Despite government’s efforts to boost liquidity levels in the local banking system, the Central Bank says that banks have failed to tap on the fund that was established to increase long-term lending to the private sector.

Mid this year, the National Bank of Rwanda (NBR) set up a fund to facilitate commercial banks, extend financing to businesses that deal in mortgages, lease of machinery, commercial trucks and general investments.

In an exclusive interview with Business Times recently, Francois Kanimba, Governor of the Central Bank revealed that despite injecting significant amounts of money, outstanding credit to businesses has not yet picked up as expected.

"Banks are more and more reluctant to increase new lending to the economy. It is one of the explanations as to why the recovery process is taking time,” he said.

Credit to the private sector tightened since last year due to deteriorating liquidity levels in banks following preceding years of excess liquidity.

The Governor noted that banks have increased their risk evasion and this has reduced their "appetite” to provide loans.

"Liquidity is no longer an issue in the banking sector,” Kanimba said, pointing out that Central Bank injected huge amounts of money into the banking system at the beginning of the crisis.

While the liquidity issue is over, the Governor observed that due to the general slowdown in the economy, the non-performing loans within the banking system have been increasing in the last nine months.

"It is a problem but we do expect with signs of recovery globally, the slowdown trends we have been experiencing should be bottoming up and the recovery process should resume in the coming months,” the governor said.

According to Kanimba, as the recovery process takes shape, banks will increase their lending to the economy as well.

"Even if we have not yet seen many banks coming to use this facility, when we talk to them they are telling us that probably in the coming months there will be more demand,” he said, stressing that the facility was introduced only a few months back.

Under the facility, Central Bank is supposed to re-stock commercial banks with an equivalent of what has been disbursed while financing any of the above areas.

In February this year, the Central Bank also reduced commercial banks’ reserve requirement ratio and also government not to roll-over short term treasury bills at maturity.

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