Borrowers contributing to high interest rates – Experts
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.