By Benadetta Chiwanda Mia:
Malawi’s banking sector has seen a significant decline in liquidity level, dropping by 54 p.c to a each day common of K109.50 billion from K241.49 billion the earlier week.
This is based on a Weekly Market Update by Nico Asset Managers. It was printed on Monday.
Concurrently, interbank in a single day borrowing volumes decreased to a median of K67.3 billion at 23.18 p.c, down from K145.76 billion at 23.19 p.c the prior week.
Meanwhile, the Lombard facility utilization surged, with banks accessing K401 billion at a median charge of 26.2 p.c, in comparison with K222.03 billion at 26.13 p.c beforehand.
Bankers Association of Malawi Chief Executive Officer Lyness Nkungula mentioned the numerous drop in extra reserves meant that industrial banks had much less liquidity accessible.
“This could lead to tighter borrowing and lending conditions, as banks may become more cautious in extending credit to other banks and borrowers to maintain their liquidity positions,” she mentioned.
Financial Market Dealers Association of Malawi (Fimda) President Leslie Fatch attributed the lowered liquidity ranges to the Reserve Bank of Malawi (RBM)’s tight financial coverage.
“We believe the reduced liquidity levels reflect the tight monetary policy implemented by the central bank,” Fatch mentioned.
Economic professional Marvin Banda mentioned RBM’s tightening by means of an elevated Domestic Liquidity Reserve Ratio (LRR) aimed to cut back M2 cash provide by discouraging extra reserves and demand deposits.
“When the liquidity levels drop, it is a sign that the monetary pass-through mechanism is, indeed, having an effect on the targeted monetary aggregates,” Banda mentioned.
However, Banda mentioned the effectiveness of elevating LRR relied on complementary measures.
Banda additionally identified the advanced dynamics at play, together with banks’ urge for food for presidency debt by means of growth bonds and Treasury notes, additional squeezing liquidity by means of open market operations.
Economics Association of Malawi President Bertha Chikadza described the lower in liquidity ranges and interbank borrowing volumes as not shocking, attributing it to the results of RBM’s open market operations.
“If you follow through developments on the market, RBM has been conducting operations that reduced the amount of excess reserves in the banking system, especially open market operations—where RBM sells securities to absorb liquidity “Therefore, this means the withdrawals outweighed the injections during the concerned period. As such, this could interplay open market operations,” Chikadza mentioned.