Banks sweat on non-performing loans target

Post was last updated: September 26, 2018

By Taonga Sabola:

GUTA— This is not a small task

Bankers Association of Malawi (Bam) has described as a tough task the challenge by the Reserve Bank of Malawi (RBM) for industry players to reduce the ratio of non-performing loans (NPLs) to five percent by December.

Bam President, Paul Guta, was speaking in Blantyre on Friday night during the 2018 Bankers Dinner and Dance.

Guta said the savings and credit repayment culture of Malawians remains a challenge not only on the banking sector but the economy as a whole.

“We have been challenged by the Reserve Bank to bring down the NPL ratio for our sector from an average of 19 percent to five percent by December 2018. This is not a small task,” Guta said.

As at June 2018, the ratio of NPL dropped to 12.7 percent from 15.7 percent in December 2017.

The decline in NPLs ratio was a result of reduction in the levels of NPLs to K61.6 billion in June 2018 from K70.4 billion in December 2017, largely due to write-offs and recoveries.

Launching the Monetary Policy Technical Forum in Blantyre in July, RBM Governor, Dalitso Kabambe, attributed the drop in NPLs to improvements in some key macroeconomic fundamentals including interest and inflation rates, which have been decelerating in the past 18 months.

“This simply shows renewed business confidence in the economy. A lot of challenges that were there in the financial sector are now unwinding and correcting, themselves,” Kabambe said.

Base lending rates for commercial banks have gone down from an average of 35 percent at the beginning of 2017 to around 24 percent.

Guta added that continued government dominance on the money market is another challenge the industry is facing.

He said the development continues to crowd out private sector lending.

“Of the combined K1.6 trillion total balance sheet of the Malawi Banks, a good 40 percent and more is in government securities,” Guta said.

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