Credit which the private sector accessed from financial institutions continued to decline, with growth diminishing to 19.8 percent in February 2025, down from 21.4 percent in January.
This marks a monthly decline of 1.6 percent and an annual contraction of 7 percent, according to figures contained in the February Monthly Economic Review of the Reserve Bank of Malawi (RBM).
On a month-to-month basis, credit to private sector players decreased by K12 billion to K1.5 trillion.
The decline was primarily driven by net repayments in commercial and industrial loans as well as foreign currency-denominated loans, totalling K22 billion and K17.5 billion, respectively.
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Despite declines in some areas, the report highlights that a significant portion of private sector credit was allocated toward social aspects, such as individual household loans and mortgages, which saw increases of K8.9 billion and K4 billion, respectively.
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This trend extended to community, social and personal services.
Of concern, however, is the low share of the manufacturing sector, which accounted for 2.2 percent of the overall 19.8 percent private sector credit, indicating low credit funding to sectors that are earmarked to drive economic growth.
Conversely, the central government’s and State-owned enterprises’ indebtedness to the banking system rose by K238.8 billion to reach K6.4 trillion in the month under review.
The surge was largely attributed to a rise in net credit to the Central Government, which increased by K226.6 billion.
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Specifically, commercial banks saw their net claims on the Central Government grow by K164.7 billion, spurred by heightened investments in Treasury notes and bills, which increased by K109.2 billion and K52.4 billion, respectively, in the month under review.
Further contributing to the increase was the government’s drawdown of K16.7 billion, from its commercial bank deposits.
In its January Malawi Economic Monitor, the World Bank warned of a potential rise in non-performing loans (NPLs) despite banks experiencing stronger demand for loans.
Bankers Association of Malawi Chief Executive Officer Lyness Nkungula noted that a challenging microeconomic environment had prompted banks to adopt stricter credit criteria and concentrate on sectors with lower risk profiles.
“The banking sector is proactively implementing risk management strategies to address the potential increase in non-performing loans,” she said
Economist Marvin Banda expressed concern over the trend, arguing that sustainable economic growth depended heavily on a vibrant private investment climate.
