Waiting for competition in banking sector

Until 1995 when First Merchant Bank (FMB) joined the fray as the country’s third commercial bank, Malawi used to have only two banks: National Bank of Malawi (NBM) and Commercial Bank of Malawi (CBM) now trading as Standard Bank Limited.

The New Building Society (NBS) provided commercial banking services, but was not a full-fledged commercial bank until 2004. Hitherto, NBS Bank mostly concentrated on mortgages as its core business.

The Post Office Savings Bank (Posb), later Malawi Savings Bank (MSB), also offered banking services.

FMB and the rest joined the commercial banking business courtesy of reforms pushed by the International Monetary Fund (IMF) and the World Bank in the name of financial liberalisation and deepening of the financial industry to bring efficiency and competition.

Today, Malawi boasts of nine commercial banks and one investment bank. They are NBM, Standard Bank, FDH Bank, FMB, NBS Bank, Nedbank (Malawi) Limited, Ecobank (Malawi) Limited, Opportunity Bank, New Finance Bank and CDH Investment Bank.

In fact, until two years ago, there were two more banks—MSB and Indebank Limited—which were “swallowed” by FDH Bank and NBM, respectively, after their main shareholder, the Malawi Government, sold off its stakes as it could not attain the minimum capital requirements under Basel II.

Traditionally, multiplicity of players is expected to bring competition and indeed benefit the customer through a wide offering of products and services. However, in the Malawi scenario, it is a different case, at least from experiences of undertaking banking transactions. Products and services are almost the same albeit with slight differences in their branding. Many times the difference one sees is in the branding rather than service.

I am an Executive Banking customer at Standard Bank Malawi. I am also an ordinary customer of Nedbank (Malawi) Limited. Besides, I do undertake transactions in almost all other banks when need arises. But looking at the product sampling, I have always concluded they are the same.

To the customer, key areas of benefit should be interest rates on both deposits and loans and, of course, superior service. Sadly, superior service offering is often on paper or for the chosen few.

This week, we woke up to news of NBM and FDH Bank reducing their base lending rates to 27.5 percent in direct reaction to the four percentage points cut in the bank rate or policy rate from 22 percent to 18 percent by the Reserve Bank of Malawi (RBM). The banks also revised interest paid on deposits.

In an ideal competitive market, if NBM and FDH Bank have pegged their base lending rates at 27.5 percent, Standard Bank, another major player, would go as low as say 24 percent and attract more borrowers. Naturally, the others will follow. But experience in Malawi has been that almost all of them will be around 27 percent.

Big corporates tend to get better rates than personal banking customers and small and medium enterprises (SMEs). Many personal and SME banking customers are ignorant of the fact that they can bargain for better rates. But then, the banks should make such options known.

Much has been said on the wide disparity in lending and deposit rates. Those on the banks’ side argue there is a high default rate that has seen a rise in non-performing loans. But then what became of the assessment of potential borrowers?

Given the stringent assessment most banks make on potential borrowers, it always baffles my mind when I see some commercial banks making provisions for bad debts in billions of kwacha. Memories are still fresh of the yet-to-be-recovered K6 billion MSB toxic loans. Taxpayers settled the loans in the hope that the funds would later be recovered. No tambala has been recovered, but the defaulters are seen driving posh vehicles and living luxurious lives under the protection of court injunctions. That can only happen in Malawi.

Moving forward, commercial banks should desist from greed. They should not abuse the free market economy to milk Malawians so that bank employees can pay each other huge bonuses, some bordering on obscenity, and rake in billions for their share holders at the expense of poor Malawians.

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