Local banks are set to follow their Kenyan counterparts in issuing profit warnings as the Covid-19 pandemic continues to ravage the regional financial sector.

As business contracted for many of their clients across different sectors and some started defaulting on loans last year, Rwandan banks began taking loan provisions in the second half of 2020.

“What is happening in Kenya is also going to happen in Rwanda, when we start publishing results in March, you will realise that some banks have flat profits or lower due to banks taking provisions, said Maurice Toroitich, chief executive of BPR Atlas Mara.

Mr Toroitich said although the panic has now subsided, and businesses have gained more knowledge in coping with the pandemic, recovery won't come quickly since many of the sectors like clients in the tourism, hotels and the service sector in general are still reeling from the effects of the pandemic.

He observed that although some tour ism related businesses are being assisted by the economic recovery fund, some will still not be able to pay back their loans because business has not yet recovered.

“Many of the businesses whose loans we restructured have still not yet started making payments, so we could end up restructuring the loans again and if they don’t still pay we take provisions” he noted.

Mortgage payments have also slowed down, especially those whose repayment depended on businesses.

“The whole environment is currently spooked, a lot of uncertainty, there will be sectors that banks will continue to lend to, among them construction and agriculture, but the risk appetite will below”.

The contractions in the sector are also expected to lead to issuing of reduced or no dividends at all this year to shareholders of the listed banks, as banks seek to preserve capital for operations.

Although the sector is expected to remain adequately capitalised to perform its lending functions, this could not be the case if conditions continue worsening. Deposits have also been reducing as people lose jobs, businesses close, while household incomes contract, which has forced many to spend their savings.

The reduced appetite for loans among banking sector clients, coupled with the caution on the banks side is also an area of concern, especially due to the fact that unlike other banks in the region that largely depend on fees and commissions, loans form the core business of Rwandan banks.