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

Ephraim Chirwa and Montfort Mlachila

No 2002/006, IMF Working Papers from International Monetary Fund

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 rate and high inflation.

Keywords: WP; liberalization; bank; commercial bank; interest rate; financial product; Commercial banks; interest spreads; financial liberalization; Malawi; market share; monetary policy; bank behavior; bank spread; Financial sector reform; Discount rates; Reserve requirements; Deposit rates; Sub-Saharan Africa (search for similar items in EconPapers)
Pages: 30
Date: 2002-01-01
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Citations: View citations in EconPapers (5)

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