Banks bear high interest rates on fixed-deposits

•MTN Rwanda refuted the information saying that six percent is the maximum offered on the company’s monthly deposit of Rwf1 billion. Amidst creeping liquidity in the banking system ,interest rates on fixed-deposits have increased as commercial banks resort to large companies’ deposits . A fixed deposit is a loan arrangement where specific amount of funds are placed on deposit under the name of the account holder to earn a fixed rate of interest. Information from some local commercial banks indicates that interest rates on these accounts has increased to 16 percent up from six percent in April last year, pushing interest rates on loans to between 17-20 percent. In an interview with The Business Times, Jean Marie Gacandaga, Risk Manager in Bank of Kigali (BK) said that liquidity production from deposits explains how different banks have insufficient cash to lend. Banks expect the high interest rates on fixed-term deposits to attract more deposits for re-stocking liquidity in their balance sheets. Gacandaga said client deposits in BK have reduced from Rwf100 billion in 2007 to Rwf89 billion in 2008. He said a significant amount of money has been withdrawn in recent months, causing a shortage in deposits. BK is also negotiating a loan financing with the European Investment Bank to help it sustain lending to its clients. “The long term deposit we are getting from our clients is one year thus considering the possibility to negotiate lines of credit to safeguard our liquidity in this critical period of the global recession,” Gacandaga said. Hannington Namara, Commercial Bank of Rwanda’s (BCR) Head of Corporate Banking said their interest rates have been ranging from 14 to 16 percent depending on the type of loan. “The higher the risk, the higher the interest rates,” he explained. Patrick Masumbuko, Brand and Communications Manger in ECO-Bank said that the bank pays around 13 percent interest on deposits and charges 20 percent interest on business loans. He however said that Eco-Bank is resilient and has not had liquidity problems. However, Richard Tusabe Chief Finance Officer of MTN Rwanda refuted the information saying that six percent is the maximum offered on the company’s monthly deposit of Rwf1 billion. He said MTN Rwanda is planning to make massive investments with an intention of pooling credit resources from local banks at 15 percent. “So, how can we get an interest of 15 percent and charge 16 percent on deposits?” he questioned. The National Bank of Rwanda (BNR) recently said that different local commercial banks are negotiating external lines of credit worth $70 million. The Central Bank also said that it had employed a wide rage of strategies that have helped restore liquidity in the banking industry. Ends

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Banks bear high interest rates on fixed-deposits