Malawi’s banking sector eased its credit risk in 2025 supported by resilient performance in the second half, with financial experts observing that banks have adopted more conservative lending practices.
The banks’ asset quality improved as bad loans dropped to 4.4 percent, below the five percent threshold, according to the latest Reserve Bank of Malawi Financial Stability Report.
Economic analysts have described the feat as a positive signal, but argued that this does not reflect an economy that has fully strengthened.
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But they said it highlights that banks have become more conservative in their lending practices after a surge of bad debts in 2024.
The RBM report indicates that apart from the easing non-performing loans (NPLs) which hit 8.3 percent in 2024 before easing to 5.1 percent in June 2025, the banking sector was also supported by strong capital buffers and ample liquidity.
Reads the report in part: “Total banking sector assets expanded by 17.2 percent to K9.9 trillion from K8.5 trillion in June 2025, reflecting continued balance sheet growth.
“Consistent with these developments, the Banking Stability Index improved to 0.75 from 0.72 in June 2025, indicating an overall strengthening of the banking system’s resilience.”
Financial expert and investor Hastings Bofomo Nyirenda, in an interview yesterday, said banks have become more conservative in their lending practices following recent economic shocks, which forced many banks to tighten credit underwriting standards, focusing on lower-risk clients and sectors.
He also said some private sector players have deliberately scaled back borrowing.
Said Nyirenda: “High interest rates, persistent foreign exchange constraints and uncertainty in input supply chains have made borrowing less attractive.
“In effect, part of the improvement in NPLs is driven by reduced credit uptake rather than a broad-based surge in business performance.”
Nyirenda, who is advisory partner and chief executive officer at Grant Thornton Consulting Limited, however, noted that there are pockets of resilience, particularly in financial services and selective trading businesses, which have continued to perform well and service their loans.
In a separate interview, corporate governance expert Jimmy Lipunga attributed the development to several factors, including overcrowding effect due to increased government borrowing in 2025, dropping demand for loans and banks’ cautious lending due to an earlier increase of bad debts.
“The high cost of borrowing coupled with severe shortage of foreign exchange may have contributed to the dampening of demand for debt by private sector,” he said.
Lipunga, who previously chaired National Bank of Malawi plc board, said it could also be a result of aggressive efforts by banks to recover loans previously classified as NPLs and in the process improving the quality of the assets.”
Bankers Association of Malawi chief executive officer Lyness Nkungula described the dropping NPLs as a strong indicator of enhanced credit risk management and overall sectoral resilience.
In 2024, defaulted loans reached K158.5 billion, according to RBM.
