More borrowers are now likely to default on their loans due to the impact of coronavirus on the economy.

According to the latest quarterly Financial Stability Committee (FSC) report by the National Bank of Rwanda, Rwf422 billion in loans portfolio at risk represents 13.2 percent of all advances, up from Rwf157 billion, representing 6 percent of the loans in June 2020 symbolising an uptick.

The Central bank cites the worst-hit sectors to include value chains and hospitality industries.

“Borrowers’ ability to meet debt obligations was affected especially in the hotels and restaurants, transport and education sectors as well as the associated value chains. As a result, Non-Performing Loans (NPLs) increased by 26 percent in nominal terms to Rwf178 billion as at end of June 2021, the Central bank noted.

Shaffy Hagenimana, the managing director of Holly Trust Ltd that produces honey-based Kaso Products notes that the banks retain the regulations that existed before the pandemic.

“Most of banks still rely on collateral in exchange for loans,” Hagenimana noted. Despite bad loan spike in commercial banks, the figures in micro-finance institutions are on a downward trend as smallholder businesses remain stable and resilient despite the pandemic.

The Central bank indicates that in the microfinance sector, the NPL ratio declined to 6.6 percent in June 2021 against 12.8 percent in June 2020 due to resumption of micro-business activity including agribusiness-related during the period under review.

Aimable Nkuranga, the executive director of the Association of Microfinance Institutions in Rwanda (AMIR) calls for review of loan portfolios as the pandemic has not spared any sector.

“One way to help is to understand the challenges they face,” Nkuranga notes. One economist pins the blame on business models that allow cursory analyses of profitability of their enterprises.

Despite bad loans mounting, the central bank indicates that the banking sector’s assets increased by 20 percent from Rwf3,853 billion in June 2020 to Rwf4,624 billion in June 2021 compared to the 18.5 percent growth recorded in the previous year.

Similarly, microfinance assets increased by 16.8 percent in June 2021 compared with 5.4 percent growth in 2020, increasing from Rwf330 billion to Rwf386 billion driven by growth in customer deposits and capital.