Reserve Bank of Malawi (RBM) Governor Charles Chuka has defended the stoppage of a discount window borrowing for commercial banks, saying the central bank feels it has done enough to normalise liquidity position of most banks.
In an interview with Nation Online last week, Chuka said the central bank will now focus its attention on other issues.
“What we are doing is a timely factor and we had to close the [discount window] borrowing. We were bailing out banks at the expense of other factors,” he said.
RBM introduced the non-collateralised window borrowing on June 1 2012 to help banks with liquidity problems patch up their liquidity gaps triggered by the devaluation of the kwacha which wiped out kwacha balances accumulated during the three-year foreign exchange drought.
But on July 11 last year, RBM issued a statement indicating that the non-collateralised window can only be justified as a temporary measure and its continuance after end July, if still considered needed, will attract a charge of four percentage points above each bank’s prime lending rate or base plus four.
The banks, however, continued borrowing through the discount window, a development that resulted in commercial banks passing on charges to customers with some of them raising the lending rate to as high as above 40 percent.
The base plus four policy was discontinued again on September 4 2012 and the banks continued borrowing at 23.5 percent.
“The volume of [discount borrowing window] figures that we are talking today is not huge. We are now doing normal borrowing and we think we have done more in that area,” added Chuka.
He said currently, the level of normal borrowing by banks from RBM is hovering between K3 billion (about $8.8 million) and K4 billion (about $11 million).
Chuka, however, assured that RBM will continue monitoring all banks to ensure that the local banking sector remains vibrant.
But a financial market analyst based in Blantyre noted in a recent interview with Nation Online that some banks are still struggling with liquidity challenges as seen by the rise in inter-bank lending.
“It is difficult to say whether liquidity challenges in the banking system is over. The most practical way to gauge if liquidity crisis is over is to find out how many people are applying for loans and how many of those are getting credit within stipulated days,” said the analyst.
National Bank of Malawi (NBM), in its December 2012 economic newsletter, also noted that although liquidity had improved, there are still some banks experiencing tight liquidity positions.