Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi
IMF Working Papers, January 1, 2002
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- Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi
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Bibliographic details
- Authors: Ephraim W. Chirwa, Montfort Mlachila
- Published: January 1, 2002
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451842302.001
Study overview
- Title: Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi
- Authors: Ephraim W. Chirwa, Montfort Mlachila
- Publication date: January 1, 2002
- Series: Working Paper No. 2002/006
- Issue: 006
- Volume: 2002
- Pages: 30
- DOI: https://doi.org/10.5089/9781451842302.001
- ISBN: 9781451842302
- ISSN: 1018-5941
Research question and context
- Investigates the impact of financial sector reforms on interest rate spreads in the commercial banking system in Malawi.
- Financial reform program timeline:
- 1989: Revision of the Reserve Bank Act and the Banking Act; easing of entry requirements into the banking system.
- 1990: Introduction of indirect monetary policy instruments.
- 1994: Adoption of a floating exchange rate, described as marking the end of major policy reforms in the Malawian financial sector.
- Subject areas listed: Banking, Commercial banks, Deposit rates, Discount rates, Financial institutions, Financial regulation and supervision, Financial sector reform, Financial services, Monetary policy, Reserve requirements.
- Keywords listed: bank, bank behavior, bank spread, commercial bank, Commercial banks, Deposit rates, Discount rates, financial liberalization, financial product, Financial sector reform, interest rate, interest spreads, liberalization, Malawi, market share, monetary policy, Reserve requirements, Sub-Saharan Africa, WP
Methods and analysis
- Uses alternative definitions of spreads to assess outcomes.
- Employs panel regression analysis to identify determinants of observed spreads.
- Analytical focus on relationships between liberalization and interest rate spreads, and on explanatory variables such as market structure and policy instruments.
Key findings
- Spreads increased significantly following liberalization.
- Panel regression results attribute the observed high spreads to:
- high monopoly power
- high reserve requirements
- high central bank discount rate
- high inflation
Policy implications and considerations
- Reforms that influence market structure (competition/monopoly power) are central to spread behavior.
- Reserve requirement policy and central bank discount rate settings are empirically linked to higher spreads.
- Macroeconomic stability (inflation control) is implicated in narrowing spreads.
- Policymakers should consider how regulatory and monetary instruments interact with market structure when designing reforms to reduce interest rate spreads.
Source: IMF Working Paper "Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi", Ephraim W. Chirwa and Montfort Mlachila, January 1, 2002.
Content in this bundle
- Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi - WP/02/6