Local banks have posted a slowdown in loans that end up in non performing category, a sign of the strong activity in the financial sector, which is occasioned by the central bank’s improved supervisory capacity. According to statistics from the International Monetary Fund, Non Performing Loans (NPL) dropped to 9.3 percent as of September last year from 17 percent in 2007."The banking system has remained well capitalised with nonperforming loans declining from 11.3 percent at end-2010 to 9.3 percent at end-September 2011, and profitability improving,” IMF said in a report.According to IMF, the decline in NPLs is attributed to the central bank’s continued efforts to strengthen its supervisory capacity by hiring and training new supervisors for banks and SACCOs.The central bank hired five bank supervisors and 60 inspectors for SACCOs. Francoise Kagoyire, the Director of Banking Sector at the central bank said the decline is also driven by best practices in banks especially in risk management."Procedures to give out loans were tightened and this ensured that newcomers don’t worsen the situation,” she said in a phone interview.Official forecasts indicate that NPLs are expected to be reduced further to seven percent this year with an overall target of five percent in all banks.The other driver of low NPLs is sharing of borrowers’ information amongst banks where bad borrowers are identified.In an effort to reduce the NPL to the central bank’s threshold, the credit reference bureau is expected to provide a platform for lending institutions to strengthen their credit appraisal procedures with a view to enhancing credit quality and responsible credit behaviour in the financial system.Kenya Commercial Bank Managing Director, Maurice K. Toroitich said the situation is a combination of many factors including an improved debt repayment culture amongst borrowers supported by Credit Reference Bureau."In addition, banks are exercising prudent lending practices plus certain old bad debts have been written off by banks,” he said. KCB has one of the lowest NPLs in the market at five percent.The Managing Director of Rwanda Commercial Bank, Sanjeev Anand, said that the Bank’s NPL dropped from 19 percent in January last year to 5.5 percent as of December 2011.Commercial bank credit to the privates sector grew by 28.4 percent last year to Rwf509.8b last year, reflecting a serious rebound in economic activity.

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