Rwandan banks’ lending rates have declined, though minimally in response to central bank rates and monetary policy framework, the latest figures from the Central Bank show.

According to the central bank’s Monetary Policy Committee, the average lending rate dropped in 2020 to 16.31 per cent from 16.47 per cent in 2019 and 17.07 in 2018.

The continued drop creates for further drop over time consequently improving access to finance and capital.

The drop in cost, though minimal, means that if one borrows Rwf100,000 payable over a 5 year period, they would pay interest of Rwf 81, 580 compared to Rwf 85,350 in 2018.

Though only a slight decline, Central Bank Governor John Rwangombwa noted that the development is a positive one given the multiple factors that go into loan pricing.

"The most important thing is that we see that trend. That is a positive move. It is expected that it will be slow because there are many factors that play in the pricing of the loan,” he said.

The development was also buoyed by the monetary policy framework adopted in 2019 which among other things allows banks to easily borrow from each other allowing liquidity in the market.

"The monetary policy we have been implementing has created a more liquid financial sector with financial institutions able to access resources through the interbank market and central bank instruments such as reverse repo,” the Governor said.

Interbank lending market drives the performance of the financial sector as banks can easily satisfy the demand for loans from their customers.

The interbank lending is offered without any collateral and for a very short duration of time. The average interbank loan is for overnight purposes.

These markets provide banks with the liquidity required to make loans without being constantly worried about deposits.

The central bank adopted the price based approach in 2019 shifting from quantity-based monetary policy framework.

In their recent meeting, the Monetary Policy Committee noted that new authorized loans had dropped as demand for credit went down following the Covid-19 pandemic.

"The new authorized loans reduced by about 8.2 per cent, the demand for loans reduced because of the economic conditions following the pandemic. The credit risk has increased because of the Covid-19 challenge but banks are more prudent in approving new loans,” he said.

However, despite the drop in borrowers’ appetite for credit, the new loans approved as of September this year are higher than had been approved in the same period last year. New loans stood at over Rwf 600bn as of end September.

While the central bank is not worried about the new loans issued, it has concerns over the restructured loans as they have a riskier profile.

To support local businesses recover from the effects of the pandemic, the government is amending the terms and conditions for eligibility to receive the Economic Recovery Fund to increase the number of local businesses eligible for the support.

The Rwf100 billion Economic Recovery Fund was launched in June to aid the recovery of local businesses significantly affected by the Covid-19 pandemic.

The fund includes working capital for businesses most affected by Covid-19 to keep them operational and avoid lay-offs.

 In recent months, there has been relatively low uptake of the fund especially blamed on low understanding on how the fund works amongst both banks and clients as well as stringent criteria.

Among key changes so far implemented include reviewing the extent of losses resulting from the pandemic from 50 per cent to 30 per cent.

The fund has also reviewed criteria that initially considered the impact of businesses on the first 5 months of the year extending it to 9 months.

With that, the fund is considering at least 30 per cent losses in the first 9 months compared to the same period last year.

Further reviews are expected in coming months to address any emerging pain points.