Commercial banks are likely to keep their lending rates unchanged despite last week’s announcement by the country’s Central Bank to leave its repo rate unchanged at 7.0 percent.
National Bank of Rwanda, in March this year, slashed the rate at which it lends to commercial banks by 50 basis points to 7 percent.
“The decision is based on the current macroeconomic environment characterized by a low and increasing inflation,” Francois Kanimba, the Central Bank Governor told the press last week.
Kanimba also said that the Central Bank expects an improvement in the credit conditions as the cost of funds remains stable and the banking liquidity sufficient due to the new interest policy rate.The Bank has generally lowered interest rates with average repo rate falling to 4.4 percent in March from 5.3 percent in January.
However while generally banks have resumed lending with increasing with 14.6 percent in the first quarter of this year, lending rates are likely to remain untouched on average varying between 17 percent and 22percent.
“The repo rate has little effect on bank lending rates. It is the actual cost of money in the market (not any repo or other rates) that determines the cost of borrowing. Overall gross advances have remained constant,” Steve Caley, the Managing Director of Fina Bank told Business Times in an email interview yesterday.
Caley who also doubles as the Chairman of Rwandan Bankers Association observed that while lending has generally increased it has been selective.
“There are not many really bankable projects being offered and those that are need long term finance. Whilst liquidity is better, there is still concern about being able to commit short term funds to long term credit demand,” he said.
Without divulging figures showing the increase in defaulters in the first half of this year, the Chairman also observed that there is “a degree of stress” in the economy as a whole.
“We have seen a general upswing in default rates. A general recovery in the economy as a whole does not see so many borrowers struggling to service their current debts,” Caley said.
As of December last year the ratio of defaulters (Non-Performing Loans) within the banking sector stood at 11percent way above the 7 percentthreshold set by the Central Bank.
The banking administrator also noted that most banks have had a difficult first half of this year as such this is likely to affect their overall performance.