Economic and financial experts have rated a big concern as a rise in non-performing loans (NPL) in the financial services sector.
Recent figures contained in the Malawi Economic Monitor (MEM) of World Bank show that by April 2023, the level of NPLs increased by 20.7 percent year-on-year.
It indicates that NPL as a ratio of gross loans increased to 7.4 percent in April 2023, compared to 6.1 in April 2022 and 6.6 in January 2023, representing faster growth in 2022 and the first quarter of 2023.
“As at the beginning of 2023, the wholesale and retail sector accounted for 29.2 percent of total NPLs, followed by the restaurants and hotels sector at 23.0 percent and the community, personal and social services sector at 19.4 percent.
In an interview, Economist Betchani Tchereni attributed the rise in NPL to volatility of the economy.
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“It also means that others will find it difficult to borrow. The conditions become more stringent; therefore the economy may fail to really grow,” Tchereni said.
Another expert Francis Chanthunya said the business environment remained volatile, as evidenced by wholesale and retail along with hotel and restaurants accounting for 29.2 percent and 23 percent of non-performing loans.
He said while interest rates in Malawi are high, another major problem is that the market for brand new goods and the market for leisure and tourism are very small.
“As a low-income country, there is low demand for such goods and services. Coupled with limited access to capital for businesses in those sectors, it would be difficult for such businesses to be successful in the country.
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“The commercial banks’ interest rates on loans are influenced by RBM’s policy rate; so, the cost of loans will be high as long as the policy rate remains high,” Chanthunya said.
Financial Market Dealers Association President Leslie Fatch said the increase in level of NPLs would have an effect of the underlying macroeconomic environment, which could partly span from exogenous shocks.
“The increasing NPL ratio will be a concern for the financial sector as it erodes the value of capital and bank’s revenues and leads to losses.
“As part of the risk measures by banks, this may lead to banks only lending to the government and avoiding what are perceived as risky sectors of the economy,” Fatch said.
