Chilima hits at banks, proposes interest spread capping
Vice President Saulos Chilima has told commercial banks plying their trade in the country’s banking industry that “interest rates must come down and that is non-negotiable.”
The Vice President has also suggested to the Reserve Bank of Malawi (RBM) to consider capping the interest spread (the gap between lending and deposit rates) stressing that if banks raise the lending rates, they must also pass-through the same to depositors.
Addressing the Economics Association of Malawi (Ecama) Lakeshore Conference currently underway in Mangochi, Chilima also fumed that deposit rates that banks are giving customers are too little (at around 5 percent) as compared to lending rates which he said have averaged 23 percent.
He recalled that in 1980s, Malawi had only two banks and then lending rates averaged 19.1 percent while deposit rates averaged 11.5 percent, thus providing a spread of 7.6 percent.
“As the financial sector opened up, one would have expected competition to force the narrowing of the spread,” said Chilima.
He added: “Your Excellency, interest Rates must come down. The Reserve Bank must engage banks on. If moral Suasion will not work, issue a directive. Otherwise, your efforts to develop Malawi be derailed. SMEs and businesses are not thriving.”
Generally, financial experts contend that interest rate capping itself is not bad at all as most countries now have adopted the system.
The concept is said to be working well in countries such as South Africa.
The controversial Financial Services Act (Amendment) Bill proposed a regulatory measure to prevents banks and financial institutions from charging more than a certain level of interest.
The House referred the Bill to a committee for further scrutiny.
Meanwhile, the Bill has resurfaced in the current sitting of Parliament.
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