The Economics Association of Malawi (Ecama) says reducing government domestic borrowing alone will not unlock adequate credit for businesses unless Malawi strengthens systems that enable banks to accurately assess and price private-sector risk.
Ecama president Bertha Bangara-Chikadza said government borrowing had contributed significantly to weak financial intermediation, but elevated non-performing loans (NPLs) and difficult macroeconomic conditions were also making private businesses comparatively riskier for banks.
The assessment follows Reserve Bank of Malawi (RBM) figures showing that the banking sector’s loan-to-deposit ratio remains below 40 percent despite banks holding substantial liquidity.
Ecama said the low ratio suggests banks are not channelling enough deposits towards productive investment that could support business expansion, employment and economic growth.
“A loan-to-deposit ratio of 40 percent shows that the banking sector is not contributing enough to productive investment and economic growth,” the association said.
It said the ratio could reflect banks’ preference for alternative investments such as government securities or weak private-sector demand for credit.
Citing the International Monetary Fund’s (IMF) 2025 Article IV assessment, Ecama said holdings of government securities by depository corporations increased by 78 percent between 2024 and 2025, reflecting increased government domestic financing needs.
“This, therefore, crowded out the private sector, which is riskier,” said Chikadza, who is also an economics lecturer at the University of Malawi.
However, Ecama said poor macroeconomic conditions had also increased private-sector credit risk. NPLs peaked at 9.8 percent in November 2024 before declining to 7.7 percent in April 2025, but remained above the five percent regulatory threshold.
Malawian economist Velli Nyirongo similarly said the low loan-to-deposit ratio reflected both government borrowing and weaknesses that make private lending unattractive.
He said banks have resources to lend, but government securities offer predictable returns while businesses face high interest rates, foreign exchange shortages, weak balance sheets and other risks.
“Ultimately, Malawi needs an environment in which productive private investment becomes more attractive to banks than simply financing government,” Nyirongo said.
Ecama recommended reducing government’s appetite for domestic borrowing while improving banks’ ability to distinguish viable borrowers from risky ones. It called for wider use and coverage of credit bureaus and stronger collateral registries.
University of Malawi economics lecturer Edward Leman said reforms should also address high borrowing costs and non-price barriers, including stringent collateral and documentation requirements affecting small and medium enterprises.
RBM’s June 2026 Financial Stability Report shows annual private-sector credit growth slowed to 31.3 percent from 44.7 percent in December 2025. The central bank attributed weak financial intermediation mainly to tight lending standards and warned that limited access to credit, particularly for SMEs, was constraining investment and economic growth.
RBM recommends fiscal consolidation, moderation in domestic borrowing, austerity measures and stronger domestic revenue mobilisation.
