Economic stability good for banking sector—BAM

Bankers Association of Malawi (BAM), a grouping of commercial banks, says despite Malawi’s economic outlook being mixed as the economy heads for elections, prospects are high for a thriving banking sector.

In an interview last week, BAM president Paul Guta said a positive economic outlook characterised by low inflation and interest rates and stable currency are good for the banking sector.

He, however, asked Treasury to remain aggressive in its efforts to maintain and further improve the macro-economic environment and pay special attention to the power sector.

“Inflation and lending rates as well as the kwacha have taken a positive direction and it is our wish to see this continuing going forward. We hope that the authorities are doing precisely that for the economy to do well.

“But while we appreciate the efforts authorities are doing to create the necessary environment for the general economy to improve, our major concern remains on power sector. Issues around power are having a direct impact on operating costs of banks,” he said.

Electricity Supply Corporation of Malawi (Escom) is facing supply challenges as a result of low water levels in Shire River, the main source of hydro power generation in the country.

In view of this, Electricity Generation Company (Egenco) is only generating around 270 megawatts (MW) against the installed capacity of 351MW.

Guta also suggested the need to curb domestic borrowing which crowds out the private sector, touted as the engine of economic growth.

“Government has done well in managing the macroeconomic environment, but the big worry is its appetite to borrow. We fear this will unwind the gains registered in the economy,” he said.

This fiscal year, domestic debt is projected to rise by 473.6 percent as government plans to borrow K176.1 billion compared to K30.7 billion in the revised 2017/18 National Budget.

The Reserve Bank of Malawi (RBM) has maintained that it will continue to work with banks to create a mutual understanding and manage expectations within the financial sector.

RBM Governor Dalitso Kabambe, said in an interview recently, the macroeconomic environment will continue to improve based on the forward looking monetary policy modelling adopted by the central bank.

Based on 2018 first half financial statements, most of the country’s commercial banks have performed well, projecting that they would close the year on a good note, on account of the improved macroeconomic environment.