RBM exposes banks, lending rates as high as 47%

The Reserve Bank of Malawi (RBM)’s published bank charges indicate exorbitant charges for commercial banks with up to 47 percent interest rates on loans.

According to the published rates selected charges as of March 31 indicate that maximum lending rates on personal loans ranged between 40 percent and 47 percent. Savings interest rates range between two percent to 15 percent.

Consumers Association of Malawi (Cama) executive director John Kapito in an interview described the situation as unfortunate, noting that there is a glaring mismatch between the savings and the lending rates which leads to financial exclusion.

“The central bank is supposed to act as a regulator of the financial system but at the moment the interest rates [on loans] are astronomical while deposit interest rates are low. The RBM is supposed to act strongly on this but it is unfortunate that consumers are being exposed to the disparities in interest rates,” said Kapito.

RBM spokesperson Mbane Ngwira in an interview on Tuesday said the central bank as a regulator ultimately seeks to protect the consumer through indirect means.

“We are in a liberalised market and it is market forces that influence prices, including interest rates. We [RBM] indirectly influence interest rates by controlling reserve money and the policy rate. We also publish information so that consumers should make an informed choice and influence the market,” said Ngwira.

He, however, argued that in determining the policy rate, RBM looks at the bigger picture because low interest rates may also spur inflation which may negatively affect consumers.

Currently, the policy rate stands at 25 percent while the Lombard facility rate—a standing facility for stressed commercial banks—stands at 27 percent.

During the recent Monetary Policy Committee (MPC) meeting held last week, it was noted that risks in the financial system remained on account of increasing non-performing loans although the financial system continued to be sound while lending rates remained high despite the outlook for inflation.

Inflation pressures have been easing since February this year on account of a deceleration in both food and non-food prices.

According to the National Statistical Office (NSO) inflation slowed down from 24.6 percent in February to 24 percent in March.

RBM projects that inflation will continue to fall to about 16 percent in December 2014 while the International Monetary Fund (IMF) projects a single digit inflation of 9.7 percent.

The MPC further noted that in order to balance the impact of the ongoing foreign exchange operations on liquidity and the anticipated fiscal risks, the MPC made a deliberate decision to review the policy rate at the next meeting.