Reserve Bank of Malawi (RBM) Governor, Dalitso Kabambe, has said commercial banks adopted cautious credit lending policies in 2017, resulting in general contraction in private sector credit.
Kabambe made the observation in the central bank’s report and accounts for the year ended December 31 2017.
Despite a significant fall in cost of borrowing in commercial banks in 2017, borrowing by the private sector, which is considered the engine for economic growth was weak during the year.
Total credit to the private sector increased by K5.5 billion to K413.9.8 billion in 2017 compared to an increase of K16.4 billion in 2016.
Consequently, mortgages and commercial and industrial loans decreased by K14.4 billion and K5.6 billion to K32.4 billion and K157.9 billion, respectively. In 2016, mortgages and commercial and industrial loans increased by K8.3 billion and K9.0 billion, respectively.
In contrast, foreign currency denominated loans and individual and household loans increased by K29.4 billion and K1.5 billion to K125.1 billion and K125.0 billion, respectively.
In terms of economic sectors, the slower pace in the commercial banks’ credit reflected decline in lending to the community, social and personal sector; transport, storage and communications sector; manufacturing sector; and construction sector.
Wholesale and retail trade sector continued to account for the largest proportion of the outstanding loan stock at 26.1 percent, followed by agriculture, manufacturing and community services sectors which accounted for 25.3 percent, 17.9 percent and 11.1 percent of the total private sector credit, respectively.
Kabambe said despite the significant reductions in interest rates, there was a general contraction in private sector credit due, in part, to the impact of weak demand for credit and cautious credit policies by the commercial banks.
The RBM boss said banks continued to exert strict lending standards due to a number of factors.
“These included: high default rates, particularly in the household and small medium enterprise sectors, low quality collateral, low creditworthiness of customers and also the adoption of the International Financial Reporting Standards 9.
“Meanwhile, structural constraints such as intermittent power supply and water shortages also adversely affected loan growth,” Kabambe said.
He said RBM would continue collaborating with government and all other stakeholders to create a conducive environment for improved performance of all the sectors in the economy.
On the other hand, growth in the banking system credit to the public sector remained significant in 2017. A total of K181.3 billion was extended to the public sector, of which K182.4 billion was extended to central government while statutory bodies repaid K1.1 billion to the banking system.
Meanwhile, credit to the private sector appears to have slightly improved at the start of the year with better tidings recorded in March and April 2018.
Credit to the private sector closed the month of April 2018 at K406.2 billion, representing an increase of K8.2 billion.
This was the second month in a row that has seen an increase in credit to the private sector, after it had been declining during the previous four consecutive months.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) President, Prince Kapondamgaga, recently said despite the significant fall in cost of borrowing, businesses are still struggling to access finance from the country’s institutions.