Rwanda's financial sector is expected to increase lending to the private sector with the National Bank of Rwanda predicting a 13 per cent growth (in credit to the private sector) in 2018.
According to the Monetary Policy and Financial Stability Statement released yesterday by the central bank, the bank will maintain an accommodative monetary policy stance in order to uphold financing of the economy by the banking sector.
In 2017, local banks issued loans valued at Rwf1,579 billion up from Rwf1,403 billion in 2016.
Credit surveys conducted among local banks showed that there was weak demand for credit in the first half of 2017.
Economic recovery and increased activity is expected to drive increased lending in 2018. At least 14 out of the 17 local banks note that they expect improved lending in 2018.
Analysts say that among the sectors expected to absorb the most loans include infrastructure and energy given their demand for loans and scheduled projects.
The Governor of the central bank, John Rwangombwa, said that non-performing loans (NPLs) among banks and micro-finance institutions declined in agriculture, mortgage and personal loans but increased in manufacturing, trade and hotels.
"The NPLs ratio in agriculture dropped from 22.7 per cent in December 2016 to 10 per cent in December 2017. This reduction reflects improved performance of the sector in the third quarter of 2017," he said.
"NPLs ratio, however, picked up in the manufacturing, trade and hotel sectors. As at end December 2017, the NPL ratio for the manufacturing sector (was) largely driven by a few big loans that underperformed due to weak project planning by borrowers and inadequate loan monitoring by banks. For the trade sector, the NPLs ratio increased due to weak domestic demand, especially in the first half of 2017 that affected businesses," the Governor said.
The central bank says that they are still working with local financial institutions to address challenges that could be contributing to the non-performing loans.
Within the banking sector NPLs stood at 7.6 per cent as of December 2017 and 8.2 per cent among micro-finance institutions.
The performance of the local insurance sector continues to cause concern among local stakeholders with most calling for a review of the mode of operations by sector players.
The Minister of State for Socio-Economic Development, Cyriaque Harelimana, said that most people remain in the dark regarding the poor performance of the insurance sector given the demand for its services in the country.
He called for more measures and mechanism to improve the quality of performance of players to avoid unnecessary losses which he said affected clients negatively.
"It is not clear why the performance of the sector is not as good as expected. Above challenges such as poor risks and credit management, there seems to be other underlying issues that require to be addressed satisfactorily. We would need to see measures put in place to ensure that players are serious given the demand in the sector for services," the minister said.
Gaudens Kanamugire, the president of the Rwanda Insurers Association (ASSAR), admitted that the sector has been going through a number of challenges which they are trying to address.
The main challenge is manifested in motor insurance which makes for a significant number of most insurers books.
"There have been many challenges that the private insurance sector has been experiencing, including the motor insurance, which accounts for more than 50 per cent of our books," he said.
"We have seen poor performance in motor insurance, mainly driven by internal challenges from insurance companies such as price wars. There are a number of measures that have been undertaken to show, for instance, what the minimum charge is for car owners. There were also a number of challenges such as fraud which we are trying to address, laws and regulation, such as huge compensation in bodily injuries," he said.
The challenges, he said, are being addressed with the support of the central bank which regulates the sector. Rwanda has 17 insurance companies currently in operation with a penetration rate of about 4 per cent.