The Reserve Bank of Malawi (RBM) says credit continues to grow although it has been subdued when compared to last year due to the impacts of the Covid-19 pandemic.
Central bank Governor Wilson Banda said this is an indication of cautious lending by banks as credit risk is high but stable.
He said: “Reserve Bank remains committed to ensuring macroeconomic stability to make the country more attractive to inward foreign investment.
“The bank will continue targeting a medium-term inflation objective of five percent and implementing monetary policy measures aimed at supporting the recovery process. The recent cut of the policy rate from 13.5 percent to 12 percent is one of such measures. “
To cushion consumers from the impact of the Covid-19 pandemic, with the aim of keeping credit flowing to businesses and households, RBM’s immediate responses to the crisis, he said, included policy rate cuts, review of liquidity requirements, loan restructuring, and review of fees on digital platforms.
So far, Banda said, the interventions have had the intended effect of limiting the negative impact of the pandemic on the financial system.
“For instance, the banking sector remains sound, liquid, and stable; as seen by an increase of the industry balance sheet from the previous year’s position,” he said.
However, the World Bank had warned of increased levels of non-performing loans (NPL) due to liquidity challenges which in turn, could affect banks’ profitability and capital adequacy in the face of the Covid-19 pandemic.
In its July 2020 Malawi Economic Monitor, the bank said the pandemic will, however, see a decline in lending growth.
However, Reserve Bank of Malawi (RBM) June 2020 Financial Stability Report figures indicate that the level of NPLs in the banking system increased to K43 billion as at end June 2020 from K40.3 billion in December 2019 due to a slowdown in economic activity owing to Covid-19 pandemic, which has among other things, resulted into massive retrenchments by companies, coupled with, political instability in the first half of the year.
The foregoing factors resulted into deterioration in loan repayment capability by most borrowers across all economic agents.
Market analyst Cosmas Chigwe recently said high levels of non-performing loans (NPLs) in the country threatens monetary policy’s efforts to reduce the cost of borrowing, as increasing bad loans increase credit risks.