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Narrow disparities in bank’s rate cuts

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Narrow disparities seem prevalent in the new interest rates commercial banks have announced as a reaction to a decision by the Reserve Bank of Malawi (RBM) to reduce its policy rate from 27 to 27 percent.

Our desk research indicates that two weeks after RBM Monetary Policy Committee met and decided to reduce the policy rate, almost all commercial banks have reacted to cut their interest rates.

RBM announced the policy rate cut on 24 November 2016 owing to a drop in inflation rate and a relative stabilisation of the kwacha.

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Most banks have now pegged their base rate at between 32 and 33 percent.

Two Malawi Stock Exchange (MSE) listed National Bank of Malawi (NBM) and Standard Bank were first to react, both putting their base rate at 32 percent.

Another MSE listed bank, NBS, pegged its base rate at 33 percent, just like Leasing and Finance Company (LFC), a subsidiary of former listed bank, FMB.

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FMB also cut its rates to 33 percent but Pan African lender, Ecobank and CDH Investment Bank cut their lending rates to 33.5 percent.

FDH bank slashed its base rate to 34 percent, the highest on the list this far.

The business community has been calling on commercial banks to react swiftly by reducing base lending rates further in a bid to improve competitiveness of bank loans and eventually grow the private sector.

In an earlier interview, business man and former President of the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), Newton Kambala, told Business Time that it was unlikely that the new rates will rescue the private sector.

Kambala said for the move to be significant, banks must soften loan conditions, including removing the current requirement where most commercial banks are demanding cash cover as security for a performance guarantee.

“It’s too late. Businesses are on their knees and many have closed down. As we speak, banks are not accepting property as security for a performance guarantee preferring cash cover. Such conditions only squeeze the business sector further,” he said.

And MCCCI President, Karl Chokotho, said reduced government borrowing would create a surplus to be made available to the private sector at reduced rates.

“We want to see a deliberate drive in supporting the manufacturing, agro-processing, mining, tourism and other productive sectors. It is critical for our country that we drive a growth agenda,” he said.

Consumers Association of Malawi Executive Director, John Kapito, said base lending rates of 32 percent are still too high for the average person.

Kapito said with current economic trends, it is only figures below 20 percent which would make a difference in people’s lives.

“The news is not exciting as it is not the figure we are looking for. We cannot celebrate because the situation is still tough for most people,” he said.

While applauding commercial banks for reducing the interest rates, the Malawi Confederation of Chambers of Commerce and Industry (MCCCI) said there is still need for a tight grip on government borrowing in the domestic market so that interest rates can come down even further.

Malawi is one of the countries where the cost of servicing a loan is among the highest in the region and world. Before the policy rate adjustment, commercial banks were charging interests of around 40 percent.

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