Bankers Association of Malawi (Bam) has lamented high interest rates, saying they continue to scare businesses and households from borrowing, even as commercial banks sit on excess cash.
This comes after the Reserve Bank of Malawi (RBM) withdrew K180 billion from the banking system through Open Market Repurchase Agreements in the week ending July 24.
This is a sign that banks have more money than borrowers want, as the central bank moves to keep inflation in check.
In an interview, Bam President Phillip Madinga said the banking sector remained highly liquid but that the loan demand picture was mixed because banks were lending at 5 to 7 percentage points above the reference rate, pushing lending rates to around 30 percent.
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He said demand for loans could not be called broadly weak, as some sectors were still seeking financing despite the tough economy.
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Madinga said deposits were growing faster than loans, as higher returns on savings and government securities pull in more deposits while high lending rates and tighter credit rules slow down borrowing.
“At those levels, uptake by borrowers, be it corporates, SMEs [small and medium enterprises] and households, is naturally cautious. We are seeing pockets of demand in agriculture ahead of the lean season, agriculture-related infrastructure, manufacturing and trade finance. The bigger constraint is not just demand but risk appetite and the cost of funds. Banks will lend where cashflows are clear and collateral is strong.
“When deposits grow faster than loan books, that surplus sits in the system and RBM mops it up through OMOs and the higher Liquidity Reserve Requirement. This is a normal part of monetary management. The goal is to ensure that when demand for credit picks up, banks have both the liquidity and the confidence to lend productively,” Madinga said.
In a separate interview, Economics Association of Malawi President Bertha Bangara-Chikadza said the liquidity withdrawal confirmed that banks had excess funds that could have, if left unchecked, fuelled inflation.
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She said the operation also pointed to weak demand for credit because borrowing costs remained high, adding that the government must also fix other structural problems driving inflation, beyond the central bank’s liquidity mop-up
“The RBM’s operation is therefore good for inflation management on the monetary side. With the current policy rate at 24 percent, the cost of credit for firms and households remains high. Persistent foreign exchange challenges also limit investment spending, which, in turn, constrains demand for credit. Consequently, there are idle funds which RBM has to mop up.
“To effectively stabilise prices in Malawi’s current environment, structural factors such as foreign exchange shortages, supply-side constraints and high import costs also need to be addressed. OMO operations therefore need to be complemented by supply-side interventions,” Bangara-Chikadza said.
The Malawi Confederation of Chambers of Commerce and Industry, in its Economic and Business Review for the first half of 2026, said credit to the private sector had improved, though only modestly.
The chamber called on the government, through RBM, to keep implementing policies that cut lending risks, widen access to long-term finance and reward banks for lending more to productive sectors.
