The commercial real industry and hotels have the highest credit risks in the local market, Central Bank statistics show.

The statistics were released following the country’s Financial Stability Committee meeting held on May 12 to assess the performance of the financial sector, as the country continues to recover from the Covid-19 pandemic.

Among the key observations is that while the financial sector remains adequately capitalized to finance the economy, credit risk has gone up as indicated by increasing non-performing loans, a key indicator of quality of loans.

The central bank noted that non-performing loans had increased to 6.6 per cent in March 2021 from 5.5 per cent in March 2020.

"Asset quality deteriorated in sectors mostly affected by the pandemic in particular hotels and commercial real estate,” the central bank noted.

Non-performing loans ratio in the hotel sector increased to 10.9 per cent (from 4.5 per cent in December 2020) while in commercial real estate it overshot to 16.7 per cent, more than double from 7.5 per cent in December 2020, as of March 2021.

Hotels have been impacted by the limitations of travel as well as sleepy events scene following the institution of measures to spread the pandemic. A number of them have had their loans restructured as part of the Economic Recovery Fund which availed Rwf150bn to facilitate the restructuring of loans in the sector.

The fund was established by government to cushion the economy against adverse effects of the Covid-19 pandemic.

For the commercial real estate sector, sector players say that with remote working and social distancing becoming more popular over the course of 2020, the demand for retail commercial spaces has dipped.

Economic uncertainty had also led a set of clients to terminate their rental contracts.

This was at a time when a majority of city buildings – majority developed on bank loans – were already grappling with low occupancy rates even before the pandemic.

Within the banking sector, Central Bank Governor John Rwangombwa said that in local banks, loans worth Rwf312bn (11.8 per cent of total loans) are still under moratorium thus posing a risk of increased non-performing loans.

The Central Bank however expects the financial sector to remain stable as it’s adequately capitalized.

The Central Bank previously introduced measures to safeguard the loss absorption capacity such as instructing banks to withhold declaration and payment of 2020 dividends.

Peace Uwase the Director-General of the Financial Stability at the Central Bank on the other hand noted that the ICT sector and related activities currently have the lowest credit risk driven by growing uptake.

The regulator maintained the Central Bank Rate at 4.5 per cent to allow continued lending to the private sector by the financial industry to foster economic recovery. The key repo rate is the maximum rate at which commercial banks invest their money at the Central Bank.

By keeping it low, it makes it ideal for commercial banks to lend to the private sector as opposed to holding it at the central bank.

Rwangombwa noted that the economy is expected to recover during the year from a contraction of 3.4 per cent.

The economy is expected to grow by 5.1 per cent in 2021 according to government and IMF projections. 

As the global economy recovers, it is expected to experience inflation of about 3.5 per cent. This he said could see increased revenue for Rwanda’s exports such as agricultural products and minerals.

The development could however exert some foreign exchange pressure on the Rwandan Franc as cost of imports could go up as a result of the inflation. The franc is projected to depreciate by 6.5 per cent.

Average inflation was projected to remain below the 5 per cent mark at 2.2 per cent for 2021. For the first quarter of this year, inflation stood at 2.1 per cent.