The Reserve Bank of Malawi (RBM) has reiterated that recent pick-up in the economy coupled with declining interest rates would see continued growth of credit to private sector.
This, the central bank says, would spur productivity and help in creation of job opportunities.
The annual growth rate of private sector credit stood at 17.7 percent in September 2019 compared to 18.8 percent and 8.7 percent in the preceding month, and corresponding month of 2018.
But in its September 2019 Monthly Economic Review issued on Monday, RBM says in general, growth of private sector credit has been stronger in 2019 compared to 2018.
“[This is] largely due to easing monetary conditions, continued improvement in economic activity, and improvement in asset quality of commercial banks,” RBM says.
On monthly basis, private sector credit grew by K4.5 billion (0.9 percent) to K526.5 billion. The rise is explained by commercial and industrial loans and individual household loans which rose by K7.9 billion and K1.8 billion to K228.9 billion and K155.8 billion, respectively.
In contrast, foreign currency denominated loans and mortgages declined by K6.3 billion and K688.9 million to K125.5 billion and K43.7 billion, partly offsetting the increase in the commercial and individual loans above.
Meanwhile, commercial banks lowered their provisions for loan losses by K1.7 billion to K27.4 billion according to the central bank.
A sectoral decomposition of private sector credit shows a pickup in credit to manufacturing (K10.5 billion), financial services (K2.8 billion) and construction (K825.0 million) sectors.
RBM says credit contractions amounting to K5.0 billion, K1.8 billion and K1.1 billion were recorded in wholesale and retail trade, restaurants and hotels and community, social and personal services sectors, respectively.
“Consequently, the distribution of the outstanding stock of private sector credit across the economic sectors showed a drop in the proportion of credit to Wholesale and retail trade and a rebound in the share of credit to the Manufacturing sector,” RBM indicates.
The above notwithstanding, wholesale and retail trade sector continued to be the largest credit holder at 23.9 percent of the outstanding stock of private sector credit, followed by the agriculture sector at 20.0 percent, manufacturing at 15.9 percent and Community, social and personal services sector at 11.0 percent.
In a recent interview, RBM Governor Dalitso Kabambe said private sector credit is re-establishing a trend enjoyed in 1964 and 1983, and between 2004 and 2011.
“We will need to stay this course for some years to see businesses expanding, jobs created, more output realised and more wealth created which will reduce poverty,” Kabambe said.