Commercial banks restricted lending in the first half of this year in an effort to curb rising
bad loans and improve their profitability.

Credit risk remains the main challenge facing the financial sector that is negatively affecting loan disbursement.

For instance, as at end December 2021, the outstanding Non-Performing Loans (NPLs) increased by 19 percent year on year to Rwf158 billion from Rwf133 billion in December 2020.

With an increased credit risk outlook, banks remain prudent and continue to increase provisions for bad debts in anticipation of increased future losses.

The latest figures released by the National Bank of Rwanda(BNR) show new authorised loans declined by 1.2 percent in 12 months ending June 2022 compared with a growth of 7.8 percent recorded in the corresponding period a year before.

BNR attributes the decline to a base effect of big loans granted to large companies in 2021.

However, the banks appear to have resumed lending in the second quarter as new authorised loans grew by 7.8 percent in 2022Q2 compared with a slowdown of 2.8 percent recorded in 2022 Q1.

The top sectors that were largely financed in the second quarter include; commerce which was granted 30.9 percent of the total new authorized loans, followed by public works and buildings at 23.0 percent, personal loans at 16.6 percent, and Transport & warehousing & communication at 10.7.

But the rising cost of borrowing has also dampened the appetite to seek credit. Figures by BNR show the lending rate increasing by 31 basis points to an average of 16.31 percent in the second quarter from 16.0 percent. And as a result, credit to the private sector slowed to 16.5 percent compared with 19.1 recorded in the same quarter last year.

However, commercial banks are confident that given the ongoing recovery of the economy, they will be able to contain bad loans, and resume lending.

“We recorded good performance in the second and first quarter of 2022; our loan book has not grown in line with expectations but we are seeing improvement in asset quality reflecting post-Covid-19 recovery allowing us to record a solid 1st half performance...” said Diane Karusisi, chief executive of Bank of Kigali (BK) on Wednesday this week releasing the bank’s financial performance for the first quarter.

BK Group, which is the largest bank by assets in the local market, expanded its loan book net loans and advances increased by 10.6 percent year on year to Rwf1013.4 billion as of June 30th, 2022.

The bank’s net income increased by 24.5 percent year on year while total assets increased by 16.8 percent year on year. It recorded a net profit worth Rwf28.3 billion in the first half of 2022, representing an increase of 24.5 percent in comparison to the same period last year. In the first half of 2021, the bank had Rwf22.8 billion profit.

“We remain focused on delivering higher value for our shareholders and plan to report even better numbers in the second half of 2022..” Ms Karusisi said.

However, in August, the central bank raised its lending rate by 100 basis points, the biggest increase in recent years, to 6.0 percent to stem rising inflation. The recent uptick in inflation is expected to undermine the country’s growth prospects with the economic growth expected to drop to 6 percent down from 10.2 percent registered in 2021.

Rising prices are beginning to negatively affect private consumption as the Composite Index of Economic Activities (CIEA) significantly dropped expanding by just 10.7 percent in the second quarter of this year compared to 32.5 percent recorded in the same quarter of last year due to slower growth in services and industry.