The latest bank lending survey released by the Reserve Bank of Malawi (RBM) has shown that demand for loans continues to surge, propelled by increased borrowing by large enterprises.
According to a survey conducted between April and September 2017, the majority of banks reported an increase in loans demanded by large enterprises whilst demand for loans by household and small and Small and Medium Enterprise (SMEs) largely remained unchanged over the survey period.
Most banks, according to the survey findings, revealed that inventories and working capital were the major contributing factors for the increase in demand for loans by large enterprises.
Results of the survey have revealed that most banks reported that both new and existing customers continued to contribute to the increase in demand for loans.
RBM conducts the bank lending survey bi-annually to supplement information on credit market conditions in order to broaden the assessment of financial developments as an input into financial stability and monetary policy decisions.
Findings from the survey also facilitate preparation of economic forecasts as information regarding expected changes in credit conditions could enhance the precision of economic projections.
According to the survey, most banks reported that demand for both short and long term loans increased during the current survey period compared to the previous survey in March 2017, when most banks reported that demand for short-term loans remained unchanged whilst those for long-term loans increased.
Looking ahead, majority of the country’s banks indicated that they expect the demand for loans to increase across all economic agents in the period up to March 2018.
“In particular, 80.0 percent of responding banks in the September 2017 survey, higher than 60.0 percent of banks in the previous survey, expect an increase in demand for loans in the next six months period to March 2018.
“This outturn is largely on account of improvement in macroeconomic environment that is expected to continue in the period ahead,” the survey says.
The survey also reveals that credit standards and conditions for approving loans continued to remain tight between April and September 2017.
In relation to factors that contributed to tightening of credit standards and conditions for approving loans, most banks reported that high risk on collateral provided and poor credit-worthiness of consumers continued to remain the key contributing factors to tightened credit standards and conditions for approving loans across all economic agents.
On the other hand, 40 percent of banks reported that competition from non-banks contributed to eased credit standards and conditions for approving loans to households.
“In particular, the growing competition from village banks and other savings groups that normally offer credit facilities to households without collateral induced banks to somewhat ease their credit standards and conditions for households in a bid to remain competitive.
“However, banks were not compelled by competition from other banks and non-banks to change their credit standards and conditions to SMEs and large corporations. Only a few banks (20.0 percent) were induced by positive expectation regarding the general economy to ease their credit standards and conditions for approving loans to large enterprises, implying that market confidence remains low,” the survey says.
With regard to non-performing loans (NPLs), majority of banks reported that default rate increased between April and September 2017 and across households, SMEs and large enterprises.
Most banks attributed the increase in NPLs to various factors across the sectors—mainly poor agricultural commodity prices, high cost of borrowing despite the reduction in lending rates; default by one of the large multi-borrowers; and continued intermittent power supply.
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