Private sector credit continues to drop, threatens industry
Growth in private sector credit has moderated, dropping by 60 basis points to 26.6 percent in April, down from 26.6 percent in the previous month, Reserve Bank of Malawi (RBM) data shows.
Data contained in the RBM Monthly Economic Review shows that credit contracted slightly in April with a K5.8 billion or 0.5 percent decrease in total stock.
The decline stemmed from net repayments in individual household loans down by K10 billion to K552.1 billion and foreign currency-denominated loans which went down by K3.4 billion to K220.5 billion.
However, the picture is not uniform across all sectors. While some areas are experiencing a credit slowdown, others are witnessing a rise in borrowing, according to the RBM.
A sectoral analysis shows a divergence in credit trend with real estate and manufacturing experiencing contraction as credit went down to K632.4 million and K2.8 billion, respectively. This could be attributed to rising costs or tighter lending standards, according to the RBM.
Conversely, the report shows that sectors such as wholesale and retail trade at K4.7 billion, agriculture at K202.2 million and transport and communication at K141.7 million experienced credit expansion during the period under review.
Economic and market analysts have attributed the uneven credit landscape to rising interest rates and inflationary pressures, which may have led businesses and consumers to adopt a more cautious approach to borrowing.
In an interview, National Planning Commission director general Thomas Chataghalala Munthali said high cost of borrowing may have contributed to the drop in private sector credit.
He said: “High interest rates deter people from borrowing. The assumption is that if you raise the interest rates, people will not borrow to consume.
“Rather, they borrow to produce. Unfortunately, when interest rates are high, they deter even the producers from borrowing.”
Economic statistician Alick Nyasulu said the decreased credit in critical sectors, including manufacturing, was a manifestation of the high cost of borrowing and the government’s tendency to borrow from the domestic market.
“Until we seriously reduce domestic borrowing, credit access for serious investment will always be a problem,” he said.
Nyasulu said the slowdown in credit growth is a developing situation with potential consequences for businesses.
