Relief. National Bank of Malawi (NBM), the Malawi Stock Exchange (MSE)-listed biggest bank in terms of assets, has cut its interest and mortgage rates by 10 percent or four percentage points in reaction to what it says are “unfolding dynamics on the market”.
The move by NBM will likely compel other 11 commercial banks to follow suit and reduce their base lending and mortgage rates, according to an economics professor.
Beginning January this year, the country’s commercial banks raised their interest rates to above 40 percent, a move analysts said was a reaction of the introduction of the Lombard facility by the Reserve Bank of Malawi (RBM) meant to assist authorised dealer banks to manage their liquidity squeeze.
The Lombard facility, which analysts said effectively, meant the RBM had raised its bank rate, was set at a spread of two percentage points above the bank rate, currently at 25 percent since December 2012.
In announcing the interest rate reduction, NBM chief marketing officer Wilkins Mijiga said they moved in due to the trending downwards of Treasury bills (T-bills) rates and improved liquidity on the market.
“It is also considered that the cash crops, mainly tobacco marketing and trading just around the corner, any pressure on the kwacha to depreciate will be dampened, therefore, no serious downside risk on the kwacha depreciating,” he said in statement.
Over the past few weeks, T-bills rates have been on the downward spiral with figures showing rates on the tenors easing.
A weekly market update from Nico Asset Managers Limited, quoting RBM figures ,shows that last week, T-bills rates decreased with the 91 days tenor dropping to 17.9 percent from 20.4 percent, the 182 days rate eased to 19.5 percent from 21 percent, while the 364 days rate closed the week at 22.1 percent from 23.8 percent.
Liquidity levels have also improved, increasing last week and averaged K17.8 billion a day from a daily average of K16.1 billion the week before, according to the investment advisory firm.
In January 2014 alone, Nico Asset Managers said liquidity increased at a daily average of K14.5 billion from K3.37 billion in the previous month.
Chancellor College economics professor Ben Kaluwa said in an interview yesterday other banks will likely take a cue from NBM to cut their base lending rates.
“With the improvement in liquidity and the continued decreasing in T-bills rates, the banks have no choice but to cut the lending rate. Interest rates in Malawi are prohibitive and the move by National is commendable,” he said.
Nico Asset Managers expects short term interest rates to continue decreasing as the central bank continues with its tight monetary policy as the government tries to foster price stability.
According to the International Monetary Fund (IMF) 2014 Malawi Country Report, the Ministry of Finance and RBM signed a memorandum of understanding (MoU) indicating that the ministry will bear the interest costs of using T-bills for monetary operations.