Malawi University of Science and Technology (Must) vice-chancellor professor Address Malata has urged commercial banks to reduce lending rates to make borrowing affordable for majority of Malawians.
She made the call on Saturday in Blantyre during the annual Bankers Association of Malawi (BAM) Dinner and Dance.
Malata said that interest rates remain a major cry for Malawians, observing that if banks make interest rates manageable, more people will borrow for meaningful development projects and contribute to the country’s development agenda.
“If the rates are high as is the case now, we will continue to have a few people that are able to borrow. Banks should not just be focused on making profits but ensuring that they help in the socio-economic development of the country by making lending cheaper,” she said.
Malata challenged banks to realign their work to the Malawi 2063 pillars, highlighting that banks have a role play to realise the country’s development goals by ensuring that Malawians benefit from the banking sector.
In response to the call, BAM president Macfussy Kawawa indicated that while lowering interest rates is good for businesses, this cannot happen in a vacuum as there are several determinants that constitute the borrowing structure which banks have to consider.
He said: “As banks, we keep being reminded about the cost of borrowing, but this a challenge which requires dealing with underlying factors that influence the cost of borrowing.
“For instance, how you realise security for a loan and how long it takes has got a factor into the pricing of a loan. Now if as a country we do not deal with that, the component will remain.”
But Kawawa said banks have been looking into other bank charges to ensure that the lower end of the customer finds banking cheaper.
“This is one of the positive moves that banks are currently looking into and we will continue looking at opportunities to see that if there are any gains, they should be passed on to the consumers,” he said.
Meanwhile, Parliament is expected to debate the Financial Services Amendment Bill of 2021 which, among others, seeks to regulate interest rates on loans obtained from banks and other financial lending institutions.
The Bill also seeks to amend the Financial Services Act by inserting , in part VII, a new section 34A, which will provide for the regulation of interest rates, setting policy rate, setting the maximum recovery from any loaned amount and shrinking the ever-widening spread between lending and deposit rate.
Commercial banks offer customers deposit rates as little as five percent while charging an average of 23 percent on loans, a development market watchers described as prohibitive. The Reserve Bank of Malawi (RBM) has kept the policy rate at 12 percent.
Addressing delegates at the Economics Association of Malawi 2021 Annual Lakeshore Conference in Mangochi on November 11, Vice-President Saulos Chilima made a fresh call to banks, telling commercial bank that “interest rates must come down and that is non-negotiable”.
He asked RBM to consider capping the interest spread, the gap between lending and deposit rates.
Chilima, who is also Minister of Economic Planning and Development; and Public Sector Reforms, said it is important that if banks raise the lending rates, they must also pass the same to depositors.
Currently, banks are offering customers deposit rates as little as five percent while charging an average of 23 percent on loans.