The Story in 30 Seconds
Malawi’s commercial banks made K820 billion in combined profit in 2025 — their best year on record. At the same time, GDP per capita fell for the fourth year in a row. The explanation is straightforward: banks have been lending to the government at extremely high interest rates, using depositors’ money that earns almost nothing, and pocketing the enormous spread. It is a legally sound business model built on fiscal crisis.
What Is Actually Happening
In 2025, seven commercial banks in Malawi reported combined profits of K820 billion. The individual numbers are striking. The National Bank of Malawi (NBM) posted K197 billion in profit — more than double what it made two years earlier. NBS Bank made K150 billion. FDH Bank nearly doubled its profit in a single year to K148.7 billion.
This happened while Malawi’s GDP per capita contracted for the fourth consecutive year, inflation averaged 28.4%, and close to half the population could not afford a basic consumption basket.
The mechanism behind it is not complicated. Malawi’s government spends more than it collects in taxes and fees. To cover that gap, it issues treasury bills and bonds — short-term and long-term borrowing instruments — and sells them to commercial banks. The banks lend the government money, and the government pays them back with interest.
Through 2025, those interest rates were very high. Banks were charging an average lending rate of 37.3% while paying depositors an average of 4.3%. That 33 percentage-point spread — the gap between what banks charge and what they pay — is where the profits come from. And because the government is the borrower, banks treat T-bills as essentially risk-free. A sovereign government borrowing in its own currency has tools unavailable to any private borrower — it can roll over debt, adjust monetary policy, or negotiate with creditors — making an outright default on domestic T-bills vanishingly unlikely. Banks bear almost no credit risk on these instruments.
The Reserve Bank of Malawi has been taking notice. Since January 2026, the Treasury has begun rejecting large T-bill bids in what it calls “auction discipline” — turning away over K540 billion in applications between January and late February to force yields lower. The Accountant General also instructed banks to move government revenues from commercial bank accounts into holding accounts at the Reserve Bank, cutting off another source of cheap float that banks were profiting from.
Separately, local bond coupon payments — the interest Malawi pays on longer-term debt — have reached the equivalent of $346 million, a figure that underscores just how deeply the debt-interest cycle has embedded itself into the fiscal structure.
Breaking It Down — Plain English
What is a treasury bill? A treasury bill (T-bill) is a short-term loan to the government. The government issues a piece of paper that says “lend us K1 million today and we will pay you back K1.1 million in 91 days.” Banks buy these in bulk because they are safe — the government rarely defaults in its own currency — and in Malawi’s case, extremely profitable.
What is a lending rate vs a deposit rate? The deposit rate is what the bank pays you for keeping your money with them. The lending rate is what the bank charges when it lends money out — to you, to a business, or to the government. The difference between these two rates is called the “spread.” A 33-point spread (37.3% out, 4.3% in) is exceptionally large by any regional standard — most well-functioning banking systems operate on spreads of single digits.
What does “auction discipline” mean? When the government sells T-bills, it runs an auction. Banks submit bids saying how much they want to lend and at what rate. “Auction discipline” means the Treasury is rejecting bids it considers too expensive — essentially saying “we won’t borrow at those rates.” It is an attempt to bring interest rates down by reducing demand for high-rate government paper.
What is a bond coupon? A bond is a longer-term loan to the government. The “coupon” is the regular interest payment the government makes to whoever holds the bond. When Malawi’s bond coupons hit $346 million, that means the government is committed to paying that amount in interest on existing long-term debt — before it even starts repaying the principal.
Why does this matter if I don’t own bank shares? Because the government pays all of this interest with money that could otherwise build roads, subsidise seeds, or train nurses. Every kwacha that flows from the Treasury into bank profit accounts is a kwacha that does not reach a school or a hospital. High T-bill rates also set the floor for all other lending rates in the economy — if the government is paying 30%+, no bank will lend to a business at less than that.
What It Means for Africa — and for Malawi
For Malawi specifically, this dynamic reveals a structural trap. The government needs to borrow because it spends more than it earns. It borrows from banks at high rates. Banks earn more from lending to the government than they would from lending to businesses. So businesses are crowded out — they cannot get affordable loans — and the government’s debt keeps growing.
The result is an economy where the financial system is technically healthy and highly profitable, but not actually performing its core function: channelling capital into productive activity. Banks are wealth-extraction machines running on fiscal distress, not engines of business growth.
For Malawian entrepreneurs and business owners, the practical implication is that affordable credit will remain scarce as long as this dynamic persists. If banks can earn 30%+ risk-free from the government, they have no incentive to build the underwriting capacity to lend to a small or medium business at a competitive rate.
The Treasury’s attempt to force rates down through auction discipline is the right instinct — but it only works sustainably if the government also closes its own spending gap. Without an IMF programme to provide external discipline and funding, that gap is very difficult to close. Malawi’s last IMF facility — a $175 million Extended Credit Facility approved in 2023 — automatically terminated in May 2025 after no programme reviews were completed. Negotiations are ongoing.
Your Move — Analysts, Business Owners, New Investors
If you are analysing this market: The number to track is the 91-day treasury bill yield, published every week by the Reserve Bank of Malawi following each T-bill auction. That yield is the anchor for every other interest rate in the economy. When it falls below 25%, banks face a choice: accept lower returns on government paper or compete for private sector business. That inflection point is when credit conditions for businesses begin to change in a meaningful way. The RBM publishes auction results on its website (rbm.mw) under the Monetary Policy section. Add it to your weekly reading.
