The Reserve Bank of Malawi (RBM) says the banking sector’s demand for loans and credit lines has increased and shifted from short-term to long-term amid declining economic activity in view of the Covid-19 pandemic.
In in its Bank Lending Survey (BLS) covering a six-month period from January to June 2020 in eight commercial banks, the central bank says the increase in demand for loans and credit lines mainly emanated from the household and small and medium enterprises (SMEs) sectors from both new and existing customers during the review period.
“The reversal in the loan tenure could be due to heightened macroeconomic uncertainty arising from political instability experienced in the past 12 months coupled with the Covid-19 outbreak, which has disrupted economic activity,” reads the report in part.
Overall, most banks perceived an increase in non-performing loans (NPLs) across all economic agents during the period under review, according to the survey.
This was unchanged from the December 2019 survey results as quantitative data also showed 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.
The report shows that the levels of NPLs in the wholesale and retail sector were highest at K14.6 billion of the total NPLs of K43 billion recorded as at end June 2020 relatively unchanged from K14 billion out of the total NPLs of K40 billion registered in December 2019.
Explaining the development investment and market analyst Bond Mtembezeka on Tuesday said it is expected that there would be a rise in demand for loans and NPLs as Covid-19 has hit industries and SMEs and households.
He said: “When an economy is passing through turbulent waters, two things happen in the credit market.
“One is a surge in demand for credit and on the other hand defaults rise. Ultimately credit reprofiling becomes almost inevitable so this is what we should expect.”
On his part, Indigenous Business Association of Malawi president Mike Mlombwa in an interview attributed the rise in NPLs to the difficult economic situation, saying businesses are failing to generate sufficient returns from their businesses to repay their loans.
In mid-April, RBM responded to the Covid-19 pandemic by announcing measures to mitigate its impact, including moratorium on bank interests.