Reserve Bank of Malawi (RBM) Governor Charles Chuka has said he is puzzled at commercial banks’ insistence to lend money to government when it is clear that Capital Hill is heavily riddled with debts.

He said at the moment government borrowing figures on the local front are way above its legal limit.

He was speaking in Blantyre during a business dinner organised by the Economics Association of Malawi (Ecama) under the theme ‘The Role of Economic Players in Economic Recovery’.

Addressing a question from one of the patrons on why government plans to stop borrowing on the local market, Chuka said it does not make sense for commercial banks to continue lending money to government.

“I am actually very surprised that banks continue lending government money,” said Chuka, amidst laughter from the professionals who included top directors and executives from various commercial banks in the country.

“You have this borrower who is over borrowed and he tells the bank can you give us some more money and the bank says oh yes,” observed Chuka.

“And the government announced openly that we have K72 billion arrears and we are not going to pay this year but you are still going to give loans to those. Am not sure whether it’s because there are no more borrowers out there that has forced the banks to only give money to government.

“May be the only way banks in Malawi can make money is through government business. And I think if that is the case, it’s an unfortunate state of affairs,” said Chuka.

He observed that RBM was yet to calculate the real exposure of banks to government and expressed the need to discuss the matter with Treasury.

“The government’s appetite is insatiable, right? The government owns us. It owns may be you and me, right? So it can even give more guarantees. But I am really surprised that you continue to give money to government. You should review your policy,” said Chuka.

He noted that in the past, it was difficult to stop overexposure of banks to government but disclosed that two weeks ago, he stopped two commercial banks from lending more money to government.

“So we are ready to work with you on this one and if you can see, we will stop these guarantees to ensure that banks are not over exposed.

“But you should believe also that government has so much to do that sometimes you can close one eye and hope that it works out. There are levels of extreme exposure that have occurred that should never have occurred.

“Of course, government should be trusted sometimes. For example, it could be that they are buying fertilizer or they are doing something serious which we need to make sure that it works. Sometimes fertilizer is difficult to say no to,” said Chuka.

“My thinking is that if government manages to just simply slow down on borrowing, the benefit to the economy will be significant. But as of now, even with the zero deficit budget, the borrowing was substantial. So we are already discussing this legal thing with government to see how best we can bring it down.

“Does the Reserve Bank have powers to slow borrowing down? Oh yes,” said Chuka.

He wondered why commercial banks continue to give huge amount of loans to government at a time when Malawians continue to struggle to get even small loans.