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Malawi: Directive on Credit Concentration for Financial Institutions

What are the laws governing credit concentration requirements for financial institutions in Malawi?
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This directive, issued by the Reserve Bank of Malawi, applies to all financial institutions operating in the country. It is divided into the following parts:

Part I - 'Preliminary', provides information on the short title of the law, the application and authorization of the law, and the definitions of various terms that the law contains.

Part II - 'Statement of Policy' explains the:

  • Objectives of the law, which are to ensure that:
    • Financial institutions follow the practice of credit diversification;
    • Credit is not concentrated in a small number of borrowers;
    • Losses incurred by borrowers do not impair the soundness of the financial institution.
  • The rationale of the law:
    • Concentration of credit risk in a large borrower/group of borrowers, impairs the viability of a financial institution;
    • Shared credit facilities among financial institutions reduce risk;
    • Credit concentration limits encourage shared risk.

Part III - 'Implementation of section 30 of the Banking Act of 1989' specifies requirements in terms of:

    • General limits on credit concentrations;
    • Existing concentrations;
    • Prior approvals by the Reserve Bank;
    • Computation of large exposures and credit concentrations.

Part IV - 'Remedial Measures and Administrative Sanctions':

  • Explains the circumstances under which the Reserve Bank can impose sanctions;
  • Lists the administrative sanctions that the Reserve Bank may impose on a financial institution that does not comply with this directive.

Part V concludes by stating the date of effectiveness of the law.