Bank rates stirs debate

The decision by some commercial banks to adjust lending rates downward has stirred debate from economists and stakeholders who feel banks are still giving the market a raw deal.

Commercial banks, notably National Bank of Malawi (NBM) plc, Standard Bank plc, FDH Bank, NBS Bank plc, CDH Investment Bank, Nedbank, New Finance Bank and First Capital Bank plc from last week reduced their lending rates to a minimum of 14.9 percent and a maximum of about 26 percent.

Ngwira: Explore other means of savings

Deposit rates on the other hand, have dropped to between two and six percent .

This follows a decision by the Reserve Bank of Malawi (RBM) to cut its policy rate to 14.5 percent from 16 percent and Lombard Rate from 200 basis points to 40 basis points.

However, analysts say that while the cost of borrowing has gone down, the spread is still high, a move that leaves a wide margin between depositors and borrowers.

Economists Association of

Malawi (Ecama) executive director Maleka Thula  said yesterday that banks can do more than what is currently on paper, observing that the spread between depositors rate and lending rate is wide and a detriment to inculcating saving culture.

“While we commend commercial banks for the downward revision of their base lending rates, of critical essence would be the spread between the minimum and maximum base lending rates, especially on loans to small-scale and medium enterprises as they are the ones that suffer the most from high cost of borrowing.

“It should also be noted that savers have no incentives to save in Malawi despite having high interest rates since the real interest rate on savings has always been negative as inflation rate has, on average, been higher than deposit rate,” he said.

Thula said going forward, there is need for banks to have more attractive deposit rates to incentivise savers to save and if banks are to mobilise more funds.

On his part, Consumers Association of Malawi (Cama) executive director John Kapito, while commedning the banks for positively responding to the RBM directive, wondered why banks are not willing to balance the margin between deposit and lending, arguing that the margin is still wide. 

“What we are worried about is the new structure, the appetite for savings will be minimal because those rates for savings are too low.  Borrowing has been made much easier and cheaper unlike saving. 

“We do not understand why the saving rate should be six percent. There is something the RBM should do to make the gap between borrowing and saving minimal.  The bank should not only be for borrowing, but for deposits too.

Speaking separately, Dowa West member of Parliament Alexander Kusamba Dzonzi, who tabled the Interest Capping Bill towards the end of last year, said the spread is too high, a situation which can be sorted out through the Interest Capping Law.

“While we welcome the stance by RBM and expected banks to follow suit reducing by their lending rates, it remains uncertain if the banks have done this in light of the elections where they want to paint a picture that our authorities are an authority which have the needs of the people at heart. 

“We are still of the view that the Interest Rate Capping Bill should be tabled because the recent stance by RBM and commercial bank leaves a lot to be desired. We are still seeing a wide gap between borrowers and lenders, but this can be addressed by law and law only,” he said.

RBM spokesperson Mbane Ngwira said time has come for consumers to explore other means of saving other than bank deposits only.

 “There are several means of savings such as buying treasury bills, buying shares on the stock exchange, contributing to pension schemes and life insurance,” he said.

He said RBM is continuing with its Financial Literacy Programme to ensure that stakeholders embrace the other ways of investing. n

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