Malawi banks struggling to meet liquidity requirements

Some commercial banks in Malawi are struggling to meet their minimum liquidity regulatory requirements with an analyst blaming it on the uncertainty in the sale of Malawi Savings Bank (MSB) which has since been suspended.

In a bid to meet the regulatory requirements, the struggling commercial banks have since resorted to borrow from other financial institutions through the interbank borrowing market while others have beefed up their liquidity through the Lombard Facility—a Reserve Bank of Malawi (RBM) relief window—for cash stressed banks.

For the past two weeks the commercial banks as reported by RBM, the local central bank, have been borrowing at least K15 billion per day, a situation that has prompted the interbank lending rate to shoot from about six percent early last month to about the current 26 percent.

An analyst has however blamed the tight liquidity on the uncertainty surrounding MSB sale, a government wholly commercial bank, a financial institution with the largest network in the country.

A treasury manager who sought anonymity in an interview with Nyasa Times recently noted that the uncertainty surrounding MSB sale, which has since been suspended by President Peter Mutharika due to calls by the civil society not to sell the commercial entity, is negatively affecting the financial system.

“You might be aware that there were reports of some customers withdrawing their deposits from MSB. This has affected the liquidity position of the financial system and needs to be cleared off as soon as possible for a stable system,” said the manager.

While blaming the financial stress on the sale of MSB, the analyst also pointed out that RBM policies of reining in inflation through a tight monetary policy and the ongoing tobacco marketing season are partially contributing to the status.

Recently, the Monetary Policy Committee which the central bank chairs, maintained the Monetary Policy Rate and Lombard Rate—the rate at which commercial banks borrow from RBM—at 25 percent and 27 percent respectively to fight inflation.

Although inflation fell to 18.2 percent in March 2015, it rose to 18.8 percent in the following month, a situation which would require RBM to tighten further its policies if it has to meet its 15 percent June 2015 target.