Key Business Points
- The Malawi Stock Exchange (MSE) is heavily reliant on the five listed commercial banks, which contribute 70 percent of the market’s capitalization, posing a concentration risk to the market.
- The banking sector’s dominance brings stability to the market, but also leaves it exposed to risks within the industry, highlighting the need for diversification.
- To stimulate growth and reduce reliance on the banking sector, the MSE is intensifying efforts to attract more companies from sectors such as manufacturing, hospitality, and mining.
The Malawi Stock Exchange (MSE) has been dominated by the five listed commercial banks, which have contributed 70 percent of the market’s capitalization. This has raised concerns about concentration risk, with experts weighing in on the potential implications for the market. The five banks, namely FDH Bank plc, Standard Bank plc, NBS Bank plc, National Bank of Malawi plc, and FMB Capital Holdings through its subsidiary First Capital Bank, have a combined market capitalization of K10.8 trillion, out of the total K15.4 trillion market capitalization.
The Banking Sector’s Dominance
In the past 12 months, the cumulative capitalization of the banking sector increased by 176 percent, from K3.9 trillion, driving the market capitalization growth to its current level. MSE chief executive officer John Kamanga downplayed the concentration risk, arguing that the history of the stock exchange has resulted in more banks being listed, and that other sectors, such as manufacturing and hospitality, have large market capitalizations that can absorb investor appetite. However, stockbrokers and financial experts have expressed concerns about the market’s over-reliance on the banking sector.
Concerns about Concentration Risk
Stockbrokers Malawi Limited equity investment analyst Kondwani Makwakwa argued that the dominance of the banking sector brings a sense of stability, but also poses a risk to the market’s resilience. If something were to go wrong in the banking sector, the whole market could be affected, leaving investors with fewer ways to spread their risk. On the other hand, stock market investor and former investment banker Benedicto Nkhoma highlighted that the risk depends on the performance of the banks, and noted that the sector is well capitalized and having a positive impact.
The Need for Diversification
Financial expert and former bank executive Misheck Esau described the listed banks’ strong performance as critical to the market, but expressed concern that the sector is making profits mainly from lending to government instead of the real sector. He argued that there is a need to reverse this trend, where most banks’ profits should come from private sector lending, and in turn, the private sector should invest in productive sectors to enhance economic development and wealth creation. The five listed banks posted a cumulative profit of K380 billion in 2024, highlighting the sector’s contribution to wealth creation for shareholders and the broader Malawian economy. As the MSE looks to stimulate growth and reduce reliance on the banking sector, it is essential for business owners and entrepreneurs to consider the opportunities and risks presented by this development.
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