A latest Bank Lending Survey by the Reserve Bank of Malawi (RBM) has revealed that a majority of banks perceived an increase in demand for credit across all households, small and medium enterprises (SMEs) and large enterprises between January and June 2024.
According to the survey results, the perceived increase in demand for credit was in general, largely attributed to financing needs with respect to seasonal commodity financing, rising consumption expenditure and additional working capital.
The surgery, however, noted that there has been moderate uptake of credit by large enterprises, as business slowed down between July and December 2023.
“This was attributed to the unstable macroeconomic environment characterized by adverse factors such as rising inflationary pressures and interest rates; acute foreign exchange shortage and fuel scarcity.
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“In terms of looking ahead to June 2024, banks envisage continued increase in demand for loans and credit lines across the three economic agents, as the deterioration of macroeconomic fundamentals is expected to continue suppressing purchasing power,” the survey said.
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In terms of the supply of credit, the survey said, most banks indicated that their credit standards and conditions for the approval of loans and credit lines to economic agents remained tightened in the second half of 2023 for both short term and long-term loans.
The tightening position points to a persistent deteriorating macroeconomic fundamental characterized by rising interest rates. The tightening impact of banks’ cost of funds on credit standards for loans to firms remained contained and broadly unchanged compared with the previous quarter.
“In the first half of 2024, most banks expect to further tighten standards and conditions for lending as they anticipate that the macroeconomic environment will continue deteriorating,” the surgery results say.
Further the survey says most banks perceived an increase in Non Performing Loans (NPLs) across all the three economic agents.
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This, according to the survey, was attributed to the deteriorating macroeconomic fundamentals characterised by the continued rise in inflation and interest rates; and foreign exchange shortages which affected the capacity of borrowers to service their loan obligations.
“In the first half of 2024, most banks anticipate NPLs from all economic agents to increase.
“This is mainly attributed to banks’ expectations about continued deterioration of the macroeconomic fundamentals characterized by rising inflation and interest rates, declining disposable income, the effects of the local currency realignment and the forex shortages,” the survey says.
Blantyre-based economist Marvin Banda said an uptake in credit is not unusual if it occurs in favourable credit-market conditions such as when interest rates are low.
He, however, observed that when interest rates are elevated people and firms are still forced to borrow in order to operate as the survey indicates that most of the borrowing is on short term basis.
“The uptick in credit across all levels is typifying a ‘backs to the wall’ momentum in the economy where levels of interest rate have a less significant influence on the levels of borrowing when there is a constraint on the credit market and its alternatives.
“The credit demand may also be induced by increased borrowing from the same players which would be illusive to indicate broader reach of the credit market. In real terms the private sector experienced an annual decrease of 11 percent by the end of 2023 which shows that the currency realignment and its subsequent effects,” Banda said.
