Parliament has referred the Banking Act Amendment Bill of 2022 to its Budget and Finance Committee with the main opposition, the Democratic Progressive Party (DPP), fearing it might scare investors.
Minister of Finance and Economic Development, Sosten Gwengwe, Monday read the bill, which seeks to amend the Banking Act to provide more options for dealing with ‘failing banks’ at the same time protecting people who deal with the banks.
Gwengwe told the House that the current legal framework for early intervention and resolution of banks is inadequate and requires significant reforms to align it with best practices.
Among others, the bill gives power to the Registrar of Financial Institutions to facilitate mandatory recapitalisation of ‘failing banks’, carry out a purchase and Acquisition transaction involving the transfer of assets and liabilities of a failed bank without requiring prior approval of shareholders.
DPP spokesperson on finance in Parliament, Ralph Jooma, argued that there are some clauses in the proposed amendment that have the potential to scare away investors.
He said the bill failed to balance the need between protecting property rights of the investors and protecting the depositor without harming the investor himself.
He claimed that there is a clause that indicates that an investor who is deemed not to be fit and proper has both his shares and voting rights withdrawn.
“We [DPP] are saying if you remove the shareholder, probably you should leave the voting rights to be there because if you take away the voting rights, what it means is that you are transferring the control to minority shareholders who may divert the interests of that particular bank to somewhere else,” Jooma told journalists.
He added that there is another provision that says if a shareholder has been charged with a criminal offence, the Registrar of Financial Institutions would continue to punish the shareholder whether found guilty or not.
“We think this is not fair, because the courts are our final resort; therefore, once they acquit you, you must be a free person,” Jooma said.
Gwengwe, however, argued that the bill is meant to help the depositors because when the financial institutions fail, it is the depositors that are in disarray.
He said it was just a misunderstanding that the bill was not protecting the shareholder.
“A mischievous shareholder cannot benefit from their own mischievousness; that is why there is some ring-fencing of their shares so that they can either be sold to some people because in banking, you need people of very high moral standing,” Gwengwe said.
He added that it was not true that the Registrar of Financial Institutions would punish a shareholder even after the courts clear them of criminal charges, but an acquittal would “not preclude the registrar from enforcing other punishments according to this Act”.
According to Gwengwe, consultations on the bill started in 2013.
Mathews Kasanda is a journalist who holds a Bachelor of Arts in Journalism from University of Malawi (The Polytechnic).
In 2015, Media Institute of Southern Africa awarded him the Best Print Media Education Journalist of the Year accolade.
He joined Times Group Newsroom in September 2019.