Banks prefer govt securities—Treasury
Ministry of Finance and Economic Affairs says it wants to overturn commercial banks’ preference for government securities by increasing the ratio of private sector credit by banks to gross domestic product (GDP) from 25 to 35 percent by 2028.
The ministry has since conceded that the current scenario is due to lack of creditworthy investment projects and weaknesses in the legal and judicial environment, which make it challenging to recover bad loans or to realise collateral.

Treasury data shows that government securities and statutory corporation loans account for more than 40 percent of the banking system’s loan assets.
However, Bankers Association of Malawi (BAM) says while banks are committed to increasing private sector credit, incentivising the sector to support private sector credit growth could go a long way.
Treasury data contained in the 2024/25 Financial Sector Development Strategy III that runs up to 2028 shows that top beneficiaries that access credit from commercial banks include the wholesale and retail trade at 21 percent, agriculture at 16.4 percent and community social and personal services at 33.2 percent and a small number of customers, thereby exposing the banks to loan concentration risk.
The strategy points out that although Malawi’s financial system is considered sound and functioning well, an assessment of risk exposure revealed vulnerabilities in terms of credit concentration, especially that only three industrial sectors continued to contribute more than 50 percent of gross loans and leases.
Reads the strategy in part: “In order to reduce crowding out the private sector borrowing, the government will reduce contracting domestic debt through adherence to fiscal measures and rules aimed at containing the fiscal deficit.
“The government will also continue to restructure its domestic debt instruments from short-term to long-term, including swapping existing debt for development finance.”
In a written response on Friday, BAM chief executive officer Lyness Nkungula said banks’ readiness to increase private sector credit is demonstrated through the ongoing efforts to support strategic sectors aligned to the country’s long-term development strategy Malawi 2063, and developing tailored financial products, enhance risk management frameworks and investment in technology to improve credit assessment and monitoring processes.
She said the current scenario, marred by credit concentration risk, high non-performing loans, limited options of suitable collateral and economic uncertainty, could be dealt with by incentivising the banks.
Said Nkungula: “Providing tax breaks or deductions for banks that increase their lending to the private sector can encourage more credit flow. This could include reduced corporate tax rates or tax credits for loans extended to small and medium-sized enterprises [SMEs].
“Pro-private sector bank regulation and directives from RBM, introduction or review of some directives and regulations which would provide banks with incentives to support key sectors.”
Speaking separately, Chamber for Small and Medium Enterprises Association of Malawi executive secretary James Chiutsi said the secrtor is suffering because banks look at risks, in the absence of collateral, and immediate repayments.
In a statement accompanying the strategy, Minister of Finance And Economic Affairs Simplex Chithyola Banda indicated that the objective of the strategy is to develop a more resilient, competitive and dynamic financial system that will be able to support and contribute to the growth of the economy, help strengthen domestic financial institutions making them technologically driven to meet the growing needs of Malawi’s businesses.