The National Bank of Rwanda (BNR) this week again lowered the Key Repo Rate, this time to 5.5 per cent, down from 6 per cent which it had set in June.
The Repo rate is the interest commercial banks pay when they borrow from the central bank. In June, BNR had brought the rate down from 6.25 per cent.
BNR’s motive is to give commercial banks cheaper loans with the expectation that the latter will do the same to their customers and extend more loans, but that has yet to materialise.
The average interest rate in commercial bank is around 19 per cent and it makes it very expensive to borrow yet, as BNR announced, the banking climate is very healthy and the country’s economy rose by 7 per cent in the third quarter of 2017.
Banks have always argued that banking services and charges are very costly, an excuse that has been hitting the headlines for far too long despite BNR giving them favourable lending terms.
It is easily arguable that commercial banks are not benevolent NGOs, they are there to make a profit. But banks can be important economic catalysts if they partnered with the government to spread economic empowerment by giving better lending terms.
BNR has added its voice to calls for commercial banks to review their exceedingly high interest rates but with little success. As the central bank said in its assessment, the financial sector is buoyant and “adequately capitalised, liquid and profitable”.
With the capitalisation ratio of over 22 per cent, far above the 15 per cent threshold, there is no need for commercial banks to keep coming up with excuses. It takes two to tango; BNR has done its bit and the ball is now in commercial banks’ court.