Non-performing loans eased slightly to 5.6 per cent in the first six months of this year, down from 6.4 per cent in December 2018 as commercial banks made significant write-offs of bad debts.

The central bank said in the monetary policy and financial stability statement released yesterday that lenders wrote off Rwf29 billion in the first half of 2019 compared to Rwf48 billion in the same period last year.

The significant portion of loan defaulters includes trade, mining, mortgages, hotels and personal loans.

For instance, the bad loans in mining grew to Rwf2.9 billion in June this year from Rwf22 million in June 2018 owing to the slowdown of international commodity prices.  In trade, bad loans can be traced to 4 large loan facilities in two banks amounting to Rwf15.3 billion.

In order to reduce the level of the nonperforming loan portfolio, Jean-Marie Vianney Gatabazi, the Governor of the Northern Province, proposes that banks should declassify details of the loans to large investors mainly the ones who invest in rural areas.

Gatabazi’s proposal, however, contrasts confidentiality clauses between banks and their clients.

From his perspective, Gatabazi says, disclosing details of large loans issued to investors to local governments would allow for follow up and assistance to avoid losses which lead to non-performing loans.

"It’s common for some people to borrow large amounts of money for investments only for them to divert the funds elsewhere such as buy VXs (Toyota Land Cruiser Prado) only for them to declare inability to pay,” Gatabazi said.

If aware of loans to investors in the various districts and provinces, he said that it will allow local authorities to assist in follow up on the enterprises set up and necessary facilitation.

The Governor of the National Bank of Rwanda, John Rwangombwa, said that there are no provisions to disclose such details to third parties other than the central bank.

He, however, said that there was room for partnership between the regulator and local governments to find interventions to non-performing loans which he noted have gone down over time.

According to the monetary policy and financial stability statement, the local banking sector’s profits grew to Rwf26.2 billion in the first half of 2019 from Rwf22.9 billion in the same period last year.

The profits were largely driven by net interest income generated from loans issued which grew Rwf120.2 billion.

Other investments by local banks that drove the profits were government securities and placements as well as market securities.

In the first half of the year, a majority of the loans were given to mortgage services which received Rwf672.6 billion followed by trade Rwf301.7 billion transport and communications Rwf249.5 billion as well as hotels and restaurants.

Mining and agriculture sectors were the small recipients of loans from banks largely due to lack of adequate data on operations in the sectors.   Local financial institutions have from 2018 increased their lending to the private sector boosted by reduced risk from borrowers and improvement in the general economic conditions.

In 2018, new authorized loans grew by 17.1 per cent compared to 4.6 per cent in the year before.

However, the insurance sector remains vulnerable despite registering profits.

As has been the case over the previous years, the insurance sector made a loss in underwriting (their core business) and only made a profit in other investments such as real estate, equities and government securities.

In the first half of this year, the sector made an underwriting loss of Rwf0.9 billion.

Private insurers made a profit Rwf4.7 billion as of June 2019 from a profit of Rwf2.7 billion in the first half of last year.

The sector’s vulnerability is largely due to the dependence on motor and health insurance which generates about 74 per cent of the revenues to the sector.

editor@newtimesrwanda.com