Commercial properties are leading among industries with the highest Non-Performing Loans (NPLs) ratio, according to data from the Central Bank.
In the Monetary Policy and Financial Stability Statement released last week, the Central Bank noted that commercial properties lead with a 19.1 per cent NPL ratio as of December 2021.
Kasai Ndahiriwe, Director of the Monetary Policy Department, explained that the highest NPL ratio results from the shock of Covid-19 where most commercial buildings were not able to receive rentals or lost their tenants which led to their failure to pay their due loans.
According to the regulator, NPLs ratio slightly increased in 2021 to 4.6 per cent from 4.5 per cent in 2020 against the benchmark of 5 per cent. The outstanding NPLs amount increased by 19 percent to Rwf158bn from Rwf133bn in 2020.
However, the NPL ratio is a drop from 5.4 per cent recorded in the previous three quarters of 2021 which reflects the higher growth of gross loans relative to the growth of NPLs as well as the significant write-off of overdue loans.
In 2021, banks wrote off loans amounting to Rwf75bn compared to Rwf22bn in 2020.
A loan write-off is an action taken by the lender when the chances of loan recovery are almost zero and its assets are non-performing. This enables the bank wishes to maintain a clear record of the unrecovered loan amount in their balance sheets.
This, however, does not mean the trials for recovery will cease.
The sectors that had the highest written-off loans include trade, public works contractors as well as commerce.
On the other hand, the banking sector noted a 34 per cent increase in provisions for bad debt to Rwf189.5 billion in December 2021 from Rwf141.3 billion in 2020, this is a step taken by banks to remain prudent in anticipation of future shocks.
Central Bank Governor, John Rwangombwa said that normally the big increase in provisions of bad debt would shake the profitability of the banking industry, but they were able to absorb the big amount written off loans and remained strong due to the retention of profit and increased injection of capital by shareholders.
The banking sector’s aggregate net profit increased by 53.6 per cent to Rwf125.5 billion in 2021 from Rwf81.7 billion in 2020. From the stability perspective, improved profitability enhances the resilience of banks through internally generated capital to buffer against shocks.
Insurance sector made a net profit of Rwf63.6bn, an increase from Rwf52.4bn in the previous year. Microfinance sector recorded a profit of Rwf8bn from Rwf5.1bn in 2020.
In the banking sector, credit exposures to pandemic sensitive sectors namely; trade, commercial real estate, hotels and transport sectors remain amongst its major risks.
Combined credit to those highlighted sectors accounted for 46.2 per cent of total loan portfolio of the banking sector in December 2021, up from 42.7 per cent in 2020.
The turnaround of economic activities, especially economic prospects for these top financed sectors remains critical for the stability of the banking sector, noted the Central bank.
The recent economic performance in 2021 offers optimism and the trend is expected to continue in 2022 owing to accommodative macroeconomic policies, increased vaccine rollout, and accompanying opening up and recovery of the economic activities that will boost income and payment ability of clients of banks, it added.