An analysis of the determinants of bank performance in Malawi: A case of listed commercial banks

Using a sample of four listed Malawian banks, this paper assesses the determinants of bank performance in Malawi. We obtain evidence that asset quality, operating efficiency, quality of human capital as well as diversification of sources of income are key bank specific variables that affect performance. We also find that wide interest rate spreads and high depreciation of the local currency negatively affected bank profitability. However, banks seem to have thrived during periods of high inflationary pressures. We also note that Malawian banks have remained resilient against business cycles as measured by the growth rate of real per capita gross domestic product. We therefore conclude that banks need to pay particular attention to credit policy, human capital development as well as well as seeking out non-conventional sources of income to remain competitive. Ability to forecast and anticipate macroeconomic conditions and proper reaction to these changes will also help banks to avoid losses emanating from adverse macroeconomic conditions including foreign exchange movements and inflation.