Malawi financial market liquidity improves

The liquidity position in the financial system in Malawi has markedly improved over the past week, registering a surplus of K3.9 billion (about $9.7m), according to a money market analysis report.

Banks in Malawi started facing liquidity problems after the 49 percent shock devaluation and the subsequent floatation of the kwacha on May 7 2012.

As a consequence, local banks started clearing a backlog of external payments by most importers which resulted in wiping out of excess liquidity on the market; hence, the banks started flocking to the central bank for help.

This resulted in most banks facing a liquidity squeeze—a time cash resource to meet depositors’ demands in short supply.

Noticing the demand for capital by the banks was so high; the Reserve Bank of Malawi (RBM) was prompted to introduce a non-collateralised discount window borrowing on June 1 at a rate of 18.5 percent and raised it to 23.5 percent in July.

However, the RBM discontinued the non-collateralised discount window borrowing in September last year, arguing it had done enough to normalise the liquidity position of most banks.

But in its weekly analysis, Blantyre-based Alliance Capital Limited said the financial system closed with a surplus which was above the K36.4 billion (about $91m) total required.

A money market analyst told Business News on Thursday liquidity levels in the banks have markedly improved and most of them now have money.

“Most of the funds from the banks were locked in treasury bills for a year when the rates were low. Now that most of the funds have matured, there has been a marked increase in liquidity levels,” said the analyst.

He said most companies and individuals have also slowed down on borrowing largely because of the prohibitive interest rates at over 50 percent which have made it difficult to recoup significant return on earnings.