Tough Times for Rwanda Banks as NPLs rise

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Rwanda’s overall banking sector performance has continued registering positive growth, results from the last five years indicate that bad debts has stood out like a sore thumb among the operators.

Rwanda’s non-performing loans (NPLs) rose 7.5 per cent in the 12 months ending December 2016 fuelled by a volatile economic environment that saw banks struggle to meet their loan obligations.

Data from the Rwanda National Bank indicates that credit risk rose in 2016 in both banks and MFIs. The NPLs ratio of banks increased from 6.3 percent in September 2015 to 7.5 percent in September 2016.

In the same period, NPLs of the microfinance sector increased from 7.8 percent to 8.2 percent.

Central bank urges Rwandan financial institutions to make adequate provisioning of impaired assets as required by the regulation and enhance their internal credit analysis and monitoring processes.

The in NPLs shows that banks have difficulty collecting interest and principal on their credits.

The country’s financial sector continued to gain profit in 2016, albeit lower compared to last year. The banking sector’s net profits (after tax) in September 2016 was 2.8 percent lower than last year Frw 33 billion.

In the same period, microfinance sector profits increased by 39.7 percent to Frw 7.1 Billion.

Banking sector experts believe that this, if the NPL’s issue is not addressed will disturb the performance of the financial institutions as well as eat into their profit margins.

Peter Rwema, the secretary general of the Association of Microfinance Institutions told Rwanda Eye last week that MFIs are moving to professionalise the sector.

“The Association of Microfinance Institutions is moving on strengthening its internal control systems to augment efficiency and ensure that our loan recovery and monitoring procedures support the sector recover from the situation,” Rwema said.

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