INSTITUTE OF BANKERS IN MALAWI

ADVANCED DIPLOMA IN BANKING EXAMINATION

SUBJECT: ADVANCED BANKING LAW (IOBM – AD318)

Date: Tuesday, 2nd November 2010

Time Allocated: 3 hours (13:30 – 16:30 pm)

INSTRUCTIONS TO CANDIDATES

1 This paper consists of TWO Sections, A and B.

2 Section A consists of 4 questions, each question carries 15 marks.

Answer ALL questions.

3 Section B consists of 4 questions, each question carries 20 marks. Answer

ANY TWO questions.

4 You will be allowed 10 minutes to go through the paper before the start of the
examination, you may write on this paper but not in the answer book.

5 Begin each answer on a new page.

6 Please write your examination number on each answer book used.

Answer sheets without examination numbers will not be marked.

7 DO NOT open this question paper until instructed to do so.

SECTION A (60 MARKS)

Answer ALL questions from this section.

QUESTION 1

Compare and contrast the following:-

(a) Draw down and demand facilities. (7 marks)

(b) Default interest and penalty interest clauses. ( 8 marks)
(Total 15 marks)

QUESTION 2

Explain the following terms:-

(a) Consolidated supervision of international banks. ( 8 marks)

(b) Subordinated capital. (7 marks)
(Total 15 marks)

QUESTION 3

Critically analyse any three remedies that a bank has against a third party that takes
security in breach of a negative pledge clause. Support your analysis with relevant
case authorities.
(Total 15 marks)

QUESTION 4

Gonzales Multimedia (GM) Ltd is about to list its shares on the Malawi Stock
Exchange. GM Ltd has approached ABC Bank for a possible involvement in the
distribution of the securities.

Prepare a board paper highlighting any four types of probable agreements and advise
on the most beneficial agreement to the bank as well as GM Ltd.
(Total 15 marks)

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SECTION B (40 MARKS)

Answer ANY TWO questions from this section.

QUESTION 5

Rendall Investments wants to operate a banking business in Malawi. Discuss any four
rules that have been issued by the Reserve Bank of Malawi for licensing banks in
Malawi.

(Total 20 marks)

QUESTION 6

Nthondo Bank has a branch in Chitipa. On 1 st May, 2010, Mr. Chigawenga went to
the bank to open an account. The bank clerk asked him for an identity but Mr
Chigawenga only produced a letter from the Village Headman that he is one of his
subjects. He identified himself as a houseboy earning K20,000 per month. On 14 th
May 2010, K500,000 was deposited in his account from an undisclosed source in
Northern Ireland. On 17th May, 2010 K20,000,000 was transferred into his account
from undisclosed source in Pakistan. On 20 th May 2010, all the monies was
transferred by Mr Chigawenga to a terrorist group. The bank never investigated Mr.
Chigawenga.

Advise the Governor of the Reserve Bank of Malawi on the legal implications.

(Total 20 marks)

QUESTION 7

Muloza Limited of Malawi has received a settlement cheque of US$2,500 from a

customer drawn on Citizen Bank of the United States of America. On 12 th August
2010, Muloza Limited deposited the cheque with its banker in Malawi, namely ZBS
Bank. On 26th August 2010, ZBS Bank credited Muloza Limited’s account with the
Malawi Kwacha equivalent of US$2,500 being payment on the cheque. On 14 th
September 2010, Muloza Limited released the goods and title documents to its
customer in the United States of America. On 22 nd September 2010, ZBS Bank
reversed the credit entry of the US$2,500 cheque, alleging mistake that the cheque
has been dishonoured by Citizen Bank.

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Critically analyse the regime for international payments, payments by mistake and
advise Muloza Limited on the appropriate course of action.
(Total 20 marks)

QUESTION 8

Mpemba Hydro Electricity (MHE) Company participated in a bidding process for the
construction of Hydro Electricity Plants along Ruo river in Mulanje. The bidding
documents included a letter from Worldwide Bank affirming that they are prepared to
lend US$5 million to MHE in the event that MHE is assigned to carry out the
construction works. MHE has emerged as a successful bidder but Worldwide Bank is
reluctant to lend MHE the US$5 million.

Critically assess whether the commitment letter from Worldwide Bank is legally
binding.
(Total 20 marks)

END OF THE EXAMINATION PAPER

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