Depressed economic environment fuels bad loans—BAM
Bankers Association of Malawi (BAM) has blamed the subdued economic environment for increased non-performing loans (NPLs).
In an interview, BAM chief executive officer Violette Santhe said the ever increasing NPLs—loans a borrower is not making interest payments or paying principal—have become a risk to the banking sector.
The December 2017 Financial Stability Report produced by the Reserve Bank of Malawi (RBM) indicates most banks reported an increase in NPLs across all economic agents.
The figures show a 40 percent increase of NPLs by households, a 50 percent increase by small and medium enterprises and 40 percent increase for large enterprises.
Santhe said banks are unable to recover bad loans largely due to challenging economic conditions and poor credit culture among some borrowers.
“The collections process is also being undermined by legal challenges where clients unjustly seek court relief such as injunctions,” she said.
Chancellor College economics professor Ben Kaluwa said it would take longer before banks recover from NPLs.
He said: “NPLs become non-performing after a period of time because these are people who took loans some time back but were stressed and did not service them. The trend in non-performing loans will continue.” n
