This study investigates the nature of competitiveness among banks in Malawi where the industry is concentrated and the institutional base is weak. The study uses a model incorporating bank-specific, industry-specific and macroeconomic determinants of conduct and performance, based on monthly data from January 2005 to March 2014. Key findings are asymmetric conduct with collusive price leadership in lending rates and competitiveness in deposit rates and overall high spreads. Apart from dominance, collusive price leadership was facilitated by regulatory stipulations in pricing in banks’ core and non-core business and an economic environment resulting in banks’ high profitability and diminished competitive pressure in lending rates. Further, monopolistic competition via outreach also put upward pressure on spreads most likely via costs as the literature suggests.

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Keywords

Collusive Pricing, Banks' Risk Position, Banking Industry, Conduct and Performance, Malawi