RBM faults banks’ assessment of borrowers

Commercial banks regulator—Reserve Bank of Malawi (RBM)—has attributed peoples’ failure to repay loans to banks’ poor assessment of their clients, among other factors.

RBM has said the scenario forces commercial banks to take a strong position to repossess property put up as collateral as it is the only way for them to remain in business.

RBM spokesperson Mbane Ngwira made the observation in an interview when asked why a number of banks are advertising for sale property in newspapers, mainly land and houses.

A consumer rights activist has said this is a clear sign that Malawians are struggling and can hardly afford huge interest rates imposed by commercial banks in the country.

Most of the banks in the country have been flighting advertisement in newspapers inviting tenders for sale of property.

The property, some going in the range of K170 million and as high as K256 million, include land, residential houses, structures for offices, shops and factories and a filling station.

About half of the assets in the advert have no price tags, but calculations on those with price tags give the bank over K1.3 billion if sold.

Lowly priced residential houses are going in the ranges of K10 million in areas such as Chigumula in Blantyre and Bwaila in Lilongwe.

Bankers Association of Malawi (BAM) president Misheck Esau requested for a questionnaire on Friday and assured to respond immediately, but had not done so as we went to press.

But RBM spokesperson said failure to service loans begins with banks’ poor assessment of their customers. He said banks examine non-performing loans to arrive at a decision to seize property.

Ngwira said the issue of high interest rates for customers to fail to repay loans may only account for about four percent, arguing as somebody observed before; there is that bad habit of not willing to repay loans.

He said other contributing factors could be the [poor] performance of the economy or borrowers entering into a wrong industry that may not yield them the required business results.

Ngwira said on poor assessment of customers, a serious bank is not expected to loan, for example, K40 million to a person who is worth K10 million.

“Such bad business decisions may lead to customers failing to service their loans. And in such situations, banks are left with no choice, but to repossess property put up as collateral,” he said.

Consumers Association of Malawi (Cama) executive director John Kapito said in an interview on Wednesday it was sad that  Malawians are failing to service loans because of the economic challenges.

“Elsewhere in the world, bank loans are affordable and attractive. Citizens in the developed world can hardly fail to service a loan. Even in other countries in this region, they are better off than here,” said Kapito.

“When we complain that our economy is in a shambles and Malawians are struggling to make ends meet, these are the things we mean. Some of these Malawians whose property is up for sale are working but look, they have failed to service a loan,” he said.

Kapito said it was not by choice that Malawians were defaulting bank loans, but that the loans are not favourable as they attract unaffordable interest rates.

He activist said banks continue charging interest even where an individual has failed to repay, thereby worsening the situation. n