MPs call for lower lending rates

HIGH lending rates charged by commercial banks on loans were among the contentious issues MPs raised on Friday afternoon after the standing committee on budget and national patrimony presented its review on the budget paper framework at the Chamber of Deputies.Interest rates on loans currently stand at an average of 17 per cent.In addition, a recent National Bank of Rwanda’s decision to increase the key repo rate, from 7 percent to 7.5 percent could spark off a new wave of interest rate hikes among commercial banks for both new and existing loans. The repo rate is the interest rate that the central bank charges banks for secured overnight lending. After Constance Rwaka Mukayuhi, the Chairperson of the Committee highlighted her team’s key observations to the government on the national budget, MP Emmmanuel Mudidi, was the first to agitate for lower interest rates.Mudidi noted that new entrants in the country’s banking sector ought to lend a hand in pushing down interest rates. “One other factor is the advantage of foreign banks coming in. Usually, they should be bringing about efficiency, through competition, to bring down interest rates. But the interest rates have remained the same.” “What does it mean? It means they do extend services to the population but siphon out capital through capital flight. Why don’t we see competition in the perspective of decreasing interest rates?”MP Amiel Ngabo pointed out: “One of the things the budget committee appreciated is the fact that banks have increased in the country and are spreading to all corners, which is true.”“But Honourable Speaker, a look at the level of unemployment out here, and the policies in place, demonstrates that even if these banks are increasingly coming in, the interest rate on their loans is really still very high.“I don’t know why the committee did not deem it necessary to recommend that the Central Bank be requested to sensitise or put in place a plan to lower interest rates to facilitate Rwandan investors to access loans that enable them to get profits. I really think this recommendation should be considered so that the Central Bank compels banks to reduce the interest rate. Worldwide, high rates discourage private investments.”When reached for comment, yesterday, the Central Bank Governor, Ambassador Claver Gatete, expressed dismay at the contention, stressing that much efforts are put in place to manage the interest rates in the economy despite a continued global turbulence.Amb. Gatete noted: “I do not think that is an issue, really. Interest rates, if anything, have only come down, and have never increased since last year. They are stable or declining.”On the issue of the expected effect of new entrants, Amb. Gatete said he believes the lawmakers should be informed of the wider perspective of issues especially those pertaining to the banking sector.“Yes, the new entrants are here, but there is a cost – when you are lending, or when expanding by establishing branches in the country, which is what they are doing. Look at the aspects of inflation and risk, and other things. You have to look at the whole stream of lending money. Our numbers are clear. Even when we recently increased the repo rate, interest rates here have not gone up despite what other countries [in region] are experiencing, with about 30 per cent interest rates,” Amb. Gatete explained. “The weighted average interest rate for the month of April was 16.87 percent, in March it was 16.3, in February it is 16. 7, in January it was 16.94, percent, respectively, so, it is just below 17 percent and has never moved beyond.“Last year, in September, we had 17 percent, in October, 17. 04 percent and the other months were closer to that. Despite the fact that we are having global pressures, the average rate has not moved up. This should really give anyone comfort,” Amb. Gatete added, stressing that the National Bank of Rwanda is keenly monitoring the situation.