of related individuals, or of a corporate body acting as a controlling party as defined in the Financial Services Act, 2009;
“insider” includes any of the following—
(a) principal shareholders;
(b) members of the board of directors or audit committee;
(c) executive officer; and
(d) senior management officials;
“liabilities to the public”, in relation to a bank means all claims against such bank payable on demand or at a determinate future date, whether or not the precise date of payment is fixed;
“non-performing loan” means a credit facility that is not paying principal or interest according to the terms of the borrower’s financing agreement;
“Registrar’s directive” means a directive issued under the Financial Services Act;
“related party” includes any of the following—
(a) a person who is related to an insider of a licensed institution by marriage or consanguinity to the second degree;
(b) a legal person in which an insider has a business interest, including as a partner, director, manager or guarantor;
(c) an individual person for whom an insider is a guarantor;
(d) a subsidiary of the licensed institution or of an insider;
(e) a company or undertaking in which at least a ten per cent (10%) interest is held by the licensed institution or by an insider;
(f) a parent company of the licensed institution or of an insider;
(g) a company that is under common control with the licensed institution or of an insider;
(h) a company that holds at least a ten per cent (10%) interest of another company in which the licensed institution or an insider holds at least a ten per cent (10%) interest;
(i) company that has common management or common directors with the licensed institution, an insider, or another related party of the licensed institution; and
(j) a political party that is controlled by an insider or related party or whose funds or services shall benefit an insider or related party;
“reserves”, in relation to a bank, means all funds which have been built up out of earnings, premiums on shares, profits from the realization of assets, and increase of the value of assets upon revaluation of such assets, and which have been set aside as a general or special reserve and are available for meeting the liabilities of the bank;
“significantly undercapitalized bank” means a bank which has the following characteristics—
(a) has capital ratios that are less than fifty per cent (50%) of the requirement prescribed in the Registrar’s directive on capital;
(b) holds core capital of less than fifty per cent (50%) of the requirement prescribed in the Registrar’s directive on capital; or
(c) holds total capital of less than fifty per cent (50%) of the requirement prescribed in the Registrar’s directive on capital.
“unsecured”, in relation to credit facilities, means credit facilities made without collateral, guarantee or other personal security, or if made against a collateral, guarantee or other personal security, such part of the credit facility which at any time exceeds the market value of the collateral or the amount recoverable from the guarantor or surety as the case my be
(2) For the purposes of this Act, a person shall be deemed to be accepting deposits of money if such person accepts from the general public deposits of money as a feature of his business, or if such person solicits such deposits, irrespective of the terms and conditions under which such deposits are accepted or solicited and whether or not certificates or other instruments are issued in respect of any such deposit:
Provided that the acceptance of insurance premiums by an insurer, shall not be deemed to constitute acceptance of deposits of money for the purposes of this Act.
(3) Words and expressions used in this Act have the meanings ascribed to them in the Financial Services Act.
This Act shall apply in addition to the Financial Services Act.
LICENSING OF BANKS
(1) A person shall not—
(a) conduct banking business in Malawi; or
(b) indicate to the public that he is conducting or is about to conduct banking business,
unless licensed as a bank under the Financial Services Act.
(2) The Registrar shall not license a person as a bank unless the person is a body corporate.
(3) The Registrar may, by Registrar’s directive, determine that other entities accepting funds from the public, including those that borrow from the public or other banks, and that employ such funds in whole or in part, by granting loans, advances and other credit facilities and by investing or by any other means at the risk of the person conducting such business, is engaged in banking business and shall require that entity to be licensed.
(4) A person who contravenes this section commits an offence and on conviction shall be liable to a fine of K10,000,000 and to four years imprisonment.
(1) In considering an application for a banking licence, the matters that the Registrar shall take into account include—
(a) the validity and accuracy of the documents and information submitted therewith;
(b) the financial condition, resources, integrity and previous banking or non-banking business ventures of direct and indirect shareholders associates and affiliates of the proposed bank;
(c) the integrity, working experience and qualifications of the proposed directors and executive officers of the proposed bank and their competence to conduct the proposed business;
(d) the capacity of the applicant—
(i) to maintain an adequate capital at all times;
(ii) to comply with the provisions of this Act and of any other Act relevant to its business;
(e) the adequacy of the capital, and earning prospects resulting from the intended operation;
(f) the nature and scope of the proposed operation;
(g) the needs and convenience of the community or sector to be served;
(h) the structure of its organization;
(i) the interests of depositors and creditors of the applicant;
(j) the interest of the national economy and the public interest;
(k) the structure and shareholding of the proposed group of companies of which the proposed bank forms part or intends to form part;
(l) the sources and nature of capital to be used to finance the proposed bank;
(m) whether the applicant is or will be able to apply and maintain effective and proper internal control systems and sound principles of corporate governance; and
(n) other matters that may be deemed essential by the Registrar.
(2) The Registrar may interview the promoter, directors and proposed senior management personnel in the course of an appraisal and also inspect their books and records to satisfy himself about the representations made or information furnished by the applicant.
(1) A person or group of persons who do not satisfy the criteria for the fit and proper test relating to controlling shareholders, as determined by the Registrar in the Registrar’s directives shall not acquire more than ten per cent (10%) of the shares of a bank.
(2) A bank shall not transfer any shares referred to in subsection (1) without obtaining written approval from the Registrar.
(3) The Registrar of Companies shall not register any transfer of shares of a bank referred to in subsection (1) without receiving a notice of no objection from the Registrar.
(4) A person who is a controlling party of a bank shall not be a controlling party of another bank
(1) The Registrar shall not grant a licence unless he is satisfied that—
(a) the banking business to be conducted under the licence shall be effectively managed by at least two persons as executive officers of the bank; and
(b) the bank has minimum start-up capital as stipulated in the Registrar’s directive on capital.
(2) A bank shall not engage in any business other than the business designated in its licence
Where a banking licence is suspended or revoked, the power of the Registrar to give written direction to the bank under the Financial Services Act shall extend to—
(a) the disposal of its assets; and
(b) its entering into any transaction or a transaction of any kind specified in the directions.
(1) The Registrar shall keep a register of banks, consisting of a separate part for each class of banking business.
(2) The Registrar shall publish in the Gazette—
(a) the entry of a bank, or the cancellation of any entry, in the register;
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