A recent Monetary Policy Report by the Reserve Bank of Malawi (RBM) shown that foreign currency denominated loans in commercial banks reached K27.7 billion in May 2022 up from K2.9 billion same time last year.
The report indicates that gross loans grew by 9.2 percent in the second quarter of 2022 due to revaluation of outstanding foreign currency denominated loans.
It further says the annual growth in private sector credit accelerated to 21.8 percent in May 2022 from 13.3 percent in April 2022, and compared to 20.5 percent in May 2021.
The monthly developments showed that private sector credit grew by K80.4 billion to K899.9 billion in May 2022.
According to the central bank, credit remains concentrated in four of the eleven sectors of the economy, which collectively constituted 77.2 percent of gross loans.
Financial Market Dealers Association (Fimda) President Mclewen Sikwese said the increase in foreign denominated loans which banks are extending to private sector is more reflective of the seasonality of the Malawi economy.
“The period reviewed is one where there is increased activity in the agriculture sector particularly tobacco where there is increased access to financing to buy tobacco.
“It is possible to have a foreign exchange shortage run simultaneously with the extension of foreign currency denominated loans since loans are issued out of the foreign currency deposits banks hold and not convertible and tradable foreign exchange,” Sikwese said.
He added that volume of the loans extended and the level of demand of foreign exchange becomes a big factor, whilst we need $250 million per month, the value of the loans is just equivalent to roughly $26.7 million at current rates hence not enough to significantly shift the fundamentals.
Bankers Association of Malawi President who is also Chief Executive Officer of National Bank of Malawi MacFussy Kawawa said the biggest effect in kwacha terms has arisen from the recent devaluation.
“The same dollar amount for example became 25 percent more in Kwacha terms the day after devaluation,” Kawawa said.