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Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi Ephraim W. Chirwa and Montfort Mlachila Full Text of this Article (PDF 294K) Abstract: 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 rates, and high inflation. |
