Commercial banks have increased their non performing loans provisions and lowered expectations across a number of performance indices for second half of the year.

Although the sector remains well capitalised with enough liquidity for banks to lend to their customers, most of whom are currently distressed, caution will be exercised, as the latest quarter1 figures indicate clients have already started defaulting.

In its quarter1 results released this week, the market leader, Bank of Kigali registered a 16.6 per cent year on year and 49.4 per cent quarter on quarter decline in profits after tax, to Rwf6.2billion.

The bank’s Non-Performing Loans (NPLs) increased to Rwf47.4billion from Rwf45.6billion recorded in December 2019, and its loan loss provisions rose by 75.2 per cent year on year to Rwf12.8billion ($13.5million).

Cost of risks

“The risks have increased significantly that’s why we have increased our loan loss provisions, the problem is not on income but the cost of risks, most of our clients are not paying interest and principle due to the complications brought forth by the pandemic” said Diane Karusisi, the chief executive of BK Group.

As a result, the lenders return on equity and return on assets dropped to 2.4 per cent and 11.2 per cent respectively, “due to the current Covid19 provisioning”.

The lender says up to 40 per cent of its customers are not able to fulfil their commitments, which casts a gloomy outlook for the bank in the last half of the year.

“We shall be very prudent in assessing who we give loans to in the second part of the year, good enough we have seen government in its budget increasing infrastructure spending, we shall be working with our clients in that sector”

“We are also waiting to receive part of the government’s recovery fund,” said Karusisi. She, however, expressed confidence in the financial sector as a whole, saying, “It is well capitalised to even absorb the losses that might come”.

I&M Bank, the other lender listed on the Rwanda securities exchange, recorded Rwf1.5billion profit in the first quarter of 2020, a fall from the Rwf6.1 recorded in the last quarter of 2019.

Its NPL ratio stood at 2.14 in quarter1, standing at Rwf5.6billion, despite registering a 9 per cent increase in interest income, attributed to the growth of the loan’s book portfolio by 17 per cent and government securities by 10 per cent year on year.
The bank’s balance sheet, however, remains strong in the first quarter of 2020 with total assets registering an increase of 9 per cent to Rwf348billion, and Shareholders’ funds registering a 4 per cent increase to Rwf44billion as at end of March 2020.

Challenging year

“The start of 2020 was highlighted by profound movements across the board, and we are fully aware it will definitely be a challenging year, but our strategy remains anchored around delivering value for our customers and shareholders”

“We will leverage on the momentum of the previous year, our sound investments in state-of-art digital platforms, effectively manage costs and focus on delivering solid results despite uncertain market variables” said Robin Bairstow, I&M CEO.

However, it was not all gloom, for instance BPR Atlas Mara recorded a 44.34 per cent growth in profits in quarter1, compared to the same period in 2019, attributed to “revenue growth and improved operational efficiency”.

The bank’s net interest income also rose by 3.79 per cent attributable to the growth in interest income at 12.50 per cent mainly from government securities while interest expense rose by 5.62 per cent due to growth in deposits.