Despite the entrance of multiple banks into the local banking industry, lending rates have remained considerably high across commercial banks, with an average of 17 per cent. However, central bank governor John Rwangombwa urges corporates and the general public to engage banks when seeking loans and negotiate for better terms. This, he says, can be done using the information about the realities of the economy. Last week, The New Times’ Collins Mwai was part of journalists that interviewed the National Bank of Rwanda (BNR) governor. Some of the journalists came from CNBC, an international television network. Below are the excerpts;-

Lending rates in the Rwandan market are considerably high compared to the key repo rate set by the central bank, by your light what’s behind the high cost of loans?

We are at around 17 per cent, we have countries with 24 per cent and some in the West with lower than that it. It depends on what makes business sense. It is true we have this challenge and have discussed it in the different forums we have in the banking industry.

But there are a few factors that make these interest rates. One is the cost of financing. Our key repo rate is the signal we send to the market but we cannot directly link it to the lending rate because banks do not borrow from us.

Some people misunderstand what the Key Repo rate means, some think it is the rate at which we lend to the banks. We do not lend to the banks, they borrow from institutional investors, we always look at the spread within their cost of financing. But there are many other factors, including risks associated with non-performing loans.

That has been slightly high in period of time.

Recently, we had it at about 5.9 per cent; we want it below 5 per cent. This is coming from about 7.2 per cent in 2013. This shows that banks have a lot of costs linked to provisions of bad debts. We do not have issues of inflation that would cause the banks to take precaution.

The cost of financing has relatively gone down and we would have expected banks to follow. While there has been increased competition in our banking industry, it has not been very different because of the level of awareness among borrowers.

As the central bank, we are trying to spread information on what is really happening in the market so that they are equipped with information when they go out to access credit.

What do you mean by information to engage bankers?

The borrowers at times lack enough information to engage the banking institutions when they go out to borrow.

When someone enters the bank and gets a loan, at times they think they are lucky to get that loan, instead they should have information to be able to engage the bankers on the rates at which they access the loans.

It will further be easier because the Credit Rating Bureau is doing credit rating of different borrowers that will arm borrowers to engage banks. We are trying to bridge the gap on information between the borrowers and lenders, then also working with the credit reference bureau to make sure that all banks feed information to the bureau and we are now advising borrowers to take advantage of the information to get better rates.

Where do you project lending rates to be in the coming years?

I would not want to commit to that as the governor of central bank since we do not set rates but I have been open to borrowers, saying that if you as corporates borrow above 16 per cent, then you do not know what you are doing.

At least, as of now, I would expect any corporate to be able to negotiate a loan of about 15 per cent. For now, 15 to 16 per cent is fair.

Are you satisfied with the level of competition and its role toward lower lending rates?

As I said we are not yet there, I am, however, glad that we have made a lot of improvements. There is a way we measure the competition or concentration, there is where we show the concentration of the big three banks. In 2006, the big three banks had 64 percent of all total assets in the economy but as of last year, this has gone down to about 45 per cent.

At least we see more banks and players coming in. There are also other ratios we use to measure competition, when you look at the scientific ratios, we are almost there but practically we are there in terms of presence of banks but the other issue of borrowers taking advantage of these is not fully utilised.

As I said they are not using the information that is there or fully taking advantage of the different banks that you can walk in and get finances.

Would you say it is because of the composition of the banking industry, both local and foreign, and their ability to lend at competitive rates?

I do not think it is an issue of foreign or local banks, it is an issue of how many institutions do we have, how many products do they have in the market.

Today with 11 commercial banks in the market, depending on the size of our market, the number is beyond what is required to have a level of competition. What matters now is the level at which these banks are working toward that.

International banks will bring in other factors but in terms of competition, we have enough players, it is now the kinds of products in the market and their outreach.

There has been talk that the central bank does not allow foreign banks to solely offer specialty banking services in Rwanda, is this true?

There are no barriers to foreign players at all, what we do not accept is opening a branch here. If they open a subsidiary here, they do not have to be a fully-fledged bank, they can be a specialty bank.

We want a bank that is fully fledged that we will engage here according to the market. When you are a branch, everything is decided at the headquarters but when you are a subsidiary, everything you do is within the economy you operate in and, therefore, that is why we want subsidiaries that have full autonomy to the regulator.

In August, the central bank, in its authority as the regulator, clamped down on forex bureaus alleged to be involved in market speculation, fining and suspending some. The move was to ease exchange rates which saw the dollar go for more than Rwf800. Looking back, was the approach sustainable?

That’s our job; we want people to understand that speculators are part of the market. We let the market do its thing, within the rules of the game but when you start having speculative tendencies , it is our responsibility as the regulator to step in.

We came in in July to deal with the speculative tendencies that had entered the market. One intervention was through information, informing the public that there wasn’t such a big crisis that we do not have foreign exchange.

We then took action against the bureaus that were fueling these speculations. We have rules that govern the market here and for the bureaus that went out of the rules we had to punish them.

We suspended them for some time and that somehow calmed the market. The other thing was to prove to the market that we did not have a crisis; we increased the supply of dollars in the market and from August onwards we have seen a normal trend.

Still on the same, would you say that the desired impacts were achieved?

We have seen stability since August. We did not do anything unusual, all we did was normal business and this is sustainable to reinforce discipline in the market. The other thing we did was to work with the private sector federation and the foreign exchange bureaus to realign themselves into an association that will help them to manage their business.

We are also working with other government institutions. We have achieved what we wanted and have confidence that it is sustainable.

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