Lending to the private sector slowed down in 2017 with banks approving fewer loans compared to the previous year.

Statistics from the Central Bank showed that outstanding loans increased by 12.6 per cent in 2017 while in 2016, the increment was at 14.3 per cent.

The drop in lending growth was featured in the recent Rwanda economic outlook International Monetary Fund released last week.

According to the banks, the reason for the drop is the reluctance by financial institutions to lend to the construction sector which was among the largest consumers of credit.

Maurice Toroitich the Chairman of the Rwanda Bankers Association said that most local banks consider the commercial construction sector not as attractive as before.

"Some banks are seeing weakness in the sector hence the hesitance,” he said.

Among the concerns is that commercial buildings ability to pay back loans on time has deteriorated.

"Though banks have the liquidity, most of them want to wait out to see the developments in the commercial construction sector before getting in,” Torotich added.

"Though we are lending to other sectors, the construction sector was quite slow and is likely to affect the overall credit to the private sector,” Toroitich said.

While presenting the organization’s outlook, last week, IMF Country representative said that increased lending to the private sector is required to maintain growth especially to expand investments and productivity. Central Bank Governor John Rwangombwa said that recent years had seen local banks increase financing to the construction sector significantly. It had become one of the most financed sectors. He described the slowdown in lending as a transition phase as banks move to finance other sectors of the economy.

For instance in 2011 the construction sector was receiving loans worth about Rwf 41B which has risen to about Rwf 292B in 2017.

The governor however noted that the sector was not very badly off in terms non-performing loans which were currently at  about 4 per cent.

Central Bank Deputy Governor Monique Nsazabaganwa said that the government had also been looking into the state of affairs to understand the root causes of reduced lending to the private sector.

She, however, noted that on further analysis, they realized that the scenario was not unique to Rwanda.

"When we looked further, we found that this is not unique to Rwanda and countries especially in the EAC were affected by the same phenomenon,” she explained.

Among the aspects they looked into was the existence of viable projects to lend to, liquidity levels of players as well as the level of demand from the private sector.

She noted that they also looked into the existence of other sources of finance as other than banks.

According to the Monetary Policy and Financial Stability Statement, the central bank maintains an accommodative monetary policy stance in order to uphold financing of the economy by the banking sector.

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