The Consumers Association of Malawi (Cama) executive director John Kapito has accused the Reserve Bank of Malawi (RBM) of promoting the interests of commercial banks at the expense of banks’ customers.
Kapito has also questioned RBM’s credibility in regulating the country’s banks, calling on Parliament to review the RBM Act to enable the establishment of an independent body to regulate banks.
But RBM has played down Cama’s accusation and says its immediate objective is to control the level of money supply, hence, in the long run consumers benefit from reduced inflation rate—the the rate at which prices of goods and services change in an economy.
“We have seen that banks are assisted but on one hand consumers are just absorbing all costs. Banks are also supposed to assist consumers not banks only. I think RBM has lost its credibility in the way it is regulating banks and, therefore, there is need for another body to regulate banks,” said Kapito in an interview yesterday.
His comments were in reaction to last week’s RBM introduction of a new facility called Lombard which will attract an interest rate of 27 percent, two percentage points higher than the bank rate, to assist liquidity-stressed commercial banks.
The bank rate—the rate at which commercial banks borrow from the central bank—has been stuck at 25 percent since December 2012.
But Kapito wondered why consumers are borrowing from commercial banks at over 40 percent when banks are borrowing from the central bank at an average of 27 percent.
“RBM is supposed to assist consumers as well and not banks only and this requires proper regulation. There is need for Parliament to sit down and review the RBM Act and come up with another body to regulate banks,” he suggested.
Kapito alleged that currently, RBM is not independent from commercial banks plying their trade in the country.
In reaction, RBM spokesperson Mbane Ngwira said the central bank’s objective is to ensure effective implementation of monetary policy and ensure financial stability.
“The Lombard issue is dealing with monetary policy implementation and the objective of monetary policy is not consumer protection. However, in the long run, you are supposed to protect consumers through reduced inflation rates,” he argued.
Ngwira said the implementation of Basel II will protect consumer welfare as banks’ consumers will know how much risk the banks will be exposed.
Basel II is an international banking regulation aimed at reducing financial risks and improving sovereign ratings and its implementation taken off 0n January 1.
RBM Governor Charles Chuka, who chairs the central bank’s Monetary Policy Committee (MPC), said the introduction of Lombard facility will ensure commercial banks have a ready access to money from RBM as long as they meet requirements regardless of liquidity situation on the market.