Individual household loans are reported to be on the increase with latest figures from the Reserve Bank of Malawi (RBM) showing an increase of K8.7 billion to K123.6 billion as of last month.
According to a recent RBM Monthly and Economic Review report, this is in contrast to commercial and industrial loans, foreign currency denominated loans and mortgages which have fell by K10.1 billion, K4.4 billion and K1.0 billion to K147.3 billion, K108.7 billion and K38.9 billion, respectively.
On what is propelling the sudden interest of households to borrow from commercial banks for business or personal needs, Bankers Association of Malawi (BAM) was yet to respond to an e-mailed questionnaire.
But speaking to Business News earlier, an official from the association said while the economic situation has prompted high defaults, some individuals have continued to borrow from the banks because of financial mismanagement.
“Quite a number of customers are sincere in their borrowing but the economic situations are failing them. You will find that prices of goods have sky rocketed while salaries have remained static. Still, others do divert the funds to other projects that were not intended for the loan with the hope that they will quickly recover the money and start servicing their loans.
“We would have loved more companies and people to be borrowing from the banks, but economic circumstances and the interest rates are discouraging people from borrowing,” said BAM executive director Lyness Nkungula.
On his part, economist Gilbert Kachamba noted that the slowdown in interest rates could be one of the reasons prompting individuals to borrow from banks.
“It is not surprising that individuals are topping the list of borrowers as compared to firms. With such softer rates going at as low as 25 percent from 30 percent, individuals are now encouraged to borrow from banks and if you look at non-performing loans it is also the same individuals topping the list.
“There may be some reasons behind this development, one of which is to borrow for consumption purposes not investment purposes. With lower rates most individuals are now trying to venture into small and medium-scale businesses hence increase in individual borrowers,” he said.
On the other hand, in terms of loans distribution by sector of activity, wholesale and retail trade has remained the largest sector.
However, at 25.4 percent, its contribution was slightly lower than the 25.5 percent recorded in the preceding month.
Agriculture and manufacturing sectors follow with 22.4 percent from 23.2 percent in July 2017 and 20.1 percent from 19.0 percent recorded in July 2017 respectively.