Banks post slow growth as demand for credit drops

John Rwangombwa, central bank governor. File

The number of Rwandans applying for commercial bank loans dropped in the first six months of the year, in part owing to tight lending conditions by local lenders, which reduced their profitability, according to a central bank report.

Statistics from the National Bank of Rwanda (BNR) show that loan applications dropped from over 139,000 in the first six months of 2017 to 131,000 applications in the same period this year, a trend that is projected to lead to a slowdown in economic activity.

BNR said that local lenders deployed tight lending conditions as they concentrated on loan recovery to curb non-performing loans—loans in default or close to being in default—which were significantly high last year.

The overall loan rejection rate was estimated at 20.4 per cent in the first half of 2018. The trade industry witnessed the highest rejections.

In the period under review, loan approvals dropped from Rwf416.7 billion to Rwf402.7 billion, according to BNR, demonstrating commercial banks’ efforts to write off bad loans.

Consequently, the half year asset growth rate for the banking industry dropped by 9.8 per cent compared to the first half of last year where it grew by 12.9 per cent.

Local banks have consolidated assets of Rwf2,824 billion.

With the exception of five lenders, most banks managed to keep their non-performing loan level around five per cent or below.

Banks are seeking new avenues of diversifying a significant section of their risk, given that that commercial real estate and hospitality industries which have been driving credit growth have started to show signs of saturation and are no longer as attractive.

editorial@newtimes.co.rw

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