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Bad loans still biting

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By Taonga Sabola:

Liquidity Ratio for Saccos (%)

The country’s non-deposit taking microfinance institutions lost a combined K246.5 million in the first half of 2018, as loan portfolio contracted and nonperforming loans (NPLs) surged, statistics from the Reserve Bank of Malawi indicate.

The loss is slightly higher than the K206.5 million deficit the firms recorded during the first six months of 2017.

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“NPLs for the non-deposit taking microfinance increased from K1.6 billion in December 2017 to K1.8 billion in June 2018. Consequently, the ratio of NPLs to gross loans increased from 16.5 percent in December 2017 to 21.8 percent in June 2018. The NPLs increased mainly due to adverse business conditions and non-remittance of loan repayments by some employers.

“Non-remitted loan repayments stood at K347.3 million as at June 2018 down from K821.1 million as at December 2017. The decrease was due to sale of loan book to commercial banks by some institutions and improved disbursements of the non-remitted balances by government,” RBM says in its recent Financial Stability Report.

However, during the same period, deposit taking microfinance institutions recorded a profit of K101.7 million up from K45 million in June 2017.

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The increase in profits was mainly on account of growth in income from investments.

Consequently, return on assets (ROA) for non-deposit taking microfinance institutions, which is an indicator of how profitable a company is relative to its total assets, stood at minus 1.2 percent in June 2018 from minus1.1 percent in June 2017.

The return on equity (ROE) for non-deposit taking microfinance institutions, which is the amount of net income returned as a percentage of shareholders’ equity, was recorded at 3.6 percent in June 2018 from minus 3 percent recorded in June 2017.

“On the other hand ROA and ROE for deposit taking microfinance improved from 0.4 and 2.0 percent as at June 2017 to 0.6 percent and 2.8 percent as at June 2018, respectively,” RBM says.

Savings and Credit Cooperatives registered an increase in the delinquency ratio to 8.3 percent in June 2018 from 5.3 percent in December 2017.

The ratio was above the maximum acceptable ratio of 5.0 percent of gross loans.

Delinquency increased due to an increase in non-remittance of payroll deductions and other receivables from K1.5 billion in December 2017 to K1.6 billion in June 2018.

“Total assets for the subsector increased by 8.3 percent to K14.4 billion in June 2018. Loans stood at K9.2 billion in June 2018 from K8.8 billion in December 2017,” the central bank says.

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