The numbers are clear: commercial banks are adequately capitalised, the key Repo (the rate at which banks borrow from the central bank) is low at 6.5 percent, non-performing loans are declining and return on assets is good for the entire banking sector.

So why are the interest rates on loans still prohibitive?

The Sunday Times put this question to the Governor of the Central Bank, John Rwangombwa, and though he disagreed that credit rates are ‘prohibitive,’ he agrees that interest rates are not yet in-tandem with the National Bank of Rwanda (BNR’s) current Repo rate.

Banks are charging clients interest rates of up to 19.5 per cent on small personal loans ranging between Rwf1.5m and Rwf6m; and it appears most borrowers have no option but to take what is on offer.

"I agree with you that interest on credit of up to 19 per cent is high for personal loans but we encourage customers to push banks a little, for lower rates,” said Rwangombwa.

In other words, Rwangombwa suggest that loan seekers can negotiate with credit officers for lower interest rates but in most banks, that’s not an option available to individual borrowers.

Françoise Kagoyire, the Director Bank Supervision at BNR says that while it is true interest rates are high; customers have accepted the rates as credit to the private sector keeps growing every month. According to Kagoyire, it is therefore difficult to advocate for people "who are not complaining.”

"The governor’s voice on high rates is lonesome, customers should join his efforts by refusing the high interests by shopping around for cheaper loans on the market,” Kagoyire opined.

But is this possible?

Kagoyire admits that most Rwandans don’t know that they could indeed negotiate with banks and where they fail to agree with one, move to another to try their luck.

"In fact to many, it’s like a privilege for a bank to accept one’s loan application, we need to change this mindset and have customers to engage banks,” she said.

When The Sunday Times talked to some of the major banks in town, the findings were mixed. At one of the regional banks, a credit officer said negotiation is possible when dealing with institutional borrowers not individuals.

At this particular bank, a salary loan of about Rwf1.8million is pegged with an interest rate of 19 per cent repayable in 18 months.

Another banker said: "our interest rates are fixed, not negotiable, like now, it’s 19 per cent for personal loans and that’s the best we can offer.”

This banker also claims that it’s difficult for commercial banks to always respond to BNR reductions in the Repo rate, arguing that it could cause disruptions on the market.

"At my bank, we don’t discriminate clients; besides it would even be hard given the huge number of clients,” said the banker who requested anonymity because he’s not the bank’s official mouthpiece.

In exception, KCB’s George Odhiambo says they’re open to negotiations with both institution and individual clients.

"Currently our rates are around 18 per cent but we are a listening bank, we can consider preferential rates depending on the case,” says Odhiambo. Banks doing well

As of June, the Capital Adequacy Ratio (CAR) for commercial banks, which is the minimum amount of cash that they must maintain, stood at 23.6 per cent, way above the central bank’s regulatory requirement of 15 percent. This means that local banks have adequate capital.

For micro-finance firms, their coffers are above minimum by 33.91 percent, but they also piled up bad loans, with BNR reporting that the non performing loans rose to 7.6 percent by the end of June, from 6.8 percent of December 2013.

Bad loans among commercial banks, meanwhile, dropped slightly to 6.6 percent as of end of June from 6.9 percent in December last year.

In its Financial Sector Performance Report issued last week, the central bank’s verdict was firmly positive.

"The sector remains profitable [because] banks’ Return on Assets (ROA) and on Equity (ROE) increased to 21.1 percent and 12.2 percent as of end of June from 1.5 percent and 7.4 percent in December, respectively.

No generosity

If banks are adequately capitalised and making huge profits, why then can’t they ease lending rates? Some industry players point to little competition for clients, suggesting that the market needs more banks with new loan products.

However, despite the high rates, figures show increase in borrowing with new authorised loans amounted to Rwf420.15billion in the first eight months this year. That was a 45 percent increase from Rwf289.6billion in the first eight months of 2013.

It’s not clear how much of these loans are given to individual borrowers but the increase could in reality, mean that borrowers are taking the loans regardless of the rates.

When you talk to the banks, the argument is that low domestic saving means deposits are not enough which pushes them into borrowing from external sources.

"And I will tell you that, we are also getting these external credit lines expensively,” says the anonymous banker.

That banks are borrowing a huge sum of their money from outside the economy could explain, partially, why the Central Bank’s key-Repo is having little effect on the rates; because the key Repo is the rate at which commercial banks borrow from central bank, not from external sources.

Fortunate for banks, they factor their interest burden into the interest rates for local borrowers.

But the effects of expensive loans are beginning to show in form of distressed businesses, high tax default rate and bad loans.

Last week, Rwanda Revenue Authority said it will go after over 1,000 businesses that have defaulted on their tax obligations, a development that could partly be attributed to high cost of credit that may have forced businesses into financial difficulty.

On paper, these firms exist. In reality, many closed shop, years ago.

Going by statistics, commerce, restaurants and hotels are taking most of the loans, accounting for 41.2 percent of all credit given out between January and August this year. Public works and construction took 21.2 percent while manufacturing accounted for 12 percent.