Malawi: Prudential Guidelines on Assets Quality for Banks

This directive which issued by the Reserve Bank of Malawi pursuant to its authority set forth in Section 16 of the Banking Act of 1989, applies to all banks in Malawi. The objectives of this directive are:

• To ensure that banks are in proper compliance with capital adequacy requirements as called for in Section 16 of the Banking Act of 1989, especially: sub-section a) valuation of assets, b) depreciation of assets, and c) provision for bad and doubtful debts;
• To ensure banks are quantitatively identifying their non-performing credit facilities in order to help ensure collection efforts are undertaken;
• To ensure banks present balance sheets & income statements that properly reflect the financial impact of non-performing credit facilities.

This directive details on:

• Identification of non-performing credit facilities, including:
  • Criteria for non-performing credit facilities;
  • Reporting of non-performing credit facilities to the Reserve Bank of Malawi;
  • Repayment schedules of non-performing credit facilities.
• Income recognition, including interest accrual;
• Classification and provisioning, including:
  • Criteria for substandard, doubtful and loss classification;
  • Provisions on classified credit facilities;
  • Security with regard to classification and provisioning.
• Inspection by the Reserve Bank and external auditors, including:
  • Inspections and/or external audits to determine accuracy of reporting and compliance;
  • Determination of classification and provisioning.
• Compliance to capital adequacy requirements;
• Remedial measures and administrative sanctions.