Time: 13:00-15:00 (UK Time), Wednesday, 28 April 2021
Presenter: Mrs Esmie Kanyumbu, Reserve Bank of Malawi & Loughborough University
Chair: Professor Victor Murinde, SOAS University of London
Online venue: Click here to join the seminar on Microsoft Teams (For any inquiry about how to join the online seminar, please contact Dr Meng Xie: xm1@soas.ac.uk)

Abstract
Interbank markets are one of the most important markets for banks within their intermediation role. One unique aspect of these markets is that loans are both collateralized and uncollateralized. Consequently, trading in interbank markets depends on trust that banks have for each other. Interbank markets are therefore associated with peer monitoring and market discipline. While a number of studies have attempted to understand interbank market discipline in terms of the pricing and trading volumes in these markets, it is noted that most studies fail to account for the effect of that disciplining mechanism. This study investigates the role played by the interbank market in the transmission of monetary policy by investigating how interbank market discipline affects loan growth and loan rates of banks. The study uses quarterly bank-level, non-publicly available data for banks operating in Malawi from 2010:Q1 to 2018Q:4 and estimated both the loan growth and loan rate models as random effects models.

The results show that banks with access to the interbank market are able to expand credit to their customers faster than those with no access to this market. The results further show that banks pass interbank borrowing costs to their customers when extending credit to them. These confirm presence of transmission mechanism in this market. It is further shown that bigger banks facilitate higher loan growth than smaller banks. However, being a highly capitalized bank, having high levels of loan loss provisions, being a local bank and being a government-owned bank are found to hinder loan supply growth. While tightening of monetary policy hinders loan growth, inflation facilitates loan supply growth in Malawi. Regarding pricing of bank loans, the results show that banks with higher capital levels are more able to reduce the impact of monetary policy tightening on loan rates than their counterparts with lower capital levels. It is further shown that although the impact of monetary policy tightening works through the interbank market, there is still a much stronger impact to the lending rates that comes directly from the monetary policy rate. Overall, these imply that interbank market behaviour can limit or intensify the impact of monetary policy.

Presenter

Mrs Esmie Kanyumbu

Esmie Kanyumbu is a senior analyst at the Reserve Bank of Malawi (RBM) and she is responsible for facilitating and recommending ways of developing and deepening the financial market in Malawi. This includes carrying out research on topical financial development issues in order to recommend policy changes and introduction of new financial products, services and players in the market. She is experienced in carrying out research on interbank markets and linking developments in the interbank market to the implementation of monetary policy and financial stability issues, among other things. Esmie has been exposed to different divisions of the RBM for the past 11 years and has accumulated experienced in banking system liquidity forecasting, financial markets analysis, monetary policy analysis and implementation, global markets research, financial stability, financial markets development and risk management.

Esmie is an established researcher within the African Economic Research Consortium (AERC) and held a Visiting Scholar position at the IMF in Washington DC in 2018. She is also a research fellow at the Southern Africa Institute for Economic Research (SAIER). Her research interests include Interbank markets, financial inclusion, financial markets development, monetary policy, financial stability and international trade and finance.

Esmie is currently a PhD Researcher at Loughborough University in the United Kingdom. She holds an MA in Economics and a Bachelor of Social Science degree, both from the University of Malawi.