Borrowers contributing to high interest rates – Experts

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Financial experts say borrowers contribute to high interest rate spread, although the banking sector has been blamed for its high interest rates that scare borrowers; and lead to bad loans.

The banking sector has been pinned by the public for its high rates that make it difficult for eligible borrowers to access credit thus crippling the increase of flow of credit to the private sector.

According to John Rwangombwa, Governor of the National Bank of Rwanda says that most borrowers cannot bargain for lower rates when they approach banks for a credit something that   contributed to laxity   by banks to bring down the rates.

“The culture of borrowers not bargaining with banks have contributed to inefficiencies observed in the banking sector as indicated by high interest rate spread,” Rwangombwa said

Moreover, other   borrowers are not aware of the conditions attached to the loans they  are acquiring thus  aching their  repayment  which   leads to  bad  loans that affect the profitability of the sector.

Sanjeev Anand, chairman of the Rwanda Bankers Association says that banks have different interest rates and can lower   depending on the   bargaining power of the borrower.

“The market is competitive, you have to check with different banks and see who   has the lowest   interest rates,” he said

Sanjeev says that   due to    loan defaulters  that increase  non- performing loans,  banks tend to raise  interest rates higher  to  avoid  losses that  may  incur  as the  bad  loan portfolio increases.

As a result, the sector’s bad loans ratio (NPL) declined to 6.0% by end December 2014 from 6.9%  in the same  period under review in 2013.

The Banking sector which is the largest component of the financial sector has contributed significantly   to   credit going to   the private sector while as well keeping profitable triggering economic growth.

For example, the sector   registered an increase in its new loans going to the private sector by 38.2% by end of December  last year   totaling to rwf652.9 billion from Rwf 472.5 billion in the same period  in 2013.

Whilst the sector grew by 19.3% in assets, registering  high capital adequacy ratio (CAR) of 24.2% while  the sector’s  net profit  grew by   54.3% and Return on assets and on equity stood at 1.9% and 10.9% respectively by End of  December   2014.

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