Credit spread under scrutiny

The National Working Group on Trade and Policy has faulted the country’s economic structure which it says favours credit to the wholesale and retail sector than other productive sectors.

The group’s chairperson Frederick Changaya said while banks have a fertile demand in domestic borrowing by government, increased share of credit to the sector means more imports for the country than exports.

Malawi’s wholesale and retail trade sector is dominating loans

He said the country needs to break this ‘monster’ if it is to achieve meaningful economic development, observing that this is the main reason that Malawi trades in commodities while regional counterparts trade in industrial goods.

“Once government reduces its appetite to borrow and borrows for a good cause and utilises the borrowing cost effectively, banks will have lower demand; hence, they will push for volumes when lending to private sector. Right now they can mark up all they want since they have trapped audience in government securities,” he said.

Business News analysis indicates that in 2018, wholesale and retail trade sector, at 25.3 percent, represented the largest share of the total private sector credit with agriculture; manufacturing; and community, social and personal services sectors claiming 20.8 percent, 18.7 percent and 10.5 percent of the total outstanding credit stock, respectively.

At the start of the year in January, wholesale and retail trade sector continued to represent the largest share of the total private sector credit, at 26.4 percent while agriculture; manufacturing; and community, social and personal services sectors claimed 20.4 percent, 17.9 percent and 10.4 percent of the total outstanding credit stock, respectively.

The trend has not changed in the preceding months.

In February, the largest share of the total private sector credit, at 25.5 percent went to the wholesale and retail trade sector where as agriculture, manufacturing, and community, social and personal services sectors constituted 20.9 percent, 17.7 percent and 11.0 percent of the total outstanding credit stock, respectively.

In March, the distribution of the outstanding stock of private sector credit across the economic sectors remained generally unchanged. At 26.1 percent, wholesale and retail trade sector accounted for the largest share of the outstanding stock of total private sector credit, followed by the agriculture sector at 21.5 percent; manufacturing sector at 17.9 percent; and community, social and personal services sector at 11.3 percent.

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