n Malawi Law Journal - The capital adequacy regime for banks in Malawi

Volume 4, Issue 2
  • ISSN : 1996-7675



This article reviews the capital adequacy regime for banks in Malawi. The Reserve Bank of Malawi is the single all-important regulator and supervisor of the banking sector in Malawi. Banks finance their business from customer deposits which they invest to get a return for their shareholders or indeed to further their lending business. Any investment portfolio comes with risks which, if not properly managed, may lead to great losses to the bank concerned, the public and the economy as a whole. The need to regulate and supervise banks therefore arises to safeguard the interests of depositors and to ensure the safety, soundness and stability of the financial system. The central feature of regulation is capital adequacy, because capital provides a cushion for losses and a buffer for deposit insurance, and controls excessive risk taking by banks. Currently, the capital adequacy framework for banks in Malawi covers credit risk only as provided in the Banking Act 1989 and the Directive on Banks Minimum Capital Ratios issued by the Reserve Bank of Malawi which is aligned to the 1988 Basel Capital Accord. The Reserve Bank of Malawi employs a risk-based approach to supervision covering both onsite and offsite surveillance. Although the focus of this article is on capital adequacy, it recognises that capital adequacy on itself is not enough to achieve a safe and sound financial system: capital adequacy must be supplemented with robust risk management and efficient corporate governance.

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