Displaying items by tag: Financial Intermediation

FINANCIAL INTERMEDIATION is the role that is traditionally dominated by the banking sector, with little or no space for the non-banks financial institutions. However, this is not the case in developing countries, either due to topology or relative development of the financial system. The purpose of this study is to evaluate the role and impact of the non-bank financial intermediaries in discharging their roles in Lesotho. These institutions have penetrated the country into the rural mountainous areas, and they offer healthy financial system by invoking competition with the banking sector, while also attending to the gap that is left unattended by the former. As a result, Lesotho ranks high on financial inclusion given that majority of services are offered by the informal and auxiliary establishments in the financial sector. However, the authorities have to consolidate on prudential supervision in order to minimise risk that may result from the aggressive offering from the NBFIs in all its various formations.

Published in December 2018

COMMERCIAL BANKS offer financial intermediation services including accepting deposits from and issuing loans to their clients. They then charge their clients fees for these services, in the form of interest levied on loans or paid to depositors or savers and non-interest charges, which comprise fees charged on fee-based bank services. The main objective of this study is to evaluate the costs of banking services in Lesotho through a comparative analysis of the banks in Lesotho with their peers in the SACU region. The prices of individual products and services and their averages per country showed mixed signals, with the SACU countries taking turns on the 5 fees levels. Further analysis showed that Lesotho is the most expensive in the FNB group and second cheapest in both the Nedbank and Standard Bank groups. Lesotho’s average prices are also above the SACU mean and median in a significant number of services categories. Thus policy measures for improving Lesotho’s business climate should continue with the objective of increasing competition in the banking industry. Enhanced effectiveness of the regulatory framework on price disclosure would also make it easier for clients to choose the best priced services supplier hence increase the use of prices in competing for clients. Direct controls such as caps on fees should be used as the last option.

Published in June 2018