Whip commercial banks, Cama tells Reserve Banks of Malawi

Post was last updated: February 13, 2019

By William Kumwembe:

Consumers Association of Malawi (Cama) has urged the Reserve Banks of Malawi (RBM) to whip commercial banks for not responding positively to the recent policy rate cut.

Cama’s proposal comes after last month’s policy rate cut by 1.5 percentage points, from 16 percent to 14.5 percent

RBM also cut by 33 percent the Liquidity Reserve Ratio (LRR)—a fraction of bank deposits that commercial banks are required to keep at the central bank.

This entails base lending rates of all banks would be pegged to the Lombard Rate, which was reduced to 14.9 percent.

From last week, commercial banks have been lowering their base lending rates, realigning them to a minimum of 14.9 percent and a maximum of 26 percent.

Market expectation was that the cost of borrowing would go down further and the move would give respite to companies and individuals servicing loans with the banks.

In an interview Tuesday, Cama Executive Director, John Kapito, described the conduct of commercial banks as pure theft, saying they would like to continue reaping off Malawians.

“How could you get the same money at a maximum interest of six percent and lend it back to them at as high as 26 percent.

“What is the justification for this madness? It is high time RBM took a big whip and whipped the banks; otherwise, Malawians will continue to struggle,” Kapito said.

He said, for a long time, local commercial banks have thrived at a time the citizenry and businesses have continued to struggle.

Kapito said it does not make sense that banking has remained the only profitable business in the country.

RBM spokesperson, Mbane Ngwira, was not immediately available for comment Tuesday.

In its assessment of impact of the policy rate cut, the Economics Association of Malawi (Ecama) said the cost of borrowing will largely depend on risk profile of the respective borrowers.

In an interview, Ecama Chief Executive Officer, Meleka Thula, said, going forward, there is a strong need for banks to have more attractive deposit rates to incentivise savers.

“This would help banks to mobilise more funds for credit extension.

“It should also be noted that savers have no incentives to save in Malawi despite having high interest rates since the real interest rate on savings has always been negative as inflation rates has, on average, been higher than deposit rate,” Thula said.

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