Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi

Author/Editor:

Ephraim W. Chirwa ; Montfort Mlachila

Publication Date:

January 1, 2002

Electronic Access:

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Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This study investigates the impact of financial sector reforms on interest rate spreads in the commercial banking system in Malawi. The financial reform program commenced in 1989 when both the Reserve Bank Act and the Banking Act were revised with the easing of entry requirements into the banking system, and indirect monetary policy instruments were subsequently introduced in 1990. The adoption of a floating exchange rate in 1994 marked the end of major policy reforms in the Malawian financial sector. Using alternative definitions of spreads, our analysis shows that spreads increased significantly following liberalization, and panel regression results suggest that the observed high spreads can be attributed to high monopoly power, high reserve requirements, high central bank discount rate and high inflation.

Series:

Working Paper No. 2002/006

Subject:

Banking Commercial banks Deposit rates Discount rates Financial institutions Financial regulation and supervision Financial sector reform Financial services Monetary policy Reserve requirements

English

Publication Date:

January 1, 2002

ISBN/ISSN:

9781451842302/1018-5941

Stock No:

WPIEA0062002

Pages:

30

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