Non-performing loans have relatively dropped in the first six months of 2022 by 4.3 per cent from Rwf178 billion in June 2021 to Rwf166 billion in June, a reduction of Rwf12 billion.

In the first six months of 2021, non-performing loans, or loans that are subject to late repayment or are unlikely to be repaid by borrowers in full, had eased by 5.6 per cent.

This was mainly on account of long overdue loans written off by banks and growth in outstanding loans, according to the latest Monetary Policy and Financial Stability Statement issued by the Central Bank on September 22.

Between June 2021 and June 2022, the banking sector write-offs amounted to Rwf68 billion out of which Rwf16 billion were written off during the second quarter of 2022 – from April to June.

Commenting on the loans written-off, Central Bank Governor, John Rwangombwa, said it is an "unfortunate development but we always push for that” and any outstanding unpaid loan for more than a year, "we expect it to be written-off to at least show the actual position of the industry.”

Major contributors to bad loans include commercial real estate, manufacturing, water and energy, and agriculture.

According to the Central Bank, the increase of non-performing loans in commercial real estate is associated with insufficient rental income due to low occupancy rates in commercial buildings.

Bad loans in agriculture and manufacturing are mainly driven by the challenges in the global supply chain and increased commodity prices, especially for metal and fertilizers, which are affecting productivity and earnings of borrowers in these two sectors.

New authorised loans recorded a decline of 7 per cent in the first half of 2022, from a sharp rise of 26 per cent recorded in the same period of 2021.

The drop is sharply observed in three sectors – restaurants and hotels that reduced by 14 per cent, services provided to the community by 3.8 pe rcent, while water and energy activities also decelerated by 2.1 per cent.

The Central Bank explains this contraction to be mainly a base effect resulting from a big loan granted to a large corporate in the restaurants and hotels sector in 2021.

Overall, it is indicated that the rising inflationary pressures are expected to moderately increase credit risk in banks in the case of a continued surge of energy prices that indirectly impacts the performance of other businesses.

Financial sector continued to grow

By and large, it is noted, despite the challenging global economic conditions, the financial sector continued to grow and remained sound and stable.

During the period under review, total assets of the financial sector grew by 17.5 per cent to Rwf8, 145 billion in June 2022 from Rwf6, 933 billion in June 2021.

The banking sector alone grew by 18.8 per cent on account of the growth of deposits and capital.

The assets of the pension sector – public and private – increased by 8.3 per cent, mainly driven by the growth in pension contributions and investment income from placements in banks and government securities.

The assets of the insurance sector grew by 17.2 per cent due to the growth of premiums and investment income. Assets of the microfinance sector expanded by 22.6 per cent on the back of the increase of deposits and capital.