Key Business Points

• Malawi’s top banks are highly profitable, but most gains come from government securities rather than backing private businesses.
• Heavy lending to government is reducing loans to entrepreneurs and small companies, slowing economic growth in key sectors.
• Policymakers, regulators, and banks must work together to expand credit access and support local business investment.

Malawi’s banking sector may be posting record profitability, but the World Bank Group suggests that the foundations of those gains could pose risks to financial stability if fiscal pressures persist.

In its latest Malawi Economic Monitor released last week, the bank noted that the banking sector’s return on equity hit 60.9 percent in 2025, with return on assets near 7.7 percent — among the highest in the region. However, the report observed that these profits come largely from high-yield government securities rather than financing private-sector growth. This concentration in government debt leaves banks vulnerable to changes in fiscal sustainability and debt conditions.

The report pointed out that while banks remain well-capitalized and profitable, non-performing loans have dropped to 4.6 percent. Yet the sector’s heavy exposure to government borrowing — with domestic debt now representing 55 percent of total public debt — ties bank balance sheets closely to government fiscal performance. Commercial banks have increasingly invested in Treasury securities as government borrowing surged to finance deficits averaging over 10 percent of GDP since 2022.

Bankers Association of Malawi Chief Executive Officer Lyness Nkungula said banks are working to broaden credit access by strengthening risk assessment, diversifying lending products, and supporting high-growth sectors. She emphasized that collaboration with regulators and policymakers is essential, especially through fiscal discipline, improved credit infrastructure, and policies encouraging private investment. She noted that while profitability is high, resilience, inclusivity, and sustainable growth remain key priorities.

Malawi Confederation of Chambers of Commerce and Industry Chief Executive Officer Daisy Kambalame said the crowding-out effect is restricting business investment, expansion, and job creation. "Businesses are finding it difficult to secure loans for investment. Additionally, many firms remain undercapitalized, meaning they operate at a limited scale relative to potential demand," Kambalame said.

She added that affordable and accessible financing is particularly lacking in sectors driving economic transformation — such as manufacturing, agribusiness and agro-processing, and export-oriented industries — which require working capital and trade finance support.

The situation highlights a crossroads for Malawi: strong bank profits are masking a deeper challenge in channeling capital to private enterprises. Without policies to redirect lending toward productive sectors, the high returns seen today could become a barrier to broader economic growth tomorrow.

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