Recently, I regained my freedom to criticize banks and whenever there’s need, I will put that status to good use although I still have a soft spot for one of the actors. This week, one man’s frustrated attempt to access credit led me to conclude that our banks have ‘anorexia nervosa.’ By nature, banking is a risk oriented business where bankers lend you money hoping to profit off it in form of interest; when the risk to lend is high, and supply of money low, bankers charge a high interest rate on the loan, hoping to cover potential loss. Currently, interest rates wiggle between 17 and 20 percent on most credit facilities; quite high but understandable considering tight deposits and high-risk borrowers. The high interest rates also point to a risk-averse banking sector. “The increase of credit risk has caused banks to tighten their stance to reduce Non-Performing Loans ratio which increased from 7percent in June 2016 to 8.2 percent in June 2017,” reads a slightly paraphrased statement from Central Bank’s financial stability reporting. As of June 2017, the industry stock for bad loans stood at Rwf149 billion from Rwf112billion as of June the previous year; this could explain why banks are scared of undertaking their core business of lending by resorting to keeping money under wraps. How? The capital adequacy ratio of all our banks combined stood at 21 percent (representing how much cash is in bank vaults) as of June 2017; this was 6 percent more than what Central Bank requires them to keep, as a regulatory soundness indicator. Sadly, being risk-averse literally means bankers are running away from their core business of trading in risk instead of getting innovative and more competitive. Note, the same central bank report I am basing my argument on can be given a positive spin in defense of banks, to actually show they’re lending more to the private sector. Indeed, 96 percent of the banks’ credit lending portfolio as of June 2017 went to the private sector, with just 4 percent to government. But who in the private sector are the banks really lending to? That is where we have a problem. At least 67 percent of banks’ lending concentrated on corporate/institutional borrowers leaving individual borrowers in the cold, at 33 percent yet customer deposits accounted for 65 percent of banks’ source of liquidity. Here is a real-life example of an individual customer left in the cold by the banks; Dave, is a European expat married to a Rwandan national. Dave is lucky; he earns a dream-salary of Rwf10 million a month and wants to start a business to create jobs for his family members and other Rwandans but also diversify his income. He wants to borrow Rwf60 million, as part of initial capital. He would initially draw from his salary to repay the loan before the business sales are able to repay the loan. Dave is offering his property worth over Rwf110million in the outskirts of Kigali, as collateral, just in case he fails to repay their money. Note that, Rwf60m is six times Dave’s monthly salary. But Dave’s bank is reluctant to deal. They feel Dave’s employment contract is not long enough to guarantee his monthly income. They prefer an open-ended contract. Dave reminds them of his valuable collateral. The bank is unbothered. Dave calls a friend who has friends in the banking sector. He is introduced to a senior manager in a major bank; armed with new hope, Dave meets the senior banker hoping for a deal. The meeting ends in frustration, they too, point to the short yet renewable contract, as a barrier. He shares his frustration with his friend. The friend calls another banker friend, who’s a senior manager in another bank. He’s briefed of the situation and he says; give him my number, let him call me...ask him to call me! The friend asks the banker to make the call and initiate business. The banker hasn’t! Dave isn’t giving up. He’ll travel to Europe to mobilize the Rwf60m capital that banks here can’t lend him. But if our banks can’t lend to someone who nets Rwf10m a month, what chances do the rest of us folks have? The attitude of our bankers is very wrong; they want to stay in their air-conditioned cubicles and wait for customer referrals yet in other markets, banks employ market-intelligence officers to look for clients like Dave and offer them credit facilities. In our market, the banker tries to show you how and why you can’t have the loan. In other markets, the banker will try to find ways of ensuring you get the loan. Anorexia Nervosa is a psychological eating disorder where victims are fearful of gaining weight and often believe they appear much fatter than they actually are. I am inclined to metaphorically write that our banks too, have anorexia Nervosa; they have this excessive fear for risk affecting their appetite to lend as they’re scared of gaining weight in form of bad loans. Yet in actual sense, they’re skinny and must boost their appetite to gain weight. For instance, our banks have only eaten 26 percent of the adult bankable market cake; they need help to find appetite for the 74 percent chunk of the uneaten cake. The views expressed in this article are of the author.
