Malawi banks strong amid bad loans

The country’s banking sector continues to remain strong in profit, capital and liquidity terms despite registering high Non-Performing Loans (NPLs), a biannual stress test conducted by the Reserve Bank of Malawi (RBM) indicates.

In absolute terms, NPLs ratio stood at 6.1 percent in December 2018, which despite being a drop from 12.7 percent in June 2018, is still above the acceptable benchmark of 5 percent.

But despite the sector’s NPLs remaining above acceptable benchmark, the Financial Stability Report for December 2018, shows the sector was sound and stable in the review period, as evidenced by satisfactory performance indicators.

In profit terms, banks recorded a profit after tax of K46.5 billion in December 2018 from K39.7 billion in December 2017 due to an increase in non-interest income of 26 percent to K93.9 billion in December 2018, while interest income decreased by 2.3 percent to K194.3 billion in December 2018.

On the other hand, the sector’s capital level remained satisfactory during the reviewed period as all institutions met the minimum regulatory requirement.

“Core and total capital ratios stood at 15.4 percent and 18.8 percent, which were above the regulatory minimum benchmarks of 10 and 15 percent, respectively.

“In absolute terms, both core and total capital increased by 4.1 percent and 2.7 percent to K172.6 billion and K211.2billion, respectively, while risk weighted assets increased by 4.6 percent to K1120.6 billion as at December 2018,” said the report.

In terms of liquidity, the industry was highly liquid with all banks’ liquidity ratios increasing to 63.3 percent in December 2018 from 58.1 percent in June 2018, above the regulatory benchmark of 25 percent.

Bankers Association of Malawi (BAM) president Paul Guta said in an earlier interview the positives registered in the economy have improved the performance of the banking sector.

Said Guta: “Inflation and lending rates have taken a positive direction along with the Kwacha which has maintained stability for some time now, a situation that has seen banks improving operations.  

“We however want to see this continuing going forward and it is our hope that authorities are precisely doing that in order for the economy to do well.” 

RBM governor Dalitso Kabambe has since maintained the central bank will continue to work closely with banks to create a mutual understanding and manage expectations of the financial sector.

In his commentary on the performance of the banks, Kabambe highlighted that “The Registrar of Financial Institutions will continue to closely monitor the level of NPLs ratio across the industry, to ensure they fall within the acceptable levels.” n

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