Credit to the private sector grew by K24.8 billion (4.9 percent) to K526.5 billion in the third quarter of 2019 figures from the Reserve Bank of Malawi show.
This followed another growth of K59.5 billion (13.4 percent) in the preceding quarter.
In its Financial and Economic Review, RBM says in a corresponding quarter of 2018, credit to the private sector grew by K19.0 billion (4.4 percent).
“In the quarter under review, individual/household loans and commercial and industrial loans increased by K20.5 billion and K16.1 billion to K155.8 billion and K228.9 billion, respectively,” reads the report in part.
The RBM report says in terms of economic sectors, growth in private sector credit was supported by expansions in credit to the community, social and personal services, financial services, electricity, gas and water, transport, storage and communications, agriculture and construction sectors.
Meanwhile, the RBM figures show that the outstanding credit to the public sector (government and statutory bodies) stood at K764.3 billion, reflecting an increase of K100.0 billion during the third quarter of 2019.
“RBM’s net credit to government increased by K87.6 billion to K303.1 billion in the quarter under review on account of government uptake of advances at the central bank amounting to K20.6 billion and a decrease in government deposits of K67.2 billion,” reads the report.
Similarly, according to the report, commercial banks’ claims on the public sector grew by K12.4 billion to K416.5 billion as at the end of the third quarter of 2019. Of this increase, K9.0 billion was accounted for by statutory bodies, whereas K3.4 billion was net credit to the central government.
Professor of Economics at Chancellor College, Ben Kalua, said this simply means that the government is crowding out the private sector by borrowing more from commercial banks.
“The private sector is crowded out by the government borrowing this is happening in two ways, first it makes funds for the private sector to use for growing more scarce and secondly it prices the private sector out because Banks lending to the government is risk free,” Kalua said.
He added that the development makes the government spend more and push Treasury bill yield up which in turn increases bank lending rates.