The Reserve Bank of Malawi (RBM) has stopped the non-collateralised discount window borrowing for commercial banks facing liquidity challenges, spokesperson Ralph Tseka has confirmed.
RBM introduced the non-collaterised window borrowing on June 1 2012 at 18.5 percent and later raised it to 23.5 percent, when the bank rate went up to 21 percent, to help stressed banks meet their liquidity challenges to avert a possible bank failure.
But on July 11, Governor Charles Chuka 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 the borrowing bank’s prime lending rates or base plus four.
Chuka further said additional charges may be imposed if access is considered excessive and or prolonged.
The banks, however, continued borrowing through the discount window, a development that resulted in commercial banks passing on the charges to customers by raising lending rates to above 40 percent.
The base plus four facility was discontinued on September 4 2012 and the banks continued borrowing at 23.5 percent.
Thus, the discontinuance of the discount window borrowing facility means that banks will revert to collateral borrowing to be charged at the ruling bank rate of 25 percent.
Tseka told Business News this week that the banking system is now normalising as most banks have patched up their liquidity levels.
“The central bank has put measures to ensure that banks should correct their balance sheets and right now banks are operating on a normal window,” he said.
Tseka said the RBM has been supportive to all commercial banks and most of them have improved their liquidity levels.
But a weekly report from portfolio investment management firm, Alliance Capital Limited for the week ending December 21 2012, indicate that the discount window accommodation averaged 25 percent with only K1.5 billion (about $4.4m) being utilised.
A financial market analyst based in Blantyre thinks the banks are still struggling with liquidity challenges and, therefore, borrowing from themselves; hence, the rise in inter-banking 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 the stipulated days,” he said.
National Bank of Malawi (NBM), in its December 2012 economic newsletter, noted that although the liquidity has improved, there are still some commercial banks experiencing tight liquidity positions.
