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

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  • Mr. Ephraim W. Chirwa
  • Mr. Montfort Mlachila

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.

Suggested Citation

  • Mr. Ephraim W. Chirwa & Mr. Montfort Mlachila, 2002. "Financial Reforms and Interest Rate Spreads in the Commercial Banking System in Malawi," IMF Working Papers 2002/006, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2002/006
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    4. Mr. Calixte Ahokpossi, 2013. "Determinants of Bank Interest Margins in Sub-Saharan Africa," IMF Working Papers 2013/034, International Monetary Fund.
    5. Richard Podpiera & Mr. Martin Cihak, 2005. "Bank Behavior in Developing Countries: Evidence from East Africa," IMF Working Papers 2005/129, International Monetary Fund.

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