Banks remain strong amid economic slow down

Banks in the country continue to remain strong regardless of the prevailing hard economic environment and tight monetary policy, the Reserve Bank of Malawi (RBM) has said.

In its December 2015 Financial Stability Report, the central bank said the banking sector was sound in the six months to September 2015.

The report released states that commercial banks’ capital remained adequate adding that liquidity was sufficient and non-performing loans (NPLs) decreased in the period under review.

“Capital adequacy was in a sound position despite recording a decline in both core and total capital ratios as at September 2015,” reads the report in part.

According to the central bank core capital ratio stood at 14 percent and total capital ratio at 18 percent.

This is in sharp contrast to capital ratio recorded in the first quarter when as at March 2015, the two ratios were at 16.1 percent and 20.2 percent, respectively mainly on account of decrease in core and total capital of 20.5 percent and 18.4 percent respectively.

As indicated by the central bank, during the review period, the sector’s liquidity was enough even though the liquidity ratio fairly decreased to 60.6 percent as at September 2015 from 64.5 percent in March 2015.

“This development was attributable to a drop in deposits but despite the decrease, the current ratio was well above the minimum regulatory ratio of 30 percent,” the report indicated.

But despite the good performance, the sector’s total assets declined by 2.6 percent over the six months to September 2015 compared to a growth of 22.9 percent in the preceding period.

The decline in the total assets according to the report is substantially attributed to the 1.5 percent decline in gross loans, a development which RBM has attributed to banks taking conservative positions on account of high NPLs in the preceding periods and a decline in kwacha deposits.

Weighing on the performance of banks in the year Bankers Association of Malawi (BAM) President Misheck Esau during the association’s annual dinner made mention that despite the shocks hitting the economy, the banking sector has remained resilient and is expected to register a modest growth.

He said ideally the performance of the banking sector continues met many of the expectations for several reasons.

Said Esau: “Besides being responsive to the needs of our customers through the provision of valued products and services to them, it is worth noting that the sector remains a hub for the stability of our financial system.”

Mid this year, RBM raised the policy rate by two percentage points to 27 percent from 25 percent, which had a domino effect on commercial bank interest rates currently hovering around 36 percent. n