Malawi’s banking sector may be posting record profitability, but the World Bank Group suggests that the foundations of those gains could pose risks to financial stability if fiscal pressures persist.
In its latest Malawi Economic Monitor (MEM) released last week, the bank noted that the banking sector’s return on equity (ROE) hit 60.9 percent in 2025, and return on assets stood near 7.7 percent, among the highest in the region.
However, the report observed that while banks remain well-capitalised and profitable, the gains come from government securities, not from financing productive private investment, making them more vulnerable to changes in fiscal sustainability and debt conditions.
“This performance is largely driven by high-yield government securities, crowding out private sector lending. The concentration of assets in government securities is also a source of vulnerability,” the report states.
The report pointed out that while this has strengthened profitability and reduced non-performing loans, currently at 4.6 percent, it has also tied banks’ balance sheets closely to government fiscal performance.
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Commercial banks have increasingly invested in high-yield Treasury securities as government borrowing surged to finance fiscal deficits averaging over 10 percent of GDP since 2022.
The banking sector is now the largest holder of domestic government debt, with domestic debt as a percentage of total public debt stock, at 55 percent.
In reaction, Bankers Association of Malawi Chief executive Officer Lyness Nkungula said the banks are actively working to broaden access to credit by strengthening risk assessment frameworks, diversifying lending products, and supporting sectors with high growth potential.
“We also feel that collaboration with regulators and policymakers is essential to create an environment, particularly through fiscal discipline, improved credit infrastructure, and policies that encourage investment,” Nkungula said.
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She further noted that while profitability is high, their focus remains on resilience, inclusivity, and sustainable growth.
In a written response, Malawi Confederation of Chambers of Commerce and Industry Chief Executive Officer Daisy Kambalame said this crowding-out effect is restricting businesses’ ability to invest, expand operations, and create jobs.
“Businesses are finding it difficult to secure loans for investment. Additionally, many firms remain undercapitalized, meaning they operate at a limited scale relative to potential demand,” Kambalame said.
She further noted that the lack of affordable and accessible financing has disproportionately affected sectors that drive economic transformation, such as manufacturing, agribusiness and agro-processing, as well as export-oriented industries, which need working capital and trade finance support.
