Rwandans intending to borrow from commercial banks at a lower rate will have to wait a little longer as rates may not drop so soon; the Central Bank said Wednesday.
Commercial banks are lending at interest rates between 16% and 19%. Very rare projects can be financed at 14% interest rate.
John Rwangombwa, Governor of Central Bank says the objective is to stabilise the interest rate at 16%.
“It is a fact we have a mandate to ensure that banks make profit, otherwise they would close, and our economy stagnate,” he says.
Rwangombwa said the interest rates are still high, because about 11 banks invested heavily in more branches and ICT infrastructure and will take time to recover the cost.
“No bank is happy to give loans at higher interest rates; the higher the interest rate, the higher the risk of non-performing loan,” said Maurice Toroitich, CEO of Kenya Commercial Bank (KCB) in Rwanda.
Commercial banks say that the cost of doing business is still very high, Toroitich explains.
The public has however continued to express frustration over the high rates.
Meanwhile, the banking industry registered healthy profits in the 2nd quarter of 2015.
“We would be lying if we say that we are not making any profit. For sure, we are making profit,” says James Gatera, Chief Executive Officer of Bank of Kigali.
The net profit after tax for the industry rose by 36.5%, from 17.29 billionv(end of June 2014) to Rwf 23.60 billion (at end June 2015).
This is happening at the backdrop of a on-performing loan ratio standing at 5.9% (as at end June 2015) from 6.6% (recorded in June 2014).
Banking has led in development of the financial sector for the last five years, currently standing at 66.9% of the sector development growth, followed by Pension and Insurance with 17.1% and 9.7% respectively.
According to the monetary statement issued by central bank on Wednesday, the economy registered good performance with GDP growth rate at 7.6%.
It’s largely driven by the services sector with 8% followed by industry sector 7% and the agriculture sector, 4%.
Rwanda’s trade deficit dropped to $ 858.83 million representing 5.1 % in value, as of June 2015, from $ 901.43 million in June 2014 equivalent to 6.2%. Drop in deficit was facilitated by increase in value of coffee and tea by 34% each. Their volume and price also increased.
The value, price and volume of minerals have however deteriorated thanks to currency inflation in the big economies.
Rwanda has a projection of 6.6% GDP growth in the third quarter of 2015.