The Bankers Association of Malawi (BAM) has said some commercial banks are still struggling with liquidity challenges despite the problem slowly returning to normalcy.
BAM president William Chatsala also told Business News that the banking sector has seen a reduction in inter-bank borrowing and discount window activity.
“While some banks are still grappling with the liquidity squeeze, it is correct to state that the situation is improving,” he said.
Following the devaluation of the kwacha on May 7 2012, most banks were caught unawares with the subsequent inflow of foreign currency which virtually wiped out kwacha balances accumulated during the past three years of forex drought.
As a result, most banks were left with no money to lend out to their clients, forcing them to borrow from the Reserve Bank of Malawi (RBM).
In reaction, RBM introduced a non-collateralised discount borrowing window at 18.5 percent for stressed banks to access money which was later hiked to 23.5 percent following excess demand for funds at the central bank up until July 31 2012. The RBM, thereafter, imposed a charge of 4 percentage points above the borrowing bankâ€™s prime lending rates.
Chatsala stressed the banking sector has seen reductions in interbank borrowings and discount window activity which he said points to the stability of the liquidity squeeze.
He added: “We believe the situation is under control and will revert to normality soon.”