Commercial banks currently reeling under the critical shortage of the kwacha in the country, are in a stiff competition to lure customers with different awards to open bank accounts. Financial market analysts have described this competition craze as a desperate attempt by the banks to avert liquidity shortages in the sector.
A money market analyst Chikavu Nyirenda of Alliance Capital Limited said in an interview yesterday that at the moment it is clear that banks desperately want to patch-up for liquidity gaps in their balance sheets.
“The extent of desperation can be seen in massive promotional activities they are involved in, with some banks perching megaphones on event vehicles that are going around townships to woo people to open accounts with them and win fabulous prizes,” he said.
Nyirenda said the media is also awash with advertisements of different sizes, asking people to embrace the saving culture to win electronic equipment and even trips to China.
His observation resonates well with information from the banking community which show that most of them are borrowing heavily from the Reserve Bank of Malawi through the non-collaterised discount window to keep capital flowing to the banks.
The excessive demand for capital has soared to the extent that RBM Governor Charles Chuka has hinted that the non-collaterised discount window will attract a charge of four percentage points above the borrowing bankâ€™s prime lending rates and that additional charges may be imposed if access is considered excessive.
This will automatically force banks to hike their lending rates again, spelling doom for businesses.
“The competition among banks have reached fever pitch proportions and, probably, reflecting the reality on the ground. The fact is that most banks do not have the liquidity,” said Nyirenda.
He said the banks are under pressure to maintain the Liquidity Reserve Requirement (LRR), a situation which he said is forcing them to heavily borrow from the central bank to meet LRR ceiling, currently at 15.5 percent.
LRR is a minimum reserve of bank customer deposits, normally in form of cash which is physically stored at the central bank.
Currently, for every K100 a person deposits with a local bank, K15.50 is locked idle at RBM, leaving the bank to lend out the remaining K84.50.
â€˜Banks soften upâ€™
LRR, which local analysts argue is currently high in Malawi, is used as a monetary policy tool for influencing the countryâ€™s borrowing and interest rates by changing the amount of funds available for banks to lend out.
Nyirenda noted that most commercial banks have softened up their minimum balance and other charges to entice customers to open accounts with them.
“A lot of banks are doing away with minimum balance and also other charges and all they need is to ensure they have sufficient liquidity,” he added.
The Bankers Association of Malawi (Bam) chief executive officer Lyness Nkungula could not be reached for the banksâ€™ position on the matter as she is reportedly to be on holiday.
The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira cautioned on Monday that the present kwacha shortages may lead to massive bankruptcies in the private sector as they will be denied loans for recapitalisation.