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Bank loans demand rises amid Covid-19

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A latest Bank Lending Survey (BLS) by the Reserve Bank of Malawi (RBM) has revealed that banks witnessed an increase in demand for loans and credit lines between January and June 2020 despite the threat of Covid-19 pandemic on businesses.

Results of the survey, whose questionnaire was administered to all eight banks, revealed that, in terms of the loan demand composition, most banks reported that the perceived increase in demand emanated from both new and existing customers during the review period.

With regards to loan tenure, the survey results show that most banks reported that there was a reversal in demand for loans shifting back to short-term view from the long-term.

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The reversal in the loan tenure, according to RBM, could be due to heightened macroeconomic uncertainty arising from political instability experienced in the past 12 months coupled with the Covid-19 outbreak, which has disrupted economic activity.

“Precisely, seven out of eight banks reported an increase in the demand for loans during the survey period compared to eight out of nine banks that reported an increase in the demand for loans by households in the December 2019 survey,” the survey says.

According to the report, most banks reported that the key drivers for the perceived increase in the demand for loans by the household sector included: reduced interest rate, the Covid-19 outbreak and reliable employer-backed guarantees.

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The surge in demand for loans is also attribute to rise in asset acquisitions such as land, houses and vehicles, improved credit reference bureau (CRBs) reports and deliberate strategies put in place by some banks to grow the households’ loan book.

In terms of non-perfoming loans (NPLs), the survey says most banks perceived an increase NPLs across all economic agents during the period under review.

In line with banks’ perceptions, quantitative data also showed that the level of NPLs in the banking system increased to K43 billion as at end June 2020 from K40.3 billion in December 2019.

“Most banks perceived NPL levels in the household sector to have increased during the survey period whilst the perception was rather mixed during the December 2019 survey period.

Six banks perceived NPLs to have increased in the household sector between January and June 2020.

“In terms of the SMEs, six out of the eight banks reported that NPLs held by SMEs increased during the survey period, unchanged from the December 2019 survey findings. Similarly, most banks reported perceived increase in NPLs in the large enterprises sector during the June 2020 survey period, unchanged from what most banks indicated in the preceding survey period,” the survey says.

Looking ahead the banks reported that the loan demand outlook is positive as most banks expected an increase in demand for loans and credit lines across all economic agents in the subsequent six-month period to December 2020.

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