Defunct Malawian Bank seeks $552m compensation

A bank that ceased operations more than 20 years ago is seeking compensation from Malawi that could approach a 10th of the country’s annual budget, following a court ruling that regulators illegally revoked its licence.

Former Finance Bank of Malawi, which was closed in 2005, has submitted compensation calculations exceeding K1.02 trillion (about R9 billion), including claims for alleged lost international banking opportunities.

If awarded in full, the payout would rank among the largest court-ordered liabilities in Malawi’s history and would ultimately fall to taxpayers.

The claim follows a February 3 ruling by the Malawi Supreme Court of Appeal that the Reserve Bank of Malawi acted unlawfully when it revoked the bank’s licence in May 2005.

A seven-member panel, led by Chief Justice Rizine Mzikamanda, said the regulator’s action was disproportionate and that less severe supervisory measures were available.

The court ordered that Finance Bank be compensated for loss of business and profits. The final amount will be determined by the Supreme Court’s assistant registrar through an ongoing assessment.

Finance Bank was closed under then-central bank governor Victor Mbewe after regulators alleged the institution had opened ghost accounts used to externalise foreign currency, conducted irregular foreign-exchange transactions and failed to comply with know-your-customer rules.

The dispute entered the high court’s commercial division in 2005. In October 2014, the court dismissed Finance Bank’s counterclaim and awarded the central bank K13 million. The bank appealed.

More than 20 years after the original closure, the Supreme Court overturned that decision, ending what court records indicate is one of the longest-running banking disputes in Malawi’s legal history.

The focus has shifted to determining damages. Within weeks of the ruling, Finance Bank’s legal team submitted detailed projections estimating what the bank might have been worth had it continued operating.

The compensation analysis was prepared by financial expert Mkuzo Kenneth Kuwana of Kita and Company. Court filings describe Kuwana as group financial adviser to the Mahtani Group of Companies, the conglomerate controlled by Zambian businessman Rajan Mahtani, which owned Finance Bank of Malawi.

The report projects that the bank could have reached a market value of roughly $352m (about R6bn) by 31 December 2025 if it had remained operational. 

According to the filing, Finance Bank reported profit after tax of K152m in 2004, equivalent to roughly 11% of National Bank’s profits that year. Applying the same proportion to National Bank’s present market value forms the basis of the damages estimate.

The filing calculates local damages of about $451.9m and adds an additional $100m for alleged lost international banking and trade opportunities.

Finance Bank is also seeking K61.7bn in additional claims, including alleged unpaid remuneration, funds used to offset liabilities against the bank and damages related to employment contract disputes.

The filing further requests that all sums accrue interest at prevailing commercial lending rates from 2005 to 2026.

The respondents in the case are the Reserve Bank of Malawi and the country’s attorney general. Under Malawian law, compensation awarded against the central bank ultimately becomes a liability of the state.

Malawi’s parliament approved a K10.978 trillion national budget for the 2026–27 financial year. The documented K1.02 trillion claim, before interest calculations are finalised, represents nearly 10% of that total.

By comparison, the current budget allocates K971.3bn to agriculture, K558.07bn to health, K316.6bn to education and K447.1bn to road infrastructure.

A payout approaching the amount sought would represent a significant unplanned fiscal obligation.

“We have noted the ruling by the highest court and we will await the assessment of the compensation by the registrar,” said central bank spokesperson Boston Banda.

The damages calculations were filed through lawyer Wapona Kita of Kita and Company, who represents Finance Bank in the compensation proceedings.

Kita is also among several lawyers named in a special inquiry by the Malawi Law Society examining alleged irregularities at the high court’s commercial division in Lilongwe.

An internal report submitted to the chief justice on 30 April 2024 described what investigators characterised as a pattern in which certain cases handled at the division had outcomes that were “usually a foregone conclusion in favour of those members’ clients”.

The report identified Justice Kenan Manda and assistant registrar Anthony Kapaswiche as alleged organisers of an arrangement involving particular lawyers, law firms and procedural practices.

Four legal practitioners were named as frequently appearing in the cases examined: Emmanuel Theu of Lexon and Lords, Gift Nankhuni of G Nankhuni and Partners, Edgar Kachere of Whyte and Cross Law Consultants and Kita.

The report stated that many of the cases subject to complaints were handled personally by the named counsel. Kita has acknowledged the existence of the inquiry. 

No confirmed disciplinary action against the judge or lawyers named in the inquiry has been publicly recorded. Finance Bank was ultimately owned by Rajan Mahtani, whose business interests extend across Southern Africa.

In 2011, the Bank of Zambia suspended shareholder rights in Mahtani’s Finance Bank Zambia after an inquiry found he controlled more than 56% of the institution through intermediary structures, exceeding limits under Zambian banking law.

Finance Bank of Malawi followed a separate trajectory, losing its licence amid allegations of money laundering and irregular foreign-exchange transactions.

Court and regulatory records show that in 2013 the Reserve Bank of Malawi granted a licence to New Finance Bank (Malawi) Ltd, with Mahtani listed as a principal shareholder while the legal dispute over the original bank’s closure was unresolved.

The final compensation assessment could have implications beyond Malawi.

The country relies heavily on financing from multilateral lenders and bilateral partners. A large court-ordered liability could complicate fiscal-consolidation targets under Malawi’s economic reform programme.

The 2026–2027 budget projects reducing the fiscal deficit from 11.9% to 9.0% of GDP. A compensation payment on the scale sought could significantly affect the trajectory.

For financial regulators across the region, the case also raises questions about the durability of central bank enforcement actions if licence revocations can be overturned decades later with compensation based on projected future profits.

The registrar’s assessment is ongoing and could take months, given the complexity of calculating losses spanning two decades.