New Bankers Association of Malawi (Bam) president Philip Madinga has said the sector is committed to channel more loanable funds to productive sectors of the economy going forward.
In recent years, banks have come under attack from various quotas of the society for favouring risk free lending to government.
This has ended up in crowding out the private sector which is considered the engine for economic growth.
But in an interview at the Kamuzu Palace in Lilongwe after presenting the new Bam executive committee to President Lazarus Chakwera, Madinga said the bankers are very much committed to fuel the growth of productive sectors.
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He observed that the shift towards prioritising financing towards the productive sectors already started a few years ago.
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“I think there has already been a shift. That shift started a few years ago. Maybe a decade now. But I think we need to share more information about what is happening. If you look at the exposures or the facilities that banks have extended towards to the agricultural sector, it is massive,” Madinga said.
He added that lending trends across the globe and in Africa have been tilting in favour of financing productive sectors.
“If you look at the trends that are happening not only in Malawi but across the globe and within the region the issue has been how much you can extend to sovereign. In a way banks have been reacting in a manner to ensure that we must provide resources or financing towards productive sectors,” Madinga said.
He added that the signal has also been coming from government which has been advocating for increased financing towards the productive sectors.
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“A very good example is the recent industrial parks where government is working with Afreximbank, there is an opportunity for banks to come into that space .
“I came out of a meeting with Bankers Association Executive leadership. One of the things we are saying is; can we as an industry begin to look at these productive sectors, export manufacturing and many others,” Madinga said.
Catholic University Finance Lecturer Ferdinand Mchacha Thursday said the government does not own businesses, and for the economy to grow, the focus should be on the private sector growth.
Mchacha said private sector growth can be achieved if banks focus on financing private sector projects for the production of goods and services that will grow exports, substitute imports, and increase the supply of various goods and services.
He observed that the growth of exports and substitution of imports will result in improvements of the country’s balance of trade and availability forex, resulting in the strengthening of the kwacha.
In addition, Mchacha said, the increase in supply of various goods and services will also result in reductions in inflation rates.
“That said, we should not blame banks for opting for risk free lending to the government. The government’s appetite for local borrowings has pushed up interest rates and banks are able to make supernormal profits by focusing on lending to the government.
“Banks are in business and the current landscape allows them to make supernormal profits by focusing on lending to the government. Lending to private sector is risky as there is always potential for default. Lending to government is risk free and any banker given Malawi’s scenario will focus on lending to government to achieve easy supernormal profits,” Mchacha said.
Furthermore, Mchacha noted that the only way to balance the situation is by encouraging the government to reduce local borrowings so that banks should be pushed to start searching for others sources of business and start lending to the private sector.
“As a country, we should not expect banks to focus on lending to private sector when the government is ready to borrow at high interest rates, risk free and enough for the banks to make supernormal profits,” Mchacha said.
Recently, Bam appointed new leadership with Madinga as president, FDH Bank Managing Director Noel Mkulichi as first vice president and First Capital Bank Chief Executive Officer Agnes Jaza as second vice president.
