Bankers Association of Malawi (BAM) has said commercial banks’ higher impairment charges directly reduce net income and put a strain on capital adequacy.
In an interview on Tuesday while commenting on increased impairment provisions for commercial banks in the first half, BAM chief executive officer Lyness Nkungula said the situation could also lead to tighter lending standards and risk-based pricing in favour of lower-risk borrowers.
She said: “These trends reflect the strain of macroeconomic challenges on borrowers’ repayment capacity.
“If banks tighten borrowing procedures, fewer individuals and businesses will qualify for loans, economic growth may slow as access to credit becomes more restricted and vulnerable groups may be excluded from financial support when they need it most.”
Published unaudited financial results for banks in the six-month period to June 2025 show that borrowers are struggling to service their loans amid a challenging macro-economic environment, leading to increased credit impairment provisions.
For instance, during the period Standard Bank plc credit impairments increased by 166 percent, reflecting growth in the customer loan portfolio and an increase in credit downgrades.
Similarly, National Bank of Malawi plc credit impairment charges grew by 51 percent from K8.4billion to K12.7 billion mainly due to downgrades triggered by the challenging macroeconomic conditions, affecting the forward-looking impairment drivers associated with financial investments and loans extended to customers and banks.
FDH Bank plc, on the other hand, indicated credit losses during the review period increased to K8.7 billion from K3.4 billion during the corresponding period last year.
Published data further show that NBS Bank plc credit impairment provisions increased by 103 percent year-on-year to K7.98 billion from K3.93 billion.
The bank said the situation reflected the growth recorded in the loan book over the reporting period, forward looking considerations and the impact of the withdrawal of aid by some development partners.
Reads the bank’s financial statement: “Further contributing to the rise were downgrades of exposures within the small and medium enterprise segment where business operations have come under pressure due to the prevailing challenging economic environment.”
In an interview on Tuesday, Malawi Union of Small and Medium Enterprises president James Chiutsi observed that with increased credit impairment, most SMEs find it difficult to access loans from banks or risks accessing credit at high interest rates.
“For those failing to pay, they might face foreclosure. It’s not a healthy situation for SMEs, but there is a lot small businesses can do to diversify credit sources and access grants.”
Consumers Association of Malawi executive director John Kapito said the impairments increases are happening at a time the economy is showing no signs of growth.
“Both new and old borrowers will suffer from reduced lending and to some extent, negatively affect employment within the chain as these losses trigger impacts at all stages of the banks activities,” he said.
Meanwhile, Scotland-based Malawian economist Velli Nyirongo observed that the figures reflect a systemic challenge rather than isolated cases, signalling that credit risk has increased across the board.
“For borrowers, navigating this environment requires prudent financial management and proactive engagement with lenders.
Strengthening financial literacy is also critical, enabling borrowers to better understand interest rate risks and make informed decisions on new credit commitments,” he said.
Published Reserve Bank of Malawi data show that as of December 2024, non-performing loans (NPLs) ratio for bank rose to 9.5 percent from 6.1 percent in 2023, which is above the regulatory threshold of five percent.
This was driven by a 98 percent increase in NPLs to K158.5 billion, outpacing the 25.1 percent growth in gross loans to K1.7 trillion.
RBM said macroeconomic challenges, including after-effects of the November 2023 44 percent kwacha devaluation and inflation weakened borrower’s capacity.
According to RBM data, on a month-on-month basis, private sector credit increased by K112.5 billion to K2 trillion in July, primarily driven by increases in foreign currency-denominated loans, individual household loans, commercial and industrial loans and mortgages.
