The Reserve Bank of Malawi (RBM) has said non-performing loans (NPLs) in commercial banks have dropped to 12.1 percent in July 2018 to 4.5 percent in July 2019.
RBM Governor, Dalitso Kabambe, disclosed this in Lilongwe on Thursday during the launch of NBM Development Bank.
Kabambe attributed the significant improvement in the NPL ratio to the improved asset quality in the industry, anchored by write offs, loan restructuring and recoveries.
“The banking sector continues to remain sound and stable, as it continues to be adequately capitalised, profitable and liquid. I am particularly delighted that, for the first time since 2012, the industry average of the non-performing loans ratio is below the maximum acceptable benchmark of 5 percent.
“The NPL ratio for the banking industry stood at 4.5 percent in July 2019, a significant improvement from 12.1 percent in July, 2018 and 19.0 percent in July, 2017,” Kabambe said.
He added that, to improve the transmission of monetary policy, RBM in conjunction with the Bankers Association of Malawi (Bam) had introduced the Reference Interest Rate effective September 3, 2019.
The Reference Rate is a weighted average of the Lombard Rate, the Interbank Rate (IBR), 91-day Treasury Bill Rate, and the Savings Rate and at the moment, the weights are 64.8 percent, 25.0 percent, 10.0 percent and 0.2 percent, respectively.
Kabambe said the Reference Rate replaces the base lending rate for commercial banks.
He said, at 13.4 percent per annum, the base lending rate is the lowest since 1980s.
“The recent reductions in interest rates are resulting in pick-up of private sector credit. Real private sector credit growth is now positive and was recorded at 10.9 percent in July 2019, after mostly being negative since 2012. In nominal terms, the outstanding stock of credit to the private sector was recorded at K531.0 billion in July 2019.
“Compared to the 55 years of our independence, one would argue that private sector credit is re-establishing its trend it enjoyed between 1964 and 1983 and 2004 to 2011. We will need to stay the course for some years to see businesses expanding, jobs created, more output realised and more wealth created which will reduce poverty,” Kabambe said.
He assured the business community that the monetary authorities would continue to work with Treasury to ensure that the current macroeconomic stability with low inflation, stable exchange rate and declining interest rates is sustained to replicate economic growth rates witnessed in 1971 and 1995.
Analysts have in recent years attributed high interest rates in the country to high default rates.