Credit to private sector improves

After declining for four consecutive months, credit to the private sector rebounded in March 2018, a situation which led to improved banking system’s supply of credit to the domestic economy, a Reserve Bank of Malawi (RBM) report has shown.

According to the March 2018 Financial and Economic Report, during the month under review, credit to the private sector increased by K8.2 billion to K398.0 billion. This was slightly higher than K396.4 billion recorded in March 2017.

The banking system’s supply of credit to the domestic economy grew to K963.0 billion from K951.4 billion recorded in the preceding month and K790.2 billion in March 2017.

Individual household loans on the other hand registered a decrease of K1.9 billion to K126.4 billion.

This should be good news to the private sector, which has in recent months been complaining about inadequate access to finance which was due to continued borrowing from the commercial banks and the energy crisis.

Malawi Confederation of Chambers of Commerce and Industry (MCCCI) president Prince Kapondamgaga said government’s continued borrowing is creating a competition for funds for businesses, at a time when production levels are dwindling to reduced power generation.

“People can only borrow for production but if it is hampered by energy, there is no energy to borrow. At the same time, people that want to go and borrow can’t get the funds in time because government gone flat out borrowing from the commercial banks where private sector borrowing is supposed to be accessed so this is crowding out the private sector,” he said.

In its March 2018 monetary policy report published recently, the central bank attributed weak private sector credit response partly to a weak macroeconomic environment and increasing public sector financing requirements, observing that private sector credit is responding to the relatively less tight interest rate position following previous policy rate cuts, albeit with a lag.

Government has on the other hand been pursuing a vigorous fiscal adjustment since June 2014 in order to progressively match the diminished available resources with the needed total budgetary requirements.

“The objective of the adjustment is to reduce domestic borrowing so as to eliminate excessive liquidity in the system that has been a major factor in fueling inflationary pressures,” said Finance, Economic Planning and Development minister Goodall Gondwe.

At the commercial banks, net credit to government increased by K22.4 billion to K142.8 billion in the month compared with an increase of K10.9 billion to K100.7 billion in March while net credit to central government from the monetary authorities went down by K18.2 billion to K417.9 billion in the month compared with a drop of K11.3 billion to K282.5 billion in March 2017. n