Bad loans decline­­—report

Commercial banks have reduced bad loans despite the tough economic environment marked by high inflation and rising interest rates, data from the World Bank has shown. The data, contained in the February 2026 Malawi Economic Monitor, show that the share of non-performing loans has dropped to 4.6 percent from 6.5 percent recorded in May 2025, bringing it below the recommended five percent level and signalling lower risk in the banking sector. On the other hand, return on assets hovers between 3.2 percent and 9.5 percent.

The multilateral bank, however, said certain banks face high risks coupled with low returns, warranting closer monitoring by authorities of asset quality and risk management practices. Reads the report in part: “Within this spectrum, some banks exhibit low risk and moderate returns, indicating cautious lending practices. “Others perform efficiently, combining low risk and high returns.” In an interview on Thursday, Mzuzu University economiscs lecturer Christopher Mbukwa observed that this is a sign of a banking sector that has withstood turbulent times.

He said for banks, it implies that the number of borrowers who fail to repay the loans has declined, leading to low credit risk making them able to extend more credit to consumers with the ability to make repayments, signalling better business performance and a sign of better economic conditions. Said Mbukwa: “Considering our present scenario where the policy rate is high and the interest rates are equally high, we were likely going to experience a high default rate, so a decline in non-performing loans [NPLs] is something positive. “Going forward, we still need stable prices, a strong economic growth and a conducive business environment to sustain the current trajectory of NPL.” On his part, Consumers Association of Malawi executive director John Kapito said the decline will help build confidence for banks to lend more to consumers.

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Bankers Association of Malawi chief executive officer Lyness Nkungula said on Friday that the decline in NPLs has strengthened credit risk management practices, enhanced loan monitoring and worked closely with clients to restructure facilities. She said: “For the sector, this fall in NPLs means that risk provisions remain adequate but can be more strategically deployed. With provisioning levels still above 38 percent, banks retain a strong buffer against potential shocks, while the lower NPL ratio allows more room to channel resources toward productive lending and private sector growth. “Overall, it signals resilience in the system, but continued vigilance is essential to sustain this positive trajectory.”

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