Local financial institutions increased their lending to the private sector in 2018, boosted by reduced risk from borrowers and improvement in the general economic conditions, statistics from the Central Bank show.
The Central Bank said yesterday that in 2018, new authorised loans grew by 17.1 per cent compared to 4.6 per cent in the year before.
The Bank's Monetary Policy Committee, which met yesterday, said in a statement that demand for loans, in value terms, went up by 29.7 per cent in 2018 from 10.8 per cent in 2017 while default rates or non-performing loans dropped to 6.4 per cent from 7.6 per cent.
Central Bank Governor John Rwangombwa, said the rate at which financial institutions rejected loan applications was at 21.9 per cent, down from 31 per cent in the previous year.
The Bank attributes the positive outlook to the adjustment in its monetary policy as well as improving economic conditions.
The sectors with the highest demand for loans include public works, communication and manufacturing.
According to observers, this was largely driven by two major deals including a Rwf50 billion syndicate loan to MTN Rwanda.
Moreover, the Central Bank says that more lending and the declining number of loan defaults from borrowers reflects improved economic conditions, which allowed the private sector to borrow more money for investments.
It added that the lower rejection rates also point improvement in the quality of loans a result of multiple aspects such as due diligence by banks and the commercial viability of the projects pitched by borrowers.
However, commercial banks are reluctant to comment about the trend, saying that they are still reviewing their 2018 performance, which i among other things involves external audits.
However, the changes in the loans demand must have been driven by the last half of 2018 gong by the previous statistics from the central bank.
In September 2018, the central bank had reported that demand for loans had dropped in the first six months of the year as a result of tight lending conditions by local lenders.
This had among other things reduced the profitability of lenders.
In the first six months of 2018, loan applications had dropped to 131,000 compared to 139,000 in the first half of 2017 which had seen reduced economic activity.
As a result of improvement in the financial sector, there was a slight drop in the lending rates to an average of 16.96 per cent from 17.17 per cent in the previous year.
This was among other things is a result of an accommodative monetary policy stance in order to uphold the support the financing of the economy by the banking sector.
The improved economic conditions led the central bank to maintain projections that the economy could grow by 7.8 in 2019.
Rwangombwa said that given the performance of the first three quarters of 2018 to have a GDP growth average of 8.3 per cent, Rwanda was likely to surpass the projected 7.2 per cent economic growth for 2018.
The Central Bank alongside the ministry of Finance and Economic Planning will meet the International Monetary fund to review the projections.
The Monetary Policy Committee also reported that inflation remained subdued to 4.4 per cent in 2018 compared to 4.9 per cent in 2017.
A downside was the increase of formal trade deficit by 12.4 per cent. Trade deficit has been on a downward trend which has been on a downward trend over the course of recent months.
However in 2018, the rise of import bill by 9.5 per cent was occasioned due to ongoing infrastructure projects such as peat power plant, Bugesera Airport and road network expansion projects.
Noting the positive macroeconomic conditions and reduced pressures, the committee maintained the central bank rate at 5.5 per cent.
This was the firm committee meeting following the adoption of the implementation of a price based monetary policy framework from a monetary targeting framework.
Read the original article on New Times.
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