Banks borrow K234 billion in May
Commercial banks borrowed about K234 billion in May from the Reserve Bank of Malawi (RBM) as lender of last resort.
Figures from the central bank show that the amount is also higher than the K159 billion commercial banks borrowed from RBM in the preceeding month.
The figures indicate that this year, RBM credit to domestic banks was highest in January, when banks borrowed K263 billion, then it went down to K160 billion in February.
Commenting on the figures, economist from the Malawi University of Business and Applied Sciences Betchani Tchereni said this signals that the economy has been active.
He, however, added that authorities have to check if the borrowing trickled down to spur economic growth such as creation of employment or birth of new businesses.
“We need to compare with credit extension to the private sector in the same period. If it is closer, then it means the private sector was busy with recapitalisation but otherwise, it may mean the same events of commercial banks extending to the government, making huge profits without meaningful production,” he said.
Banks in the country mostly borrow for three reasons; recapitalisation, to satisfy a surge in loan applications from the private sector or to loan out to government.
Economists believe the best situation for the growth of the country is when the banks are borrowing to satisfy a surge in application of loans from the private sector.
Professor of Economics at University of Malawi Ben Kalua said the figures portray a desperate situation that the banks were in.
“Commercial banks avoid high cost financing, which makes them rely on the corporate sector or interbank borrowing. Therefore, this situation shows that banks were desperate because there was pressure somewhere,” he said.
The policy rate—the rate at which banks borrow from RBM—is at 12 percent since November last year.
Figures from RBM quoted by CDH Investment Bank also show that interbank borrowing rate surged in the second quarter of 2021 by about 11.87 percent.
Justin Mkweu is a fast growing reporter who currently works with Times Group on the business desk.
He is however flexible as he also writes about current affairs and national issues.
