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Government has to bite the bullet and sell MSB

Under Section 81 of the Malawi Constitution, the president is required to provide executive leadership in the best interest of the nation.

On the issue of Malawi Savings Bank (MSB), President Peter Mutharika has the responsibility to make a decision that is in the best interest of the people of Malawi.

Some decisions can be popular and politically correct but detrimental to the country while other, can be dislikable by many but good for the nation.

It is clear from expert information available on the financial position of MSB that it seriously needs recapitalisation and that its survival is under serious threat unless a hard decision is made on its future.

Partial privatisation of MSB has been widely accepted among experts as the most viable option to rescue it from collapse in the absence of resources from Malawi government as the sole shareholder to recapitalise.

Government mu s t b e commended for responding to public concerns on the repayment of loans to MSB by some politicians through the creation of a special scheme for the recovery of the loans.

Government needs to proceed with the disposal of some shares in MSB to make sure that it is served from further problems, including massive withdrawal of savings by consumers, which could have serious repercussion on the economy if the debate on its future is prolonged.

Bringing in of a strategic investment partner into MSB is long overdue and must be encouraged as it is good for the future of the bank, the economy and government’s fiscal health.

While it sounds nice for the government to own banks, the same poses serious risks on government coffers and the economy as a whole since it is the tax payer who shoulders the responsibility of settling liabilities, covering the losses and re-capitalising the banks whenever such need arises.

Reserve Bank of Malawi’s stringent bank regulations gives very little space for financial mishaps in commercial banks and MSB – even though it is owned by the government, is subjected to the same rules.

To make sure that MSB meets capital requirements, the government as a shareholder has to use money meant for provision for social and other public services to recapitalise the bank.

The other critical issue is that of management and the way board members and key managers are appointed into the bank. By its nature, government makes most – if not all, its decisions primarily based on politics.

This leaves government institutions such as MSB at the risk of being used for political appeasement and patronage. Already, appointments of board members and CEOs for MSB over the past years have raised more questions than answers.

No wonder, MSB has frequently also became a subject of political manipulation even when it comes to how it gives out loans to some businesses, especially those connected to government politicians.

It therefore comes as no surprise to hear that MSB has liquidity and capitalisation challenges as that is what happens when politicians interfere with the running of strategic institutions such as banks which are, otherwise, supposed to be run strictly professionally.

The problem is that should MSB continue to be mismanaged and ends up collapsing, its ripple effects will be catastrophic on government coffers, the financial system and the entire economy as it will require costly fiscal bailouts, drawing funds away from other high priority areas of the budget.

This is a risk Malawi can avoid by letting go MSB. Malawi cannot afford an economic mess at this time when the country is going through other economic challenges.

In any case, the government has to invest in development banking for the financing of long term investments in infrastructure, energy, mining and others which commercial banks may not find very attractive due to their shorter term profit orientation.

It therefore only makes sense for the government to sell its shares in MSB and other commercial banks where it has shares and instead invest the proceeds in the setting up and capitalisation of the proposed Development Bank of Malawi.

The most encouraging thing with the prospective development bank is that it has been designed to be a joint venture with private sector institutions and will be operated based on pure sound banking and corporate governance standards.

In line with this prospect it is expected that the bank will only support projects that have been subjected to rigorous feasibility studies and cost-benefit analyses to help ensure that it remains self-supporting and does not create fiscal risks for the government.

President Mutharika therefore has an obligation to make the hard decision on MSB and save the economy from an unnecessary disturbance. #ThumbsDown to President Mutharika for bowing down to political pressures and suspending the sale of MSB

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