Non-performing loans (NPL) in the banking sector increased to Rwf209 billion in 2023 from Rwf127 billion in 2022, consequently, increasing the NPL ratio to 4.1 percent, according to the National Bank of Rwanda (NBR).

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The increase in loans that are subject to late repayment or are unlikely to be repaid by borrowers in full, referred to as NPLs, was attributed to a default of one large credit facility and the adjustments of loan books in microfinance institutions.

During the presentation of the Monetary Policy and Financial Stability Statement, NBR Governor John Rwangombwa said that the automation of SACCOs (Umurenge Savings and Credits Cooperatives) brought more visibility to their operations.

"When we automated some of these U-SACCOs, at least, we are now able to have more visibility of their operations and in most cases, we had to push them to adjust their non-performing loans books which led to the increase of NPL ration from 3.5 percent in 2022 to 4.1 percent in 2023.”

In fact, he added, when you remove the NPLs in U-SACCOs, the overall bad loans decreased in the banking sector. "However, we still see increased profitability in microfinance institutions.”

Rwanda started the automation of U-SACCOs in 2020 and out of the 416 SACCOs across the country, 260 were automated by the end of 2023.

According to NBR, credit defaults in 2023 were not broad-based as most households and businesses have been largely resilient to inflationary and exchange rate pressures.

It indicated that banks prudently managed credit risk by increasing provisioning levels from Rwf180 billion to Rwf207 billion.

Increase in credit demand

NBR financial stability statement revealed that despite the harsh economic conditions in 2023 mainly characterized by increase of consumer prices that pushed the central bank to tighten its monetary policy, the pace of credit demand still increased.

For instance, the demand for credit in value across banks increased by 47.2 percent to Rwf2.4 trillion in 2023 from Rwf1.6 trillion in 2022, whereas it was a 25.7 percent increase in volume from 702,538 to 883,219.

In consideration of central bank rate that was increased and maintained at 7.5 percent to curb inflationary pressures and resulted into the increase of interbank rate to 7.8 percent from 5.8 percent in 2022.

When a bank increases its investments such as growing its loan book, it may borrow money from the central bank or another bank (interbank) to support this growth. An increase in the central bank rate is therefore expected to increase the interbank rate.

NBR reports that the lending activities of banks to clients have not been interrupted by the pass-through of the central bank rate.

Speaking to The New Times recently, Patience Mutesi, the Managing Director of BPR, said interest rates in Rwanda remained sticky and banks were absorbing the costs of higher borrowing rates, thus reducing their margins rather than passing the cost on to customers.

Overall, Rwanda’s banking sector remained stable with record-high assets valued at Rwf7.3 trillion at the end of 2023, representing a 22 percent increase from Rwf5.9 trillion in 2022.