Rwanda: Trade Sector Leads in Non-Performing Loans

11 February 2020

Trade sector is leading among industries with the highest Non-Performing Loans (NPLs) ratio, the Central Bank says.

Following last week's Financial Stability Committee sitting, the Central Bank noted that NPL's had generally declined from 6.4 per cent in December 2018 to 4.9 per cent in December 2019.

The Central Bank benchmark of 5 per cent is 5 per cent. The ban observed that the economic performance in 2019 was a key driver in the reduction of NPLs and enabled borrowers improve their debt service capacity.

Valence Kimenyi, the Director of Financial Stability and Monitoring at the Central Bank said that trade was the sector with highest NPLs adding that it could be a consequence of external trade fluctuations currently being experienced globally.

The banking sector's profits went up in 2019 Rwf 76bn from Rwf 57B in 2018 and Rwf 29bn in 2017. Profits in the Micro-finance sector increased from Rwf 7.3bn in 2018 to Rwf 12 in 2019. New authorized loans in 2019 increased by 20.1 per cent from 17.2 per cent in the previous year.

Insurance sector profits stood at Rwf 7.1bn in December 2019 from Rwf 3.3bn in 2017. Like previous years, the profits was a result of investments in other sectors and not from underwriting where they registered a loss of Rwf 3.4bn. The central Bank expressed concern over the state of affairs saying that reliance and underwriting losses in the motor vehicle and medical insurance products are a major risk to the development of the sector.

In banking, the major risk was identified as the stock of written-off loans with the Central Bank committing to engage various stakeholders to ensure improvement in the collateral realization process. The process to auction property in the event one is unable to pay off a loan is currently slow and, if not checked, could negatively affect the stability of local banks.

At the moment, in the event a bank client is unable to pay a loan and the bank intends to auction on the collateral, it involves a lengthy process which among other things seeking authorization from Rwanda Development Board.

According to a number of bankers, the process on average takes over one year, is unpredictable and often has unwarranted interruptions.

Ordinarily, in the event one is unable to pay off a loan, the collateral is auctioned following the approval of Rwanda Development Board.

However, in some instances, bank clients often go to court to stop the process it leads to months of court cases further delaying the process.

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