Banks’ credit weight swings to government
Credit to the public sector (Central Government and State-owned enterprises) remained wide in December 2022, reaching K1.5 trillion, figures from the Reserve Bank of Malawi (RBM) show.
For example, the RBM and State-owned enterprises’ obligation for the payment or repayment of money, whether principal, interest or surety to the banking system, increased by K99.9 billion to K2.5 trillion by December last year.
In its December 2022 Monthly Economic Report, the central bank attributes the situation largely to commercial banks’ claims on Central Government (net) and State-owned enterprises which increased by K124.0 billion and K1.4 billion to K1.3 trillion and K83.3 billion, respectively.
Net claims on the Central Government from the commercial banks were largely driven by holding of Treasury notes and Treasury bills by the commercial banks, which recorded a net increase of K59.0 billion and K45.6 billion to K1.1 trillion and K338.3 billion, respectively.
“This was reinforced by a decrease in government deposits at the commercial banks amounting to K17.6 billion in the review month,” the report reads.
Private sector credit declined to 24.1 percent during the period from 26.5 percent but was higher than the 18.6 percent registered in December 2021 and, similarly, on a month-on-month basis, the stock of private sector credit decreased by K1.8 billion (0.2 percent) to K1.0 trillion.
This was on account of net repayments of commercial and industrial loans and mortgages amounting to K6.8 billion and K2.2 billion, respectively which was partially counteracted by increases in foreign currency denominated loans and individual household loans to the tune of K5.4 billion and K1.7 billion, respectively.
“In terms of economic sectors, expansions in credit were recorded in the community, social and personal services; manufacturing; electricity, gas, water and energy; financial services; construction; restaurants and hotels; transport, storage, and communication; and mining and quarry sectors,” the report adds.
Economist from the Malawi University of Business and Applied Sciences Betchani Tchereni faulted the government for continuing to dominate the credit market and pushing out potential investors.
“We, therefore, ask the government that such borrowing should translate to establishment of government-owned factories and not for consumption because a country cannot develop if borrowing is for consumption,” he said.
In an earlier interview, Minister of Finance and Economic Affairs Sosten Gwengwe said that, in the first place, State-owned enterprises should not get used to borrowing but if they are to borrow then the issue of affordability of loans should play a role.
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.