Tight liquidity in the banking sector for the good part of 2021 has resulted in commercial banks increased access to the Lombard facility, a discount window borrowing, latest figures from the Reserve Bank of Bank (RBM) have shown.
The figures indicate that, at the end of December, for example, liquidity was averaging negative K78.1 billion per day from K11.84 billion per day in November.
This resulted in access to the Lombard facility hovering at an average of K100 billion per day in the month of December from K80 billion on average in preceding months, which market analysts described as high.
Speaking in an interview earlier, Bankers Association of Malawi Chief Executive Officer Lyness Nkungula associated the tight liquidity to more withdrawals of the funds from the banking sector than injections.
She added that liquidity was expected to get tighter up to December last year at the back of the same reasons.
“For the tight liquidity, injections were in the form of Treasury bills and Treasury notes maturities while withdrawals were in the form of Open Market Operations reverse repo maturities, Treasury bills and Treasury notes auctions,” she said.
Market analyst Cosmas Chigwe said the tight liquidity and high access to the lombard facility may be associated with economic fluctuations emanating from the Covid pandemic.
Chigwe said most banks might have given out funds through customer withdrawals and borrowers when Covid was at its lowest last year because they had liquidity when Covid was at its worst.
“When Covid hit, businesses came to a standstill and most banks had liquidity but when Covid cases went down, businesses picked up and needed money which resulted in banks having tight liquidity,” Chigwe said.
Economists and market analysts believe that tight liquidity increases the cost of borrowing because financial consumers scramble for tight liquidity in commercial banks.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.