Bad loans weigh down Umurenge SACCOs

Non-performing loans (NPLs) among Umurenge SACCOs increased to 12.5 per cent in the first half of the year, from 8.2 per cent over the same period in 2015, the central bank’s monetary policy and financial stability statement indicates. This is higher than the industry average of 7.5 per cent, according the report released last week.
Customers at Shyara SACCO. The SACCOs’ NPLs went up between January and June this year. (File )
Customers at Shyara SACCO. The SACCOs’ NPLs went up between January and June this year. (File )

Non-performing loans (NPLs) among Umurenge SACCOs increased to 12.5 per cent in the first half of the year, from 8.2 per cent over the same period in 2015, the central bank’s monetary policy and financial stability statement indicates. This is higher than the industry average of 7.5 per cent, according the report released last week.

The central bank attributed the rise to the weak loan portfolio management by SACCOs, saying its recent onsite inspection found gaps in this area.

“We are working on a plan that will help consolidate SACOOs and encourage them to employ professional and competent staff,” John Rwangombwa, the National Bank of Rwanda chief, said while presenting the statement on Thursday in Kigali.

The bad loans are greatly affecting the sector’s goal of increasing access to finance, as well as strengthening its competitiveness, said Peter Rwema, the secretary general of the Association of Microfinance Institutions in Rwanda (AMIR), while commenting on the issue.

Rwema, however, said the group is working on mechanisms they hope will greatly reduce non-performing loans (NPLs) in medium-term.

He added that the association has embarked on initiatives to address the problem of bad loans, including embracing automation, recruiting professionals and centralisation of loan recovery systems. Others are improving the quality of audit reports among sector players.

Meanwhile, the microfinance (MFI) sector posted positive growth despite marginal increase in bad loans, the statement indicates.

The report indicates that the sector’s assets grew by 22.8 per cent from Rwf187.5 billion in June 2015 to Rwf230.3 billion for the January to June period. Its non-performing loans, however, rose slightly from 7.4 per cent in June 2015 to 7.5 per cent over the reporting period.

Rwangombwa noted that the sector’s gross loans, which accounted for almost 54 per cent of MFIs’ total assets, increased by 28.1 per cent from Rwf97.2 billion to Rwf124.5 billion between January and June.

The sector’s capital adequacy ratio (the ratio of a bank’s capital to its risk) dropped to 30.3 per cent in June from 31.4 per cent during the same period last year.

However, this is more than double the minimum regulatory requirement of 15 per cent. The liquidity ratio of MFIs stood at 95.1 per cent in June 2016, down from 95.4 per cent in June 2015. Despite this slight decline, it remained significantly above the regulatory requirement of 30 per cent.

Umurenge SACCOs held 48 per cent and 54.3 per cent of the MFI sector’s total assets and deposits, respectively, over the period under review. Their assets grew by 21.5 per cent from Rwf90.8 billion to Rwf110.4 billion, while their loan book rose by 19 per cent from Rwf28.9 billion to Rwf34.5 billion in June.

 

Have Your SayLeave a comment