As central bank (BNR) reduces lending rates to 6%, Central Bank Governor John Rwangombwa (extreme left) says the economy has a good outlook

Rwanda’s Central Bank (BNR) announced on Tuesday it will maintain its key repo rate at 6% for the next three months down from 6.25%.

Central Bank Governor John Rwangombwa told journalists the new repo rate, due in force effective the next quarter of the year which starts next month, will facilitate Financial Institutions to acquire loans from the lender.

In December last year, the Central Bank reduced its key repo rate from 6.5% to 6.25%.

Governor Rwangombwa said total new authorized loans expanded by 9.0 % in the first 5months of 2017 from 2.7 % of the corresponding period of 2016.

Speaking to journalists during the announcement of the Monetary Policy Stance for the 3rd quarter of 2017, Governor Rwangombwa said that Capital Adequacy Ratio of banks and Micro Financial Institutions is 21.2% and 33.8% respectively – above regulatory minimum requirement of 15%.

Total new authorized loans expanded by 9.0 % in the first 5months of 2017 from 2.7 % of the corresponding period of 2016.

However,  banks are chocking on non-performing loans, a trend central bank governor attributes to poor projects design.

For instance, non-performing loans in Financial Institutions increased from 6.2% in March 2016 to 8.1% in March 2017. In the same period, non-performing loans ratio of Micro Finance Institutions increased from 8.5% to 11.7%.

“Non-performing loans are due to weak credit analysis and monitoring, poor projects design and implementation,” Governor Rwangombwa said.

To contain growth of non-performing loans, Rwangombwa added that the Central Bank will continue engaging financial Institutions to enhancement of their credit underwriting and monitoring standards.

Outstanding credit to the private sector grew by 6.9 % compared to 6.6 % in the same period of 2016.

According to Rwangombwa, financial sector assets continued to grow in the first quarter of this year where financial institutions registered 11.3% (year-on-year) in March 2017 to Rwf2.4 trillion, while Micro Finance Institutions recorded a 11% growth to Rwf226 billion.

Insurance sector and pension also increased by 9.2% and 13% to Rwf353 billion and Rwf629 billion respectively.

“The banking and microfinance sub-sectors remain adequately capitalized,” Rwangombwa said.

The continued reduction of key repo rate by Central Bank has facilitated Financial Institutions to grow profits.

In March this year, while announcing the quarterly monetary policy, governor Rwangombwa said that commercial banks made a total net profit of Rwf60billion (about $100m) as of December 2016, compared to Rwf57billion the year before.

Central Bank governor said measurements of total inflation within the economy show good signs.

According to the newly released quarterly monitory policy and financial stability report, headline inflation decreased from 7.7% in the first quarter of this year to 7.3% and 6.5% in April and May respectively – a trend Central Bank says is expected to continue.