The secondary signal is the spread between the RBM policy rate (currently 24%) and what banks actually charge customers. That spread — currently over 13 percentage points — should compress as policy rates normalise. Any edition of the RBM’s Financial Stability Report that shows that spread narrowing is a positive signal for the private sector.
If you run a business: The single most important thing you can do right now has nothing to do with interest rates — it is building the financial record that a bank will require when rates eventually fall to a level where borrowing makes sense.
Banks deciding whether to lend to a private business in Malawi look for three things above all else: 24–36 months of consistent bank account activity showing real revenue, a business registered with the Registrar General of Malawi, and at minimum a basic set of accounts — a profit and loss statement, even a simple spreadsheet, prepared consistently over time. If you do not have these today, you will not qualify for credit when the window opens regardless of how good your business is.
To illustrate what the rate change means in real terms: on a K10 million business loan over 36 months, the difference between borrowing at 37% and borrowing at 22% is approximately K155,000 less per month in repayments. That is the monthly cost of an extra staff member, a delivery vehicle lease, or a full month of warehouse rent. The rate environment determines whether an expansion project is viable — which means the preparation you do now determines whether you can act when the moment arrives.
If commercial bank lending at 37%+ is not viable for your business right now, there are institutions that lend at lower rates specifically for small and medium enterprises. SEDOM (the Small Enterprise Development Organisation of Malawi) provides loan financing to registered SMEs at below-commercial-bank terms. The MicroLoan Foundation Malawi targets micro and small enterprises — particularly women-led businesses — with loans that do not require the collateral a commercial bank demands. MARDEF (the Malawi Rural Development Fund) targets rural and agricultural businesses specifically. None of these replace a commercial bank relationship, but they are real capital sources available while the rate environment shifts. Contact SEDOM’s Blantyre office or ask any district business development officer for a current product list.
If you are new to investing: Malawi’s T-bills are not just for banks and institutions. Any individual with a Malawi commercial bank account can access them. The process: walk into NBM, NBS Bank, FDH Bank, or Standard Bank Malawi and ask for the treasury or investments department. Ask two questions: what is the current 91-day T-bill yield, and what is the minimum investment amount. Both questions are free to ask and require no commitment.
At the yields that prevailed through 2025 (above 30%), a K1 million investment in 91-day T-bills, rolled over every quarter, would grow to approximately K1.34 million in 12 months and K1.8 million in 24 months — with no market risk, because the government is the borrower. This is not a stock market bet. It is a government-backed savings instrument that most Malawians do not know they can access.
The pattern of what happens next is documented: when Kenya’s Central Bank compressed its benchmark rate from 11.5% in 2015 to 7% in 2018, T-bill yields followed downward. Investors who had locked in 3-year government bonds at the higher rate earned those returns for the full term, even as new investors got significantly lower rates. The lesson is straightforward: the time to lock in government paper is while yields are high, not after they have fallen.
This week’s action: Call or visit your bank’s treasury or investment desk — not the regular banking counter — and ask what the current 91-day T-bill yield is and what the minimum investment amount is. You do not need to invest. You need the information. That single conversation takes 10 minutes and puts you ahead of the majority of people who read about interest rates but never ask what they can actually do with them.
What To Watch
- IMF programme negotiations: If Malawi signs a new IMF deal, it will come with conditions that constrain borrowing and force rates lower. This would compress bank margins significantly. Watch for any announcement from the IMF’s Africa department.
- Treasury bill yields: The 91-day T-bill rate is the clearest signal of where borrowing costs are going. Yields dropping below 25% would signal genuine progress. Yields at or above 30% mean the old model is still running.
- RBM monetary policy rate: The Reserve Bank sets the policy rate that anchors all other rates. The rate was cut from 26% to 24% in January 2026 — the first cut in years — signalling intent to bring costs down. Whether commercial banks pass that reduction on to borrowers is the test to watch.
- Private sector credit growth: If bank lending to the private sector grows faster than lending to government, it means businesses are finally getting access. This data is published monthly by the Reserve Bank.
- 2026 budget presentation: The annual budget will show whether the spending-revenue gap is narrowing. A smaller deficit means less government borrowing and, over time, lower rates for everyone.
- RBM Liquidity Reserve Requirement: In April 2026, the Reserve Bank raised the Liquidity Reserve Requirement — the share of deposits banks must hold in reserve — from 10% to 12%. This reduces the pool of money available for banks to deploy into T-bills or loans. If the RBM raises it further, banks will have even less capital to work with, which could compress their profits but also tighten credit availability for businesses.
Sources
- The Malawi Government’s Crisis Is The Banks’ Business Model — Pan African Visions
- The Malawi Government’s Crisis Is The Banks’ Business Model — Malawi Voice
- Malawi Local Market Bond Coupons Hit $346 Million as Debt Crisis Deepens — Ecofin Agency
- RBM Pushes Banks Towards Private Sector as Government Declines K500 Billion in Borrowing — Malawi Freedom Network
- Why ‘End’ of the Borrowing Binge Could Trigger Rates Cut — Nation Online
- Malawi Economic Monitor: Stabilizing the Economy to Unlock Private Investment — World Bank