The World Bank has faulted local commercial banks for concentrating on short-term lending, observing that a paltry 32 percent of total bank resources go towards long-term private sector lending.
In its assessment of local bank financing, the World Bank said that lending is also concentrated among a few borrowers, with 59 percent of all loans extended to top 10 borrowers on the market.
In the report titled Malawi Mobilising Long-term Financing for Infrastructure, the Bretton Woods institution said the largest single borrower in the market has an outstanding loan of 67 percent of core capital of its lender compared to the Reserve Bank of Malawi’s (RBM) limit of 25 percent and 21 percent of core capital of the entire system.This amounted to K215 billion (about $290 million) as of December 2020.
The report shows that the largest outstanding loan of one of the smaller banks was 116 percent of core capital.
Reads the assessment in part: “Banks are not lending long-term. The funding structure of banks is heavily skewed towards the short-term, discouraging undertaking of profitable investments with long time horizon.
“Consequently, lending is largely short-term; 51 percent of all loans have maturities of less than one year and only four percent have maturities of over six years.”
Meanwhile, RBM figures show that as of December 2020, the wholesale and retail trade sector continued to be the largest holder of credit at 23.7 percent of the outstanding stock of private sector credit, followed by agriculture, forestry, fishing and hunting sectors at 18.9 percent, community, social and personal services sector at 18.4 percent and manufacturing at 13.3 percent.
Ministry of Finance wants to double its domestic credit to the private sector as a percentage of gross domestic product to 30 percent from the current 12.3 percent through the Financial Sector Development Strategy II (2017-2021).
Bankers Association of Malawi chief executive officer Lyness Nkungula was yet to respond to a questionnaire.
But money market analyst Armstrong Kamphoni, who is also chief executive officer of Cedar Capital, said the banking sector has not taken risks to develop the financial sector by providing a deliberate policy to provide cheap finance to key economic sectors.
Earlier, RBM Governor Wilson Banda said credit continued to grow in 2020 although it had been subdued when compared to 2019 due to the impact of Covid-19.