Here is the article in Markdown format:
Banks Must Ensure Fair Treatment of Directors, Shareholders
Kampala - In a move aimed at promoting financial stability and ensuring fair treatment of directors, shareholders, executive officers, and employees, the Malawian government has introduced regulations governing insider lending by banks.
New Regulations to Promote Financial Stability
Under the new regulations, banks are prohibited from granting loans or credit accommodations to their directors, shareholders, executive officers, or employees that exceed 10% of their core capital. The loans must also be secured at all times and extended on non-preferential terms, meaning they cannot be more favorable than those offered to other customers.
Key Provisions
- Banks are prohibited from granting loans exceeding 10% of their core capital to directors, shareholders, executive officers, or employees.
- Loans must be secured at all times and extended on non-preferential terms.
- Unanimous approval from the bank’s board of directors is required before extending such loans.
- Directors and officers who default on their loans or have non-performing loans will be deemed unfit to hold office.
Ensuring Fair Treatment of Insiders
The regulations also require that banks ensure fair treatment of insiders by prohibiting preferential treatment and requiring that loans be extended on non-preferential terms. Additionally, the regulations empower the Registrar of Financial Services to take administrative penalties against banks that contravene the regulations.
Penalties for Non-Compliance
- The Registrar has been empowered to take administrative penalties against banks that contravene the regulations.
- These penalties may include ordering repayment of excessive loan amounts, execution of security documentation, regularization of preferential terms or conditions, dismissal of offending officers, and barring them from future employment at any bank.
Creditworthiness and Loan Terms
Banks must ensure that insiders are creditworthy before granting them loans. The ability of the borrower to repay loans is a critical factor in determining their creditworthiness. The term and interest rate of the loan will also depend on the borrower’s creditworthiness and market conditions.
Value of Collateral
The value of collateral will be taken into account when determining the loan amount and interest rate. Insiders are required to provide sufficient collateral to secure their loans.
In a statement, the Registrar of Financial Services emphasized the importance of ensuring that banks operate safely and soundly, saying “The regulations are designed to promote financial stability and prevent the misuse of bank funds. We will closely monitor compliance with these regulations to ensure that they are effective in achieving their intended objectives.”