‘Market forces to dictate rates’

Post was last updated: September 27, 2017

The Bankers Association of Malawi (Bam) has said it is continuously making assessments to ensure that the services that banks are providing reflect the movements in key macroeconomic fundamentals.

Bam president, Paul Guta, was responding to concerns over interest rates banks are offering. which some sections of the society consider to be too high for average Malawians to comfortably service their loans.

Guta said banks are not just waiting on policy direction from the Reserve Bank of Malawi (RBM) to make a move on their base lending rates, but also making their own individual assessments to pass on the benefits to consumers.

He said most banks immediately responded to the central bank’s decision to cut the policy rate from 22 to 18 percent and that some banks are still reviewing their rates without waiting for further policy direction from RBM.

“Other banks have done it twice. The response from banks has been positive judging from market trends,” he said.

Going forward, Guta said the financial services sector will continue to scan the environment to either reduce or increase their rates to match movements in the economy.

Towards the end of last year, Chairperson of Public Accounts Committee, Alekeni Menyani, moved a motion in Parliament, to make amendments to the Loan Recovery Act and the Reserve Bank of Malawi Act as one way of regulating interest rates and repayment conditions that banks offer to borrowers.

At that time, interest rates were hovering around 30 percent. But while Parliament was against introducing a policy to cap interest rates, suggesting that such a move would hurt the economy, economic experts feel such a policy would ensure that banks do not make it prohibitive for consumers to access loans from banks and engage in activities to boost the economy.

“But instead of capping interests because we realise that it would hurt the economy, what the motion has done is to ask the House for permission to make amendments to the Loan Recovery Act and the Reserve Bank of Malawi Act in the private members motion so that we can afford ordinary Malawians wishing to do business a chance and the House has agreed,” he said.

Kenyan president, Uhuru Kenyatta, made history when he assented to the Banking Amendment Bill 2015 with an intention to regulate interest rates that are applicable to banks’ loans and deposits. The Bill caps interest rates that banks can charge on loans and must pay on deposits.

According to economic experts, ‘Capped Rate’ is defined as an interest rate that is allowed to fluctuate, but which cannot surpass a stated interest cap.

Executive Director of the Consumers Association of Malawi, John Kapito, said adopting a similar bill in Malawi would offer relief to borrowers who are forced to pay high interest rates on their loans due to lack of competition among the country’s commercial banks.

“If we want to grow our economy, then we need to start capping interest rates,” he said.

In an earlier interview, Malawi Confederation of Chambers of Commerce and Industry (MCCCI) Chief Executive Officer, Chancellor Kaferapanjira, said for the policy to work in Malawi, it would require government to develop suitable mechanisms to ensure its successful implementation.

“Depending on how the law can be framed, capping interest rates may be a good idea for Malawi. Such a law would provide a guide in terms of how the interest rates should be set without necessarily mentioning the maximum limit,” he said.

People have quoted the high interests as among the contributing factors to the slow-down in private sector growth, leading to inability of the economy to create jobs.

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