Malawi banks risks a reduction in foreign exchange business- RBM

The Reserve Bank of Malawi (RBM) has said  commercial banks are risking a reduction in foreign exchange business due to the prevailing global liquidity shortages,

RBM in its financial stability report covering the period March to end October 2012. Says low foreign exchange reserves for Malawi could deny commercial banks an important source of funding, thereby, affecting their profitability.

“Another risk facing the banking sector in Malawi emanates from unavailability of foreign exchange. The prevailing global liquidity constraints could likely curtail credit lines by correspondent banks thereby reducing letters of credit and foreign exchange business in general,” says the central bank.

RBM  noted that  unavailability of foreign exchange can be attributed to poor performance of tobacco sales at the auction floors but pointed out that Malaiw government plans to counter that challenge.

Charles Chuka: RBM governor
Charles Chuka: RBM governor

“The Malawi Government has established the Export Development Fund (EDF) and the National Export Strategy which are geared towards raising foreign exchange for the country through the financing of non-traditional exports and prioritising of agricultural products such as soya beans and sugar,” reads the RBM report.

The RBM has observed that although the banking sector ratio was above the minimum regulatory benchmark, some banks failed to meet, on a consistent basis, the minimum liquidity ratio over the six months period to September 2012.

The liquidity ratio of the banking industry was at 40.7 percent, which according to the central bank, was above the regulatory requirement ratio of 30 percent.

It says in the wake of ‘unprecedented’ levels of liquidity shortages in the banking sector, the average discount window accommodation increased to K14.32 billion in September 2012 from K450 million in March 2012.

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