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Cost of funding affects interest rates— Bankers Association of Malawi

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The Bankers Association of Malawi (BAM) has reiterated that the cost of funding perpetuated by increasing levels of bad debts among commercial banks is the major factor that influences high interest charges.

Critics have in recent months condemned commercial banks for not taking a leading role in reducing lending interest rates that would translate in increased activity in the private sector so as to boost the country’s economy.

They are further criticised for the widest spread in the region which is seen as a ploy for banks to make supernormal profits.

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Currently, lending interest rates among commercial banks hovers around 25 to 33 percent while saving interest rates are around eight to 13 percent.

In an interview, Second Vice President of BAM, who is also Managing Director of FDH Bank, Eric Ouattara, said banks are finding it hard to reduce interest rates as there are many people who got loans but were unable to payback.

“What people need to understand is that the cost of doing business is improving, but the cost of funding for each bank is different based on the size, number of staff and the cost of doing business for each institution so each bank decides what level of decrease they will have to effect,” Ouattara said.

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He, however, was confident that before the end of this year, banks will significantly reduce their interest charges if the macro-economic stability continues.

“It is our expectation as BAM that banks will reduce interest rates and the situation will improve, am not talking about months, in one or two weeks banks will reduce interest rates and the most important thing for the economy is that the private sector and the public will be using this to invest,” Ouattara added.

The issue also came out during the review of the just ended IMF’s Extended Credit Facility review conference in Lilongwe where industry captains highlighted that banks take the blame for high interest rates when the problem is perpetuated elsewhere.

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