The distribution of credit largely concentrated in the Wholesale and Retail trade, agriculture and manufacturing accounting for 62.9 percent of the entire loan portfolio, as of July figures from the Reserve Bank of Malawi (RBM) have shown.
According to a published September 2018 Monetary Policy Report, individually, the agriculture sector and wholesale and retail trade sector accounted for 20.8 percent and 18.1 percent of total loans, respectively.
On the other hand, the industry’s non-performing loans (NPL) ratio stood at 12.1 percent in July 2018 compared to 19.0 percent in the corresponding period of 201 on account of write offs.
Earlier, Chancellor College economics professor Ben Kaluwa said borrowers were finding it tough to service their loans arguing borrowers were strained over time with high interest rates and inflation.
“Non-performing loans is a build-up, people don’t just drop into non-performance. It piles over time. With very high interest rates, borrowers were strained. So, this is to do with domestic issues like inflation and interest rates, which has been high in the region; which makes it difficult to borrow and repay money,” he said.
Malawi Confederation of Chambers of Commerce and Industry (MCCCI) chief executive officer Chancellor Kaferapanjira said the sector is failing to service its loans due to the challenging operating environment.
“It doesn’t matter whether one aspect of the economic indicators is doing well; you need a package of factors. Power is almost non-existent for production despite reduced interest rates and declining inflation. As a result, firms that rely on machinery to make ends meet are suffering.
“The private sector is failing to operate. We all know the interest rate is low but we also know that it is also highly supported by artificial means like inflation. That is not helping in boosting the private sector, as a result, the productive sector is not paying loans,” he said.
In an earlier interview, Bankers Association of Malawi (BAM) chief executive officer Violette Santhe said NPL’s impact funding costs as they reduce interest earning assets with the attendant risk of write off reflected through provisions.
World Bank statistics indicate that Malawi’s level of non-performing loans (NPL) has risen to above the regulatory benchmark of five percent, standing at 19 percent as at July 2017, from 10.8 percent in December 2015
The high NPL ratio is indicative of the difficult economic situation, with borrowers often failing to generate sufficient returns from their businesses to repay their loans.