Malawi Confederation of Chambers of Commerce and Industry (MCCCI) has said it will push for a cap on interest rates if banks do not reduce their lending rates in line with the policy rate.
MCCCI chief executive officer Chancellor Kaferapanjira was reacting to the decision by the Reserve Bank of Malawi (RBM) on Wednesday to reduce the policy rate—the rate at which commercial banks borrow from the central bank as the lender of last resort—from 22 percent to 18 percent.
“We are saying if commercial banks do not respond to the signals of the central bank, then we will keep pushing the central bank to put a cap on interest rates so that commercial banks are disciplined to reduce their overheads, most of which are in perks,” he said in an interview.
Kaferapanjira said while commercial banks are a part of the private sector, they should follow the movement in the economic fundamentals.
A cap on interest rate is not new in Africa. President Uhuru Kenyatta of Kenya introduced a cap in August last year limiting interest charges to four percentage points above the central bank’s key interest rate, currently at 10 percent.
But RBM Governor Dalitso Kabambe said they will continue engaging commercial banks to ensure that they narrow the spread between interests rates charged on deposits and loans.
He said Malawi has one of the highest spreads in the region and globally, adding that the weighted interest on deposit is at eight percent while the weighted interest on money banks lend out is at 36 percent and effective rate is as high as 86 percent in microfinance institutions.
Said Kabambe: “Two weeks ago, we met with different stakeholders where we discussed why the spread in Malawi is very high. We discussed the reasons and what can be done to reduce the spread.
“There is a task force that has been set up involving the Bankers Association of Malawi and other stakeholders to ensure that the spread is reduced.”
In his remarks, RBM deputy governor for economics and bank regulation Grant Kabango said there are several issues that affect the spread which are not uniform for all banks.
He said RBM will have bilateral engagements with banks to justify their spread while at the same time appreciating that commercial banks are business entities aimed at profit maximisation.
Kabango said some of the issues that affect the spread include the increase in non-performing loans, credit unworthiness mostly for small and medium enterprises and non-realisation of collateral value.
The reduction in the policy rate is the third time in a row since November 2016 largely due to disinflation.
Inflation has been trending downward and is currently at 12.3 percent as of May 2017, according to the National Statistical Office (NSO).
RBM has projected an inflation rate of 10.5 percent by June and eight percent by December this year due to reduced food costs. n