Malawi: Directive on Large Exposures
This directive is issued by the Reserve Bank of Malawi pursuant to its authority set forth in Sections 26 and 27 of the Banking Act (1989), for the purpose of implementing the provisions of Sections 28(a) and 30 of the Banking Act. "Large Exposure" means an exposure, direct or indirect, of the licensed institution to any person or group of inter-related persons which equals or exceeds ten percent (10%) of the capital base of the licensed institution.
The objectives of the policy are:
- To help ensure banks follow the sound practice of credit diversification;
- To help ensure credit is not concentrated in a small number of borrowers resulting in denial of credit to smaller entities with viable credit needs;
- To help ensure that losses incurred by any single borrower or group of related debtors are not large enough to impair the soundness of a bank;
- To ensure that no borrower or related group of borrowers becomes large enough to receive favouritism with regard to: credit standards, interest rates, repayment terms or additional advances to protect existing exposures.