Private sector credit marginally contracted in August by 1.8 percent to K522.0 billion, recent figures from the Reserve Bank of Malawi (RBM) show.
The credit flow shrunk by K9.5 billion, largely explained by commercial and industrial loans, mortgages and individual household loans which dropped by K9.4 billion, K1.8 billion and K523.8 million to K221.0 billion and K44.4 billion and K154.1 billion, respectively.
In contrast, foreign currency denominated loans increased by K3.3 billion to K131.8 billion in August 2019.
But commercial banks increased their provisions for loan losses by K1.1 billion to K29.2 billion in the reviewed month.
A sectoral decomposition of private sector credit shows that credit contractions were registered in manufacturing (K8.6 billion), wholesale and retail trade (K7.7 billion) and agriculture (K2.9 billion) sectors.
Meanwhile, financial services; community, social and personal services; transport, storage and communications; and restaurants and hotels sectors recorded credit growth amounting to K5.0 billion, K2.6 billion, K1.8 billion and K966.4 million, respectively.
The distribution of the outstanding stock of private sector credit across the economic sectors shows that wholesale and retail trade sector continued to be the largest credit holder at 25.4 percent of the outstanding stock of credit, followed by the agriculture sector at 22.6 percent, manufacturing at 14.2 percent and community, social and personal services sector at 11.4 percent.
But in its August 2019 Monthly Economic Report, RBM says the annual growth rate in private sector credit was recorded at 18.8 percent lower than 21.2 percent in July 2019 but higher than 12.1 percent growth recorded in August 2018.
“Generally, credit to the private sector has strengthened this year compared to 2018, largely supported by an accommodative monetary policy stance, continued improvement in economic activity, and enhanced credit underwriting and monitoring standards,” reads the RBM report in part.
In a recent interview, RBM Governor, Dalitso Kabambe expressed confidence that the recent pick-up in the economy coupled with declining interest rates would see continued growth of private sector credit.
This, the Central Bank Governor, said would result in growth of the private sector and the creation of jobs opportunities.
Economic commentators and business captains have been worried over government’s continued borrowing, which they say, is creating competition for funds for businesses, at a time production levels are dwindling due to reduced power generation.