Govt move threatens market liquidity—BAM
Bankers Association of Malawi (BAM) says government’s move to migrate bank accounts of 22 parastatals from commercial banks to the Reserve Bank of Malawi (RBM) could affect market liquidity and support services offered to the firms.
BAM chief executive officer Lyness Nkungula said this in reaction to President Lazarus Chakwera’s announcement in the State of the Nation Address (Sona) last Friday that government has migrated bank accounts of 22 regulatory State-Owned Enterprises (SOEs) and statutory bodies from commercial banks to RBM .
She said the development could affect the market’s ability to lend to the private sector, thereby crowding out the private sector.
Said Nkungula: “The crowding out of private sector might continue not because banks are lending to the government, but due to lack of liquidity.
“It may also affect the level of support services that banks offer to the State- owned enterprises. Basically, most banking products are targeted and tied to deposit mobilisation. For example, banks support various SOEs with foreign exchange payments for their operations on the basis of deposits maintained with the banks.”
Nkungula observed that since some banks have also invested in revenue collection arrangements for SOEs on the basis that some of the deposits will be retained. She said the motivation for banks to do revenue collection may reduce.
In the Sona, Chakwera said the migration policy intends to include fully sub-vented organisations and commercial SOEs.
He said: “My reason for doing that is simple: the practice over the past 20 years of having public bodies deposit their revenues with commercial banks so that government is made to borrow its own money at high interest rates for the enrichment of a few is a practice that lacks seriousness.”
Ministry of Finance and Economic Affairs has unveiled plans to open holding accounts for SOEs with the RBM to enhance monitoring of revenue collection.
However, economic commentators have cautioned government on the timing of the implementation as remittance of surpluses and dividends by SOEs into the consolidated account has continued to dwindle.
Market analyst Cosmas Chigwe said government’s decision to migrate the bank accounts suggests a shift in its approach to managing public funds and reflects a strategic decision to centralise control over these entities’ finances.
“This decision will automatically lead to reduced deposit bases for commercial banks, potentially impacting their ability to generate interest income from these large accounts,” he said.
On his part, Scottish-based economist Velli Nyorongo said if not managed carefully, the decision could lead to short-term liquidity challenges, making it more expensive for banks to lend, potentially hindering credit growth and economic activity.
