Central Bank governor on the spot over interest rates

Members of Parliament yesterday urged officials from the National Bank of Rwanda (BNR) to help bring down the interest rates for acquiring loans. The public has continually complained about the high interest rates charged by commercial banks and savings cooperatives, prompting the legislators to demand answers from the Governor of the central bank, John Rwangombwa, and his team. The call was made during a one-day consultative meeting in the Lower House through which MPs sought to understand the country’s monetary policy. Central Bank Governor John Rwangombwa (L) chats with MP Abbas Mukama, the Deputy Speaker of Parliament. (Timothy Kisambira) Clients pay between 16 and 18 per cent in annual interest rates for loans from commercial banks, while they pay about 24 per cent to get loans from Savings and Credit Cooperatives (Umurenge-SACCOs). The rates are too high to positively drive people’s economic activities and the central bank should do something to reverse the situation, several MPs argued. Even as policy-makers and financial market players argue that interest rates are lower than in regional countries, for example in Kenya and Uganda where commercial banks hiked rates to as high as 27 per cent last year, many legislators say they should be revised downwards. “The issue of high interest rates should be carefully assessed because it’s a destabilising factor for the economy,” MP Emmanuel Mudidi said. MP Pierre Claver Rwaka concurred, saying “the central bank should help in finding a sustainable way to solve the issue of high interest rates on acquiring loans.” As for the more prohibitive interest rates charged by SACCOs, some MPs suggested that the coops be grouped into one stronger bank to consolidate the available funds and provide loans at flexible rates. Speaker Donatille Mukabalisa gives her remarks yesterday at Patliament. (Timothy Kisambira) “SACCOs have been operational for long and they have made profits, why can’t they be asked to reduce their interest rates?” wondered MP Thacienne Mukandamage. However, Rwangombwa defended the financial institutions, saying the situation of the country’s financial market may not allow them to charge lower interest rates. Rwangombwa said financial institutions in the country charge their interest rates on loans depending on factors like costs invested in running a bank such as paying employees, office rent, as well as risks like non-performing loans, low long-term deposits from clients, high cost of borrowing from bigger banks, and inflation. He said commercial banks aren’t making extreme profits and they need to charge an interest rate that will make their main investors happy about the market. Legislators chat before the meeting with the Central Bank Governor. (Timothy Kisambira) “We actually think that banks don’t make much profit. They still make little in terms of benefits while they have to make more money in benefits for the financial sector to be more attractive for investors,” Rwangombwa said. While the central bank can’t order commercial banks to give loans on a specific interest rate due to the principles of a free market, Rwangombwa said factors like stronger savings culture and effective payment of bank loans could help reduce interest rates in the future by making funds less scarce at banks and reducing the perceived risks of lending. editorial@newtimes.co.rw

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Central Bank governor on the spot over interest rates