The National Bank of Rwanda has raised concerns over the level of non-performing loans, which stood at 8.2 per cent as of June.
The central bank attributed the increasing non-performing loan levels to slowdown in economic activity as well as inadequate monitoring of some large facilities.
The observation by the regulator followed a Financial Stability Committee meeting yesterday chaired by central bank governor John Rwangombwa.
Speaking after the meeting, Rwangombwa said the trend was notable at both banks and micro-finance institutions.
“Despite an increase in assets, what we note is a downward trend in the portfolio whereby bank’s non-performing loans increased to 8.2 per cent in June compared to 8.1 per cent we had in March this year. For micro-finance, the ratio increased to 12.3 per cent as of June from 11.7 per cent in March,” he said.
Ideally, a ‘comfortable’ level of non-performing loans, according to the regulator, is about 5 per cent.
The economy had a sluggish start to the year with a growth of 1.7 per cent in the first quarter before improving to 4 per cent in the second quarter.
The slow growth in the first half of the year reduced purchasing power and consumption, leading to an increase in non-performing loans as a section of borrowers were unable to pay back bank loans.
The sectors most prone to non-performing loans are manufacturing, hotel industry and retail trade.
According to the second quarter economic growth figures, the industry sector, where manufacturing falls, had a sluggish growth of 1 per cent, while wholesale and retail trade decreased by 6 per cent.
However, the trend is expected to turn around as the economy is expected to pick up in the second half of the year.
The Minister for Finance and Economic Planning, Amb. Claver Gatate, on Monday said the major bumps to growth in the first two quarters had been phased out and the Government was anticipating positive performance in the remaining half of the year.
As an intervention, the central bank said that they plan to engage banks and Micro-Finance Institutions to improve the quality of their loans.
“We will engage banks to strengthen the credit underwriting and monitoring processes to ensure good quality of loans as well as recovery of non-performing loans,” Rwangombwa said.
However, the banking sector’s assets increased by 13 per cent to Rwf2.6 trillion compared to the same period last year. Micro-finance assets also increased by 8 per cent to Rwf248 billion compared to the same period last year.
Overall profit of the banking sector improved in the first half of the year totaling an after tax profit of Rwf21.5 billion, up from Rwf19.4 billion which is a growth of 11 per cent.
Half year profits from the insurance sector also grew from Rwf10 billion in June last year to Rwf18.5 billion this June.
The improvement of the insurance sector is likely a result of reforms by the regulator, including a moratorium on the licensing of new players.
The central bank issued a directive stopping insurers from selling premiums on credit while the Rwanda Insurers Association issued a statement warning members against the conduct.
The number of insurance companies at the moment is 15. The Rwandan insurance industry is composed of nine non-life insurers, four life insurers, two public medical insurers, 15 insurance brokers and 415 insurance agents.