Whither bank charges in Malawi

Last week, I was shocked talking to Kalumbi, a peasant in our neighbourhood, who confided in me that he had over K1 million stashed under his mattress at home.

When I argued with him that it was not proper for him to keep such a huge amount of money at home, he told me that he does not believe in banks because they are devious.

In his words, he said banks are so subtle in that customers may think they are being helped when the bankers are literally ‘stealing’ from them.

He added that sometimes bank tellers treat customers like thieves, beggars or some dirty bugs when depositing and withdrawing their money.

I tried to convince him to deposit the money with one of the many commercial banks in the country, arguing that he was locking up resources which would have been available for use by others.

I also argued that the money would be safer at the bank than in his house and above all, he would earn interest on top of his money.

Unfortunately, Kalumbi stuck to his position, insisting he would rather keep it in his pot at home than at the bank. Well, maybe Kalumbi has a point.

Recently, the Reserve Bank of Malawi (RBM) in a bid to mop up the economy of excessive liquidity raised its base lending rate to 21 percent. The exercise is meant to control inflation rate which is now hovering above 21 percent.

Consequent to the change in the base lending rate by  RBM, commercial banks also raised their lending rates with some banks’  lending rates getting as high as 45 percent per annum. That is katapila (loan sharking) if you ask me.

Last week, the RBM published selected charges and tariffs for commercial banks in Malawi. Without delving too much into the charges, banks charge as high as K2 000 per page for an interim statement. Well, I am not sure what kind of paper and ink these guys use but that’s it, K10 000 for five pages.

On monthly service charges, banks charge as high as K800 per month on your personal savings account and as high as K1 500 on your current account. Surprisingly, some banks do not charge anything for maintaining your personal savings account.

On lending and deposits, these banks charge as high as 45 percent per annum for a personal loan and a processing fee of up to 3.5 percent.  So, if you want to apply for a K1million loan be sure that you will be charged of course on top of the principal, about half a million as interest at the end of the first year. You will also be charged K35 000. Therefore, you will have K1 million less K35 000 available for your use.

On the other hand, if you decide to deposit the K1 million at the bank, you may earn as low as five percent per annum, that is K50 000 at the end of 12 months. You will also be charged the monthly service fee of up to K18 000 for the same period.  Shockingly, at the end of the period, you may earn a net of about K32 000 on your K1 million. You may also wish to know that this is only nominal in the sense that with inflation above 20 percent, the real value of your money will be around K850 000.

I have also observed that although our technology permits a fast payment clearing system, money, especially salaries are sometimes withheld for no proper reason.

Let us say a bank withholds your salary of K1 million for five days every month for a year, that translates to two months which translates to about K75 000 earned in interest for the bank at 45 percent lending rate. Mr governor did you get that?

Perhaps the above, of course, in addition to illiteracy and other reasons explains why people like Kalumbi would rather keep their money at home than entrust it to a bank. This also explains why the banks are complaining of liquidity problems in that they are not able to meet the demands for loans. In other words, they are not able to attract more deposits. This may also explain why the RBM complains of a lot of unbanked money in Malawi.

Well, this may also explain the amount of profits banks post every year regardless of the dismal performance of the economy.

Looking ahead, it is my hope that banks will respond favourably to the liquidity pinch being felt now by our economy. Of late, I have noticed that some banks are responding favourably with others going close to 25 percent per annum on a minimum  positive balance of at least half a million.

To cap it, my observation is that the deposit rates are low, lending rates prohibitive and bank charges ridiculous. It is my hope that market forces and regulation by RBM will see us reach some equilibrium in terms of interest lending and deposit rates. It must further be noted market forces will only work if we, consumers, are as assertive and ask for what is in our interest.