Reserve Bank of Malawi (RBM) data shows that the asset base for the country’s eight commercial banks jumped by 54.6 percent in one year to K6.7 trillion in October 2024 from K4.3 trillion during the same period last year.
Experts have since said this is good as a robust banking sector shows that the economy is resilient, but added that consumers are not reaping the benefits.
The increase in the assets come after the Bankers Association of Malawi (BAM) last month indicated that banks contributed 60 percent or K210.7 billion in corporate tax in the last financial year.
An analysis of the RBM Commercial Banks Assets and Liabilities from January 2000 to October 2024, shows that the bank’s assets surged after the 44 percent devaluation of the kwacha in November 2023.
The one-year jump is dramatic because, for instance, the assets increased by 21.7 percent between January 2021 and January 2022 from K2.3 trillion to K2.8 trillion and later jumped 28 percent to K3.6 trillion in January 2023.
In an interview yesterday, banking and financial consultant Misheck Esau said the robust growth of the banking sector is good for the economy because in theory, it also means higher levels of intermediation, which is the banks’ main role.
He, however, observed that under normal circumstances the growth in assets would translate into production increase as well as lending, which unfortunately is not the case due to higher interest rates.
Said Esau: “As you know, banks take money from surplus units [savers] and lend it to deficit units [borrowers] for trade and investment.
“In our context, this intermediation may not be producing enough fruits because of the constraints the economy has.”
He said a few of those constraints are high interest rates, shortage of foreign exchange and high levels of government borrowing stifling the growth of the private sector.
Mzuzu University economics lecturer Christopher Mbukwa said in an interview yesterday that banks continue to grow at a faster rate because of the nature of their business as they are guaranteed business from government.
“In an environment where banks could lend to the government with no risks, it means the sector is benefiting from doing business with the government at the time private sector is struggling with the economic environment,” he said
In an earlier statement, BAM said banks are playing a critical role in developing the country as they “contribute significantly to government revenues and they often stand out as major taxpayers”.
The statement said, for instance, the sector contributed 60 percent or K210.7 billion out of K353.1 billion in corporate tax, paid K38.7 billion in pay as you earn, K5 billion in fringe benefit tax, K10.5 billion in non-resident tax, K710 million in import duty and K13 billion in dividend tax, among others.
While acknowledging the banking sector’s robust profitability and overall financial health, Economics Association of Malawi president Bertha Bangara Chikadza said the scenario is risky as it could mean other sectors are declining due to high interest rates.
Auditor Moffat Ngalande, who is former Institute of Chartered Accountants in Malawi president, said while the banking sector remains critical to economic growth, it is worrisome that the sectors that contribute 92 percent of the workforce can only account for 40 percent in corporate tax.
The financial services sector contributes about 7.1 percent to the country’s gross domestic product, according to the Malawi Government Annual Economic Report 2024.
In the 2023/24 fiscal year, Ministry of Finance introduced a 10 percent corporate tax on banks posting profits in excess of K10 billion, a tax now extended to all firms.
