Credit to the private sector is likely to slow down in the last quarter running through October to December this year as banks tighten their internal lending strategies.
The decline is attributed to bank's tendency to concentrate on recovery in the last quarter after focusing on lending in previous quarters, but also meeting their loan targets in the third quarter.
In 2009, authorised loans amounted to Rwf198 billion, and in 2010, they amounted to Rwf262 billion . Last year, banks lent out a total of Rwf339 billion. while as of September this year, loans to the private sector amounted to Rwf367.7 billion.
"Currently loans to deposits ratio is 94 per cent up from 80 per cent which is the international standard measure and if they continue at this rate, they may create problems," Governor of the Central Bank Amb.Claver Gatete recently said.
He added; "This year, banks have over-lent; they should be careful not to lend what they don't have because people who are depositing need their money back."
He, however, assured that the slow down will not be significant because financial institutions are well capitalised, highly liquid and profitable with satisfactory asset.
The banks are healthy and with enough liquidity, he said, adding that their consolidated profit after tax was Rwf26.3 billion between January and September this year compared to Rwf22.8 billion registered last year. Non performing loans also reduced from seven per cent to 6.2 per cent.
Meanwhile, non performing loans also have significantly reduced in past years from 40 per cent in 2000 to 6.2 per cent by the end of September with a target to lower this to to date 5 per cent.
Lawson Naibo, the Chief Operations Officer at Bank of Kigali stressed that the situation had resulted from revision of internal lending policies by some banks.
"Some banks are tightening their risk and credit management policies which are likely to affect the volume of loans but it is insignificant to affect economic growth," Naibo said.
High volumes of credit approved to private sector are expected to create a big positive impact in the economic growth which is projected at 7.7 per cent this year.
The economy expanded by 9.9 per cent in the months running through April to June compared to 6.1 per cent in the same period last year.
"We have enough liquidity and we anticipate our loan performance to outgrow the market," said Naibo.
In the first three months of 2012, authorised loans went up to Rwf117 billion from Rwf 60.9billion at the same period last year.