Market structure, liberalization and performance in the Malawian banking industry
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Date
2001-07-28
Authors
Ephraim W. T. Chirwa
Journal Title
Journal ISSN
Volume Title
Publisher
AERC
Abstract
Financial sector reforms in Malawi began in the late 1980s as a continuation of structural
adjustment programmes sponsored by the International Monetary Fund and the World
Bank. Prior to liberalization, the financial system was highly repressed, with heavy
government intervention in the banking sector through credit and interest rate controls.
Furthermore, the banking sector was highly oligopolistic: two banks dominated
commercial banking activities. Financial sector reforms led to the removal of credit
ceilings and interest rate controls and opened the banking system to new competition.
This study examines the effect of financial sector reforms on market structure, financial
intermediation, savings mobilization and commercial bank profitability in the Malawian
banking industry. The evidence in this study shows that some signs of financial repression
still exist, although some positive developments have taken place. The results show that
financial liberalization has significantly increased financial depth and savings mobilization,
increased credit to the manufacturing sector, and reduced the monopoly power in the
Malawian banking system. However, real interest rates have fallen, intermediation margins
have increased, credit to the public sector has increased and that to the private sector has
fallen. Using the market structure–performance hypothesis, the study finds a significant
relationship between monopoly power and commercial bank profitability, but rejects the
efficient market hypothesis. Thus, although interest rates were under control for most of
the study period, other bank services that generate income for commercial banks were
subject to monopoly power abuse.
Description
HG 3407 . A6 C555
Keywords
Banks and banking - Malawi