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

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  • Ephraim W. Chirwa
  • Montfort Mlachila
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    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.

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    Bibliographic Info

    Paper provided by International Monetary Fund in its series IMF Working Papers with number 02/6.

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    Length: 30
    Date of creation: 01 Jan 2002
    Date of revision:
    Handle: RePEc:imf:imfwpa:02/6

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    Related research

    Keywords: Commercial banks; banking; financial liberalization; financial sector; banking system; reserve requirement; financial system; financial reforms; discount rate; bank spreads; deposit rates; financial institutions; reserve requirements; bank discount rate; bank interest; bank rate; savings bank; banking sector; banking firm; bank market; financial repression; banking industry; bank customers; bank behavior; deposit insurance; central bank discount; financial services; merchant bank; banking activities; foreign exchange; bank entry; excess liquidity; financial systems; reserve ratio; bank deposit; banking markets; financial reform; structural adjustment; bank supervision; deposit rate; corporate banking; bank act; bank discount rates; bank profitability; discount rates; international banks; prudential regulation; bank entries; bank liabilities; capital requirement; bank profits; bank loan rates; credit policy; financial intermediaries; loan classification; financial assets; bank deposits; bank loan; financial regulation; financial intermediation; bank deposit insurance; financial economics; capital adequacy; banking systems; bank interest rate; bank balance sheets; bank operations; investment bank; financial market; retail banking; equity markets; bank deposit rates; bank interest rates; moral hazard; net interest margin; money market;

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    Cited by:
    1. Richard Podpiera & Martin Cihák, 2005. "Bank Behavior in Developing Countries," IMF Working Papers 05/129, International Monetary Fund.

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