Despite the Covid-19 pandemic hitting hard other sectors of the economy, the banking sector remained resilient, a development financial analysts said reflects the health of the country’s economy.
Financial analysts argue that when commercial banks’ profitability remains remarkable, the economy performs well. This, they say, is a good indication that people’s money is safe in the hands unlike when banks perform poorly, which signifies that the economy is in tatters and this tends to scare away investors.
The Reserve Bank of Malawi (RBM) reported that contrary to the impact of the Covid-19 pandemic in the economy, commercial banks profitability was remarkable.
For instance, during the first half of this year, Standard Bank plc reported a 56 percent increase in profit after tax to K12.75 billion, FDH Bank plc reported a K3.22 billion profit, FMB Capital Holdings plc, the parent company of First Capital Bank made an K11 billion profit during the same period, among others.
In the year, the Bankers Association and RBM implemented some measures to help businesses mitigate the impact of the Covid-19 pandemic.
These included the reduction in the Liquidity Reserve Requirement (LRR) from five percent to 3.75 percent to release some liquidity into the economy and 40 percent reduction in service fees for digital banking products and services.
There was also an initiative of restructuring of loans and the granting of at least three months loan repayment relief to businesses that would be affected by Covid-19.
The business environment generally remained subdued despite the stable macroeconomic environment and the easing of monetary policy, largely on account of uncertainties pre and post the June 2020 Fresh Presidential Election and the coronavirus pandemic.
RBM reported that the buoyancy in the banking sector was largely due to the monetary and regulatory interventions it instituted to cushion the Covid-19 impact.
RBM Governor Wilson Banda said the financial sector regulator continued to witness credit risk in the market, reflected through loan moratoriums extended to borrowers affected by the pandemic.
He said: “Our recent assessment shows a total of 1 900 customers benefiting from this relief, with a consolidated balance of K103 billion. This constitutes 15 percent of total gross credit of the industry.
“Banks have restructured some loans and extended repayment moratoriums to some customers affected by the pandemic.”
In November, RBM extended the moratorium on payment of interest and principal on the loans to December after which it will be reviewed.
The fees and charges on digital banking were also reduced by 40 percent to increase customer utilisation amid calls for Covid-19 social distancing.
Institute of Bankers in Malawi chairperson Zandile Shaba, who is also MyBucks Banking Corporation chief executive officer, said while the banking sector performance in 2020 was affected by Covid-19, banks have to get organised to serve customers within the new reality.
She said: “Things have changed, we therefore, need to change.
“Some of the changes needed to navigate the new reality may require a change in regulations, accounting practices and many more.”
RBM figures as of the third quarter of 2020 showed that commercial banks’ resource envelope expanded by K59.7 billion (2.9 percent) to K2.1 trillion compared to an increase of K105.4 billion (5.5 percent) in the preceding quarter.
The increase was attributed to private sector deposits, liabilities to non-residents, official (government and statutory bodies) sector deposits and capital accounts which grew by K60 billion, K14.2 billion, K4.5 billion and K714 million, respectively.
The central bank, however, indicated that the uncategorised liabilities declined by K19.7 billion in the review quarter.
On the asset side, commercial banks increased credit to the central government, domestic private sector and foreign sector by K52.1 billion, K46.7 billion and K22.1 billion, respectively.
However, credit to State-owned enterprises, commercial banks’ deposits with the central bank and vault cash and miscellaneous asset items decreased by K1.4 billion, K951.8 million and K58.8 billion, respectively.
According to 2020 government Annual Economic Review report, accommodation and food services, transport and storage services, agriculture, forestry and fishing remain the worst hit sectors by Covid-19 pandemic.