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Bad loans close 2018 at 6.1%

By Taonga Sabola:

The country’s level of non-performing loans (NPLs) hit a record low when they fell to 6.1 percent in December 2018, Reserve Bank of Malawi (RBM) Governor, Dalitso Kabambe, has said.

Speaking during the launch of Malawi Stock Exchange Automation, Microfinance Institution Hub and Natswitch Operationalisation, Kabambe said the level of NPLs came down from 19.9 percent at the beginning of 2018 and against a regulatory requirement of 5 percent.

Kabambe said all banks, except one, are within the minimum regulatory requirements.

He could, however, not mention the financial institution that is doing poorly on NPLs.

NPL statistics from the central bank released yesterday show that NPLs decreased by 24.6 percent (K10.3 billion) to K31.4 billion in December 2018, from K41.7 billion in October, 2018.

Year on year, NPLs declined by 55.4 percent (K30 billion), from K70.4 billion in December, 2017.

“Lending appetite has slowed over the year to December, 2018, as the banking industry continued to consolidate and clean up its loan book.

“Gross loans in fact fell on their October 2018 position. Further, lending ratios remain conservative at 45.1 percent in December, 2017 and 47.1 percent as at December, 2018,” reads an analysis from RBM.

A sectoral review of NPLs revealed that the bad loans highly concentrated in the wholesale and retail trade sector, manufacturing sector, and agriculture sector— accounting for 72.7 percent (K22.8 billion) of the total industry NPLs.

“The wholesale and retail trade sector was the worst performing, with 13.5 percent of credit extended to the sector being nonperforming as of December 2018.

“The manufacturing sector, however, registered a material decline in NPLs (from K11.7 billion in October 2018 to K3.5 billion by December end),” reads part of the analysis.

The analysis adds that gross loans and leases position dropped by 2.69 percent on the October 2018 position of K528.2 billion to K513.0 billion in December, 2018, giving a K15.2 billion shrink in credit.

The drop is largely attributed to write offs in some banks in the quarter besides general repayment of some facilities.

Adjusting for write-offs, the industry loan book only grew by only 0.3 percent between October 2018 and December 2018, indicative of continuing conservativism by banks to lend.

This is further evidenced by conservative lending ratio of 45.1 percent in December 2017 and 47.1 percent at December 2018.

“A year on year review unveiled a 14.3 percent growth in gross loans (i.e. K64.3 billion), from K448.7 billion in December, 2017 to K513.0 billion in December 2018. [And] 75.8 percent (K48.7 billion) of the additional credit was made to corporate and public sector enterprises, with credit to the retail sector only rising by K2.9 billion, as the general banking system remained cautious,” reads part of the analysis.

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