Commercial banks’ credit to the private sector shrunk during a greater part of 2021, seen going down to 18.6 percent during the last quarter compared to the growth rate of 21.7 percent in the preceding quarter, figures from the Reserve Bank of Malawi indicate.
As quoted by the Malawi Confederation of Chambers of Commerce and Industry (MCCCI), despite the reported shrink, year-on-year-the rate was higher than 17.3 percent posted in the last quarter of 2020.
“On the other hand, the stock of private sector credit from the banking sector expanded by 2.0 percent (K15.7 billion) to K818.8 billion in 2021Q4 following another growth of 3.8 percent (K29.6 billion) in 2021Q3,” the report reads.
The report further indicates that credit concentration by sector remained high and dominant in three sectors of community, social and personal services; wholesale and retail trade; and agriculture, forestry, fishing and hunting.
It says the community, social and personal services sector comprised 29.5 percent (K256.6 billion) of gross loans, followed by the wholesale and retail trade at 22.2 percent (K192.6 billion) then agriculture, forestry, fishing and hunting at 15.7 percent (K136.7 billion).
The three sectors had a combined aggregate that constituted 67.4 percent of the industry credit at the end of December 2021.
In its 2021 business environment assessment report, MCCCI said one of the key challenges in the year was lack of access to finance by the private sector.
The report added that the problem was not only in the year under review but also in the previous years, when banks failed to provide funds for ideas or recapitalisation of companies.
Commenting on the figures, market analyst Cosmas Chigwe attributed the shrinking of the credit to the perception by banks, which consider most private companies as risky and rather deal with State enterprises.
“Banks, however, should just look at the means of minimising risks in private companies rather than denying the private sector credit because credit to the private sector is good for the growth of the economy,” he said.
Malawi’s manufacturing sector continues to be in an infant stage, which robs the economy of a robust export base.
In a recent interview when commenting on the 2022-23 National Budget Statement, Standard Chief Executive Phillip Madinga said some policy adjustments would free resources which the government would have borrowed from banking industry to be channeled towards the private sector.
Among other things, the budget aspires to achieve fiscal consolidation, strengthen public debt management, ensure fiscal discipline and keep Malawi on track towards achieving the Malawi 2063 vision.
The budget hinges on reducing public debt stock, seen at K5.5 trillion as at mid-2021.
The budget would be implemented in an environment characterised by a weak fiscal space, leading to yet another yawning deficit of K884.04 billion.
But Gwengwe said the government intends to stabilise debt creation processes and embark on a downward debt trajectory in the subsequent budgets.
Madinga said the bank expects lowering of the public debt, which is expected to increase funds available to lend to the private sector, and, over time, it may reduce the cost of funds, though that may take material reduction in domestic borrowing.
“Where the market fully dictates prices, level of interest rates should reflect the status of determinants of interest rates. As much as the economic goals we have set around infrastructure development, food security and others would be best delivered in a low interest rate environment, it is detrimental to force the market to ‘give’ low interest rates whilst the determinants are off track,” Madinga said.
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