Kigali: Rwanda’s private sector still faces huge challenges in accessing credit, despite growth in the financial sector and interventions by the National Bank of Rwanda (BNR) to boost liquidity.

Statistics show that as at June, commercial banks registered an increase of 8.7 per cent in their deposits base, from Rwf425.4 billion ($716 million) in December 2009 to Rwf462.7 billion ($779 million).

Besides, the central bank cut rates twice this year in a bid to encourage banks to lend more and spur economic growth. Economic growth slowed to 5.5 per cent last year from 11.2 per cent in 2008.

More recently in November, the BNR lowered its key repo rate further by one percentage point to six per cent. The central bank also introduced a low interest policy in order to stimulate lending to the private sector.

But Rwandan commercial banks are still reluctant to issue credit mainly due to the high risk perception in the market. 

They attribute the slow credit growth to a critical shortage of credit worthy projects submitted for funding, in addition to concentration on recovery of bad loans. 

The average ratio of non-performing loans to assets in Rwanda’s banking industry is about 13 per cent, well above the central bank mark of seven per cent.

Banks have now shifted attention to money market placements including government bonds that are almost risk free.

For example, a two-year, Rwf2.5 billion ($4.2 million) Treasury bond in August attracted Rwf7.6 billion ($13 million) in bids.

“It has proved to be a challenge to expand our loan book; We have sufficient liquidity, but we have not identified a substantial number of creditworthy applications,” said Sanjeev Anand, the managing director of Commercial Bank of Rwanda. “It is not that we are not giving out loans but want to give out more loans that are credit worthy.”

Expanding loan book

BCR is the second largest bank in Rwanda by assets, and is 80 per cent owned by London based private equity investment firm Actis Capital. 

Last year, the bank‘s loan portfolio shrank by 26.5 per cent with net loans reducing from Rwf43 billion ($72.3 million) to Rwf34 billion ($57.2 million) .

This year, its loan book is projected to contract further. “We have been focusing on fixing our internal problems such as non-performing loans,” said Mr Anand.

Last year the bank collected Rwf2.5 billion ($4.2 million) after overhauling its loan recovery department.

Mr Anand, who doubles as the vice chairman of the Rwandan Bankers Association, said the bank hopes to expand its loan book next year, with specific focus on small and medium enterprises as well as retail segments for products like mortgages.

“We have learnt the hard way to tell good and bad SMEs apart,” said Mr Anand.
He said the bank has come up with a skills development product for SMEs to equip them with accounting and financial skills.  

He said this will assist the bank to increase lending to SMEs, which are the backbone of Rwanda’s economy.

According to Lawson Naibo, the chief of operations at Bank of Kigali — Rwanda’s largest bank by assets — this year they have been focusing on rehabilitation and maintaining asset quality, rather than asset accumulation.

The bank’s gross NPL ratio is expected to increase slightly to nine per cent, from eight per cent last year.
Mr Naibo attributes this to a general slowdown in the Rwandan economy experienced in the first half of this year.

“Many companies reported a slowdown in their revenue streams especially in the first half of the year. But by the third quarter, many had dealt with their problems and needed money to restructure,” he said.
The bank’s loan book registered a modest increase of 21 per cent from Rwf77 billion ($130 million) in December 2009 to Rwf92 billion ($155 million) as at September 30 this year.

Mr Naibo said the bank is aiming to increase its loan book next year, with specific emphasis on long term credit, which is still a key challenge to the industry.

The bank is currently negotiating long term credit facilities with the European Investment Bank, in addition to mobilising two lines of credit worth over $30 million from multinational agencies. 

Credit rating

However, Claver Gatete, the vice governor of BNR observed that the commencement of operations of Credit Reference Bureau Africa in June — Rwanda’s first licensed private bureau — will help banks to appraise the credit profiles of customers seeking loans.

With the central bank maintaining a low interest policy, the Vice Governor said he was optimistic of further credit expansion next year.

Rwanda has eight commercial banks: KCB-Rwanda, Access Bank, Cogebanque, Rwanda Commercial Bank (BCR), Banque de Kigali (BK), Bank Populaire du Rwanda (BPR), FINA Bank Rwanda and Ecobank.