By Kingsley Jassi:
The bullish banking business is not all that rosy without teething problems as revealed by the latest annual financial sector report for 2024 that indicates a 98.8 percent increase in non-performing loans (NPLs) in the year.
The defaulted loans amount is estimated at a combined K158.5 billion, in all the eight commercial banks, which affected the assets quality of the banking sector.
Such a high NPL ratio at 9.5 percent is way above the recommended five percent and came from the 6.1 percent average that was registered in the previous year.
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Concerned with the deteriorating assets quality on account of the high defaults, the report reads: “This was driven by the 98.8 percent increase in NPL ratio to K158.5 billion, outpacing the 21.5 percent increase in gross loan to K1.7 trillion.
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However, the sharp increase in loan defaults did not prevent the banking sector from the 82.6 percent increase in profits to K454.2 billion, driven by 43.3 percent growth in interest income registered at K1 2 trillion as total revenue grew by 60 percent.
The Bankers Association of Malawi (BAM) recently indicated that the continued forex situation and high interest rates posed major risks this year but expressed hope for continued profitability and strong liquidity positions.
The banking sector closed the 2024 well above recommended capital ratios at up to 15 percent as core and total capital ratios were observed at 22.2 percent and 25.4 percent, respectively.
In his commentary on the financial sector performance, RBM governor McDonald Mafuta Mwale acknowledged the high NPLs and credit concentration among the risks that needed to be addressed.
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“RBM’s focus will centre on enhancing risk based supervision, adopting data driven regulatory approaches, and embedding sustainability into financial oversight,” he said.
The banking sector has recently been criticised for lending to the government more than the industry, saying this is fueling the worsening economic imbalance.
With core capital at K852.2 billion in 2024, the banking sector’s loans tk productive sector in tbe year was just K100 billion, and the banks admits this needs to be improved to fuel productivity.
Economist Lesley Mkandawire said in an interview that with the economy having provided limited space for new enterprises, there was a need to provide adequate incentives and information to ensure new ventures mushroom.
