The banking sector registered a positive start to 2022 witnessed by loose liquidity, reduced interbank borrowing and a drop in access to the Lombard Facility.
A financial market developments report the for the week ending January 7 2022, published by the Reserve Bank of Malawi (RBM), shows that commercial banks’ excess reserves, before borrowing, averaged K33.2 billion per day compared to an average of K10.0 billion per day registered during the previous week.
It further says commercial banks significantly reduced borrowing from the interbank market and the central bank to cover for liquidity shortfalls.
“Trading on the interbank market declined to K9.9 billion per day from K18.8 billion per day registered during the week ended December 21 2021 while access on the Lombard facility declined to K4.2 billion per day from K11 billion per day,” the report reads.
Financial Market Dealers Association of Malawi President McLewen Sikwese attributed the positive performance to a K241 billion liquidity injection which the central bank made to the sector in form of reverse repos in December.
Sikwese added that the outlook would depend on what the central bank would do once the reverse repos mature.
“If they let the reverse repos mature and they settle, it means we will be back to the same problem but if they roll them forward, the current liquidity position should continue,” Sikwese said.
Market analyst Cosmas Chigwe expressed similar sentiments, saying central bank operations in the first two weeks were notably expansionary.
He added that there has been gross under subscription on government securities on both Treasury bills and Treasury notes resulting in net positive maturities.
“These measures by the monitory authorities were inflationary and cannot be kept for long. We should therefore expect that the market should go back to a tight liquidity situation in the medium term just that the tightness may not be as before,” Chigwe said.
The central bank’s reports for last year showed that, for the good part of 2021, liquidity in the sector remained tight and interbank borrowing and access to Lombard Facility was increasing.
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.