Loans getting cheaper, central bank says

National Bank of Rwanda Governor John Rwangombwa speaks during the news brifieng in Kigali yesterday. Photo: Courtesy.

Rwandans can expect lending rates by local banks to go down over the coming months going by the current trend.

Rwandan banks’ lending rates have begun showing a declining trend in response to lower central bank rate and have since declined to 16.47 per cent in the first three quarters of 2019 from 17.07 per cent in 2018.


According to the central bank’s Monetary Policy Committee, money market rates continue to stabilise around the central bank rate.


The Committee on Friday decided to maintain the key repo rate at 5 per cent to ensure continued support toward financing the economy.


The rate was in May this year revised from 5.5 per cent to 5 per cent in a move designed to boost lending to the private sector. 

The key repo rate is the maximum rate at which commercial banks invest their money at the central bank.

A lower rate means that it’s more profitable for banks to lend to private sector than invest with the central bank.  Increased supply and appetite to lend among banks consequently leading to a reduction in rates.

Though only a slight decline, Central Bank Governor John Rwangombwa said that it was a good trend as there was positive response to the central bank rate noting that it’s likely to decline further over time.

“When we reduced the policy rate, we expected to see lending to the private sector increasing, which we have seen. We do not expect to have an immediate impact on the lending rate as there are many factors that determine this. However in the medium term, if conditions allow, we expect to see the rate going down. They have started to move, it’s a positive trend,” he said.

Local banks increased lending in the first three quarters of 2019 as a result increased demand from the private sector. Newly authorised loans grew by 41.1 per cent in the first 9 months of 2019 compared to 0.3 per cent in the same period last year.

Consequently, banks profitability grew to a net profit of Rwf 51B as of September 2019 compared to Rwf 37B in the first 9 months of last year.

The central bank attributed the growing performance to higher demand for loans and improved debt service.

Rwangombwa however said that the Central Bank is not pursuing a specific target in terms of lending rate but rather an organic reduction in the rates driven by an accommodative policy stance.

“As the central bank, we cannot have a target, the lending rates are determined by the market, we make it accommodative and the banks respond,” he said.

He did not give an expected timeline on how fast and how far the rates are supposed to decline but said that they will seek to ensure accommodative stance.

Non-performing loans in local banks reduced  from 7.2 per cent in September last year to 5.3 per cent in September this year which was attributed to stronger economic performance and write-offs.

To further improve the financial sector stability, players including the Central Bank will later this month meet to discuss the process to foreclose on the collateral which has previously been said to pose a risk to the financial sector if not checked.

The process to auction property in the event one is unable to pay off a loan is currently slow and, if not checked, could negatively affect the stability of local banks.

At the moment, in the event a bank client is unable to pay a loan and the bank intends to auction on the collateral, it involves a lengthy process which among other things seeking authorization from Rwanda Development Board.

According to a number of bankers, the process on average takes over one year, is unpredictable and often has unwarranted interruptions.

Ordinarily, in the event one is unable to pay off a loan, the collateral is auctioned following the approval of Rwanda Development Board.

However, in some instances, bank clients often go to court to stop the process it leads to months of court cases further delaying the process.

“We hope to come up with solutions to address challenges that stakeholders have been facing in this regard which if not dealt with could create problems in the market,” Rwangombwa said.

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