Rate revision offers no hope

Rate revision offers no hope

Consumers and businesses have decried the current interest rates structure, saying the cost of borrowing remains high in the country regardless of some adjustments by the commercial banks.

The consumers and businesses shared the sentiments in view of the slight revision of the reference rate— an interest rate benchmark that is used to set other interest rates—from 13.9 percent to 13.8 percent.

Published statements from some of the country’s commercial banks, including Standard Bank plc, Ecobank, FDH Bank plc and National Bank plc, show that their lending rates have been restructured.

This means that depending on the product and customer risk profile, lending rates will now be between 13.8 percent and a maximum of around 26 percent from 13.9 percent in the past two months.

Speaking in an interview yesterday, Consumers Association of Malawi executive director John Kapito said high interest rates continue to bite consumers who are currently struggling to service loans and even borrow.

He said: “Malawi still has high borrowing rates that slow down the growth of the economy because we literally do not have cheap money from our institutions to allow businesses to borrow and produce at relatively competitive prices.

“With such interest rates, one thing for sure is whatever Malawi might wish to do to grow this economy is just a wish and nightmare because no one would want to invest money in a country like Malawi.”

Indigenous Business Association of Malawi president Mike Mlombwa agreed that interest rates remain a thorny issue for local businesses.

“Most businesses are affected by high interest rates evidenced by consumers’ failure to repay loans,” he said.

Market and investment analyst Bond Mtembezeka observed that the current reference rate, which forms part of interest rates charged by bank consumers, is insignificant to relieve borrowers.

“At the end of the day, lenders add their own discretionary spread on loans depending on the risk profile of the borrower, which certainly pushes up how much a customer pays in form of interest,” he said.

Mtembezeka observed that as inflation is expected to keep on rising, authorities could be compelled to raise the policy rate which could mean even higher rates for borrowers.

Bankers Association of Malawi chief executive officer Lyness Nkungula was yet to respond to a questionnaire, but in an earlier interview she said the interplay between borrowers’ demand for money and lenders’ supply of money has had an impact on reference rates.

She said when banks experience greater demand for its loans from customers, relative to its supply of deposits, this determines a rise in the reference rate and vice versa.

Meanwhile, the Reserve Bank of Malawi (RBM) has maintained that policy rate, at 14 percent.

RBM Governor Wilson Banda said they wanted to allow for more time for the impact of the April 2022 policy rate increase to transmit through the economy. 

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