Bank of Kigali has released its service and product pricing guide for 2017 which will see businesses with excellent corporate governance systems as well as individuals with good credit scores benefit from lower interest rates, Diane Karusisi, BK’s Chief Executive Officer has said.
According to Karusisi, the bank’s new lending policy is aimed at promoting good corporate governance practices among local businesses as well as encouraging individual retail customers to build strong credit profiles that would ultimately ease their access to financing.
“The new loan pricing policy will particularly benefit businesses whose operations are founded on solid corporate governance systems, and individual customers with an excellent credit history and a good relationship with the bank. They will not only find it easy to access credit but also access it at lower than usual lending rates,” said Karusisi.
By ‘good corporate governance’ the bank’s new lending policy shall benefit businesses whose operations management is guided by a set of clear corporate governance values and principles, including but not limited to having a functional Board, strong management and having externally certified financials.
“Considering that our economy is dominated by Small and Medium Sized enterprises with mostly young entrepreneurs, having a strong corporate governance system essentially helps our entrepreneurs to balance the interests of the business and other stakeholders such as shareholders, management, customers, suppliers, financiers and government,” Karusisi added.
Analysts say that Bank of Kigali’s new policy is praiseworthy because, in Rwanda, more than elsewhere, one can appreciate how the quality of governance has positively impacted on economic growth and development, with the public sector being the vanguard of promoting accountability and transparency; this, they say, it is about time the private sector followed.
At a time when many banks are struggling with poor quality assets dominated by Non-Performing Loans (NPLs) Bank of Kigali believes that the risk of lending to businesses with strong corporate governance systems, amplified with disciplined book- keeping, is lower compared to lending to those that operate without strong internal controls.
As for retail customers, BK’s new lending policy shall favour individuals with an excellent credit history in terms of saving or borrowing.
“For instance, if you have borrowed money in the past and paid back well and your account is in good order and you have a high quality collateral, such a profile would automatically place you in a category of customers regarded as ‘low risk’ and hence qualify to access credit on lower interest rates,” Karusisi revealed.
Currently, the practice among Rwandan banks is that both high and low risk clients are generally charged flat rates, mostly, the highest rates; critics say, this blanket approach to credit analysis is unfair to those that deliberately invest in building excellent credit profiles.
In the past, National Bank of Rwanda has been quoted encouraging Rwandans to gather the confidence to negotiate with commercial banks, especially if they have a high credit score. It can be said that Bank of Kigali’s new policy is an enabler of the central bank’s call, analysts say.
How it works
Currently, according to the central bank’s Monetary Policy and Financial Stability Statement, the industry’s average lending interest rate is nearly 18 per cent; but to most borrowers, the reality is close to or over 20 per cent. The reason, according to banks is ‘high risk borrowers.’
But under BK’s new lending policy, for instance, a low risk business can get a credit score of between 80 and 100 per cent; this means that if Bank of Kigali’s lending base-rate is 15 per cent, they would add a risk-margin of anywhere between 0.5 per cent and 1 per cent making it possible for a low risk business to borrow at between 15.5 per cent and 16 per cent.
On the other hand, a high risk business which would have a credit score of below 79 per cent, its risk would be high hence attracting a higher risk-margin of up to 3 per cent hence forming an interest rate of 18 per cent if you add the base rate.
For individual customers, the risk-margin added to the base-rate normally varies from 1.5 to 4 per cent. For low risk individuals, the bank may only add a risk-margin of just 1.5 per cent meaning they can borrow at as low as 16.5 per cent as opposed to 19 per cent for individuals categorised as high risk because of their low credit score.
“We, therefore, encourage Rwandans and local businesses that feel they have a low risk profile to come and benefit from low cost credit to facilitate their operations in 2017. For those with challenges that are affecting their current risk profile, we are willing to help,” said Karusisi.
Karusisi added that as a bank that has been in operation for fifty years, it is a corporate responsibility to help build capacity among young businesses and individuals to ease their efforts in accessing credit.
“This will gradually reduce the cost of accessing credit in Rwanda,” she said.
After a customer submits a loan application, the bank’s credit committee then analyses the file based on the new pricing format which Karusisi said is scientific and transparent. For every requirement met, a box is ticked off ultimately forming one’s credit score. A high score automatically places one in the low risk zone.
Will the bank lend to customers deemed to be high risk? Yes, according to Karusisi. “We deal in risk so naturally, we are open to doing business with anyone but pricing shall be determined by the level of risk, based on our new policy,” she said.
Established in 1966, Bank of Kigali is the largest commercial bank in Rwanda by total assets, with a 35.0 per cent market share reported as of September 30, 2016.
In 2011, Bank of Kigali also became the second indigenous company to list on the Rwanda Stock Market.
The bank has an expansive distribution network comprising 78 branches, 90 ATMs and 1,178 agent outlets as well as a fleet of Mobile Bank vans that cover the countryside taking its financial services closer to Rwanda’s yet unbanked population.
Recently, the bank was granted a licence to venture into the insurance business and has a new subsidiary called BK General Insurance as well as another Financial Technology company, called BK TecHouse, both set to be officially launched this month.