Survey shows mixed results on loan demand

Post was last updated: September 7, 2018

By Taonga Sabola:

A recent Bank Lending Survey (BLS) by the Reserve Bank of Malawi (RBM) has revealed mixed results on demand for loans in the country.

The survey involved all the nine banks in Malawi and covered a six-month-period between October 2017 and March 2018.

Among other findings, the survey shows that half of the banks reported decreased demand for loans while the other half reported that demand for loans increased.

The perceived increase was largely in the household and Small and Medium Enterprise (SME) sectors mainly following banks’ strategies to grow these sectors.

According to RBM, other factors that contributed to the perceived increase in demand for loans include consumption expenditure and decreased interest rate for households as well as inventories and working capital for SMEs and large enterprises.

“The perceived increase in demand for loans was registered in both new and existing customers particularly in the household and SMEs sectors.

“However, some banks perceived a decrease in demand for loans by large enterprises and this was attributed to intermitted power supply that negatively impacted on the general economic activity,” reads part of the results of the survey.

In terms of credit supply conditions, most banks reported that they tightened credit standards and conditions for approving loans during the period under review, particularly in the SMEs and large enterprises.

However, some banks also reported that they maintained tight credit standards and conditions for approving loans across all economic agents.

“Banks cited the impact of the IFRS 9; poor creditworthiness of customers; high risk on collateral provided; and high default rate, particularly in the household and SMEs [sectors] as main factors that contributed to further tightening of credit standards,” RBM says.

According to the survey results, the majority of banks perceived that non-performing loans in the banking system increased during the survey period.

The perceived increase was particularly in the household and SMEs sectors mainly due to continued lay-offs by companies lower agricultural commodity prices poor credit repayment culture frustrations in loan recovery efforts and moral hazard.

It was further reported that the agriculture sector held the highest NPLs followed by the wholesale and retail sector.

On outlook, the majority of banks expressed optimisms that demand for loans would increase across all economic agents.

The banks cited an increase in consumption expenditure due to an improvement in macroeconomic environment increased economic activity with the upcoming 2019 general elections and working capital needs as some of the factors to drive up loan demand moving forward.

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