Interest rate spread jumps 51%—RBM data
Interest rate spread, the difference between base lending rate and deposit rate, has jumped by 50.87 percent within a year, A development economists and consumers say if left unchecked could be detrimental to a saving culture.
Reserve Bank of Malawi (RBM ) figures published on Monday show the spread has moved from 8.94 percent in July last year to the current 15.04 percent.
The data shows that while the depositors’ rate has been stagnant at 3.67 percent, the lending rate has been rising from 13.8 percent to the current 22.7 percent.
Consumers Association of Malawi executive director John Kapito in an interview expressed worry that banks are not willing to balance the margin between depositors and lenders saying the margin is too wide.
He said: “It is inconsiderate for depositors to be paid very low interest rates while the same banks are charging high interest rates for borrowers.
“This way we cannot expect a financially inclusive nation when depositors clearly know they are being cheated with these low interests while the banks are making huge profits on their deposits.”
Malawi University of Business and Applied Sciences economics lecturer Betchani Tchereni also said banks can do more than taking a lot from customers and paying them less.
“This only shows the greed by financial institutions without any developmental mind attached. Banks raise the lending rates and never care about the effects of inflation on deposit rates,” he said.
Catholic University of Malawi economics lecturer Hopkins Kawaye described the situation as unfortunate, saying the move shows that interest rates have been rising unlike the depositors’ rate.
But RBM spokesperson Mark Lungu said both deposit and lending rates are a contractual matter, highlighting that different deposits are priced differently.
He said: “With respect to loans, the main determinant should be the risk premium and as such if most borrowers are classified as risky, lending rates tend to be stretched because of loading of this risk premium.
“In terms of policy interventions, there are quite a number like credit referencing which aim at correctly classifying the correct status of borrowers instead of using a broad brush as it were.”
Lungu said the RBM continues with literacy programmes and wider civic awareness initiatives targeting both suppliers and consumers of financial products.
Bankers Association of Malawi chief executive officer Lyness Nkungula was yet to respond to a questionnaire on Wednesday but is on record as having said banks consider a number of factors when determining rates.
