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Banks reduce rates
By
Ephraim Munthali - 14-08-2002 |
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The Commercial Bank of Malawi (CBM) and First Merchant Bank (FMB), responding to a 3.8 percent cut in the bank rate have finally announced a two percent cut in the base lending rate, while Malawi Savings Bank (MSB) say they have cut it by three percent.
Previously, CBM and FMB base lending rate was pegged at 46 percent but is now at 44 percent, while MSB has reduced from 49 percent to 46 percent.
CBM assistant general manager (economic services) Fred Kanjo, FMB managing director Nigel Williams and MSB head of operations Jeremy Banda confirmed in separate interviews yesterday that the cuts were a response to a 3.8 percent cut in the bank rate—the rate at which commercial banks borrow money from the central bank—about four weeks ago.
The Reserve Bank of Malawi (RBM) reduced the bank rate, ending a long standing debate in the financial sector on whether the bank would find the nerve to cut down the rate to make credit affordable.
The bank said it found it appropriate to reduce the rates following a persistent decline in inflation that has gone down to 16 percent from above 25 percent early this year.
First to respond was National Bank of Malawi (NBM) who reduced the base lending rate by two percent early in the month.
“We have been assessing the market after the central bank reduced the bank rate and we have seen that our position is good for us to cut the bank rate,” Kanjo said.
But Nigel Williams said the current reduction will not change much in terms of the borrowing power.
“It is not enough to get business started because people cannot afford to borrow money even with this cut. Hopefully there will be another cut by the central bank because we would like to see the economy getting started,” he said.
Usually excessive borrowing through Treasury Bills (TBs) by government, which is the major client for the commercial banks, is the main factor contributing to high interest rates.
Continental Discount House Limited (CDHL) in its monthly report, however, said despite the central bank’s stance to maintain tight monetary policy measures, government has continued to borrow heavily through (TBs) and (RBM) Bills.
For example, the monthly bill for July in TBs—instruments used by government to borrow from the public—and RBM bills totalled K4.8 billion matured against issues of K4.4 billion.
The cuts have also coincided with CDHL’s prediction that despite reluctant response by lending institutions to RBM’s adjustment of the bank rate, the downward trend in TB and RBM Bill yields will ultimately force the banks to make downward adjustments on their base lending rate as well as deposit rate to attract more commercial borrowers.
Mbewe told The Nation recently that the high interest rates had scared away potential borrowers, with CBM alone registering a 25 percent decline in its loan portfolio.
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