Bankers Association of Malawi (BAM), a grouping of eight commercial banks, says it expects credit demand to rise in the second half of this year as economic activity picks up.
BAM’s projection comes against the backdrop of a slight rise in credit losses in 2020 owing to the Covid-19 pandemic, which disrupted economic activity and increased credit risk.
In a written response on Friday, BAM chief executive officer Lyness Nkungula said domestic and global economic agents are now adapting to new ways of doing business to boost economic activity amid the pandemic.
She said: “We have, thus, seen not only a decline in credit default rates, but also an increase in credit demand in recent months.
“We expect the trend to continue in the second half of the year.”
Published Reserve Bank of Malawi (RBM) figures show that the banking systems’ claims on the domestic economy grew by K27.8 billion to K2.1 trillion at the end of the second quarter (April to June) of 2021.
This compares to an increase of K260 billion recorded in the preceding quarter and K232.6 billion registered in a similar quarter the previous year.
The central bank figures show that the growth in net domestic credit was largely driven by private sector credit, which registered an annual growth rate of 27 percent from 18.9 percent.
On a quarter-on-quarter basis, private sector credit rose by K79.8 billion to K776.2 billion during the second quarter of 2021. This compares with quarterly increases of K4 billion recorded in the preceding quarter and K25.2 billion reported during the second quarter of 2020.
On the other hand, loan loss provision— an income set aside for potential loan defaults and expenses to ensure banks are presenting an accurate assessment of their overall financial health—declined by a meager 0.1 percentage points to negative 4.1 percent during the quarter under review, from negative 4.2 percent the previous quarter.
“The strong growth in private sector credit reflected the high agro-driven economic activity, as agricultural marketing season progressed during the review period and the business community adapted to new ways of doing business amid Covid-19 pandemic,” reads the RBM Second Quarter Financial and Economic Review published last Wednesday.
Of the increase in the stock of total private sector credit during the period under review, commercial and industrial loans accounted for K70.5 billion while loans to individuals and households contributed K17 billion.
Meanwhile, repayments amounting to K5.1 billion of outstanding foreign currency loans and K4.3 billion of mortgage loan stock eased the expansionary pressures on private sector credit.