High levels of non-performing loans (NPLs) and undercapitalisation above the recommended regulatory ceiling of five percent are threatening the country’s lenders especially the microfinance sector, the central bank has said.
In its December 2019 Financial Stability Report, the Reserve Bank of Malawi (RBM) indicates that the sector recorded an increase in the levels of bad loans in the period under review.
Bad loans impact on credit supply and demand, reducing lending to the real economy at a time support to the economy is needed.
According to RBM data NPLs for deposit taking institutions increased to K616.9 million as at December 2019 from K459.6 million as at June 2019.
“As a percentage of gross loans, NPLs deposit taking institutions however decreased from 4.7 percent as at June 2019 to 4.3 percent as at December 2019 as a result of a relatively higher increase in gross loans as compared to NPLs,” said the report.
Over the years, NPLs have become risky for the microfinance sector, with institutions under the sector highlighting that they have been facing challenges in trying to recover from the toxic loans.
An earlier study conducted by the RBM showed that NPLs in the sector were high largely due to the decrease in gross loans.
The sector, however, registered satisfactory capital levels for deposit taking which were recorded above the minimum regulatory capital requirement of K250 million.
Capital adequacy ratio for the savings and credit cooperatives (Sacco) sector stood at 18.2 percent as at December 2019 from 20.2 percent in June 2019 which is above the minimum regulatory requirement of 10 percent.
“But despite the adequate capitalisation of the sector, three Saccos remained under statutory management due to undercapitalisation,” said the report.
But on the other hand, Saccos reported a surplus of K1.9 billion as at end December 2019 compared to K1.3 billion recorded in the corresponding period in 2018.
Malawi Microfinance Network board chairperson Corrie Mulder earlier told Business News the sector is striving to keep NPLs to a minimal.
Meanwhile, RBM governor Dalitso Kabambe has maintained the central bank will continue to work closely with microfinance institutions to create a mutual understanding and manage expectations of the financial sector.
Kabambe said in commentary on the performance of the sector the levels of NPLs are expected to moderate further with the expected continued improvement in the macroeconomic environment.