Banks struggle with liquidity challenges in 2019

Commercial banks seemingly faced liquidity challenges in the just ended year, resorting to access funds through Lombard Facility from the Reserve Bank of Malawi (RBM). 

Figures contained in the Nico Asset Managers annual report show that in 2019, banks borrowed K11.15 billion per day at an average rate of 13.9 percent, up from K5.85 billion per day at an average rate of 18 percent.

The figures show that liquidity levels for the year 2019 increased to a daily average of K15 billion from K8.44 billion per day in 2018.

Overnight borrowing between banks during the year also increased to an average of K8.41 billion per day at an average rate of 10.38 percent from K8.20 billion per day in 2018 at an average rate of 14.79 percent.

But in view of the development RBM spokesperson Mbane Ngwira said the situation was due to the fact that expenditure was far much less than the receipts.

“It could be that government was receiving more in the market than what it was putting in the market.  Spending was far much less than what it was receiving.

“This is actually good because it means less money chasing goods in the market, which means we are able to tame inflation because less money supply means less liquidity in the system,” he said.

Speaking separately, Alliance Capital Limited research manager Bond Mtembekeza said the development cannot affect banks’ ability to lend funds to customers as deposits are taken in daily.

He said: “The high liquidity levels that we experienced came about largely because the RBM was heavily rejecting Treasury bills bids on the primary market.

“Rejection rate during that period averaged around 80 percent and that left too much money in the banking system; hence, high liquidity levels.

“At the end of the day, it is about matching assets and liabilities so they can always lend out.”

Over the past six years, RBM has sustained increase in capital requirement, has sent the local financial sector into a rapid consolidation drive, reducing the number of banks from 13 to eight.

Meanwhile, RBM announced that it effective January this year hiked capital requirement for commercial banks from K3.7 billion to K10 billion.

But at a Credit Awareness Week held towards the end of last year in Blantyre, RBM Governor Dalitso Kabambe said the central bank is committed to strengthening the country’s financial system and anchor stability of the country’s macroeconomic environment.