Credit quality of commercial banks worsened in 2020 despite measures instituted by the Reserve Bank of Malawi (RBM) to mitigate the impact of the Covid-19 pandemic on the economy.
This, according to traders and consumers, is an indication that the interventions failed to bear intended results.
In particular, the non-performing loans (NPLs) increased by 11.1 percent to K44.7 billion from the pre-pandemic level of K40.3 billion in 2019.
Subsequently, the NPL ratio remained above the prudential benchmark of five percent throughout 2020, peaking at 10.3 percent at the onset of the Covid-19 pandemic in May 2020, but has now stabilised around six percent.
In an interview, National Working Group on Trade Policy chairperson Frederick Changaya, an economist by profession, observed that while the credit risk will be elevated in the short to medium-term due to sluggish economic activities on account of Covid-19, the credit risk requires new profiling weights.
He said: “It is obvious that the NPLs were supposed to accelerate on account of deceleration of economic activity due to the Covid-19 pandemic. Of keen interest would be what did banks do to accommodate and restructure the loans given the economic slow-down and in some cases, closure of businesses and loss of employment.
“What did banks do to realign loans accordingly? I personally do not agree with RBM allowing banks to factor into their pricing NPL risk factor. It punishes otherwise innocent clients who in turn may fail to be competitive because of sins of others. Otherwise, commercial banks shouldn’t have been allowed to upgrade the risk cover to 10 percent.”
Speaking separately, Consumers Associaton of Malawi (Cama) executive director John Kapito while describing the state of bad loans as a sad situation, observed that it is a true reflection on the need for some stimulus to the ailing sectors failing to meet their financial obligations.
He said: “If we have huge sums of money through non-performing loans, it is doubtful that those non-performing sectors will bounce back given the challenges our economy faces.”
While bad loans worsened, banks continued to prosper with published figures indicating that almost all Malawi Stock Exchange (MSE)-listed Standard Bank Malawi plc posted profits.