Commercial bank borrowers are still finding it expensive to take bank loans despite central bank efforts to lower the rate at which it lends to commercial banks to 6.5 per cent.

The repo rate has been steadily coming down from 7.5 per cent In 2012 to the current 6.5 per cent in order to make loans affordable to private sector.

In the past six months, the central bank has kept repo rate at 6.5 per cent in the hope that commercial banks could also lower interests rates.

According to National Bank of Rwanda’s figures, the average weighted interest rates for commercial banks for most part of last year and this year has been around 17 per cent which is considered high by the borrowers.

The World Bank says an average lending rate of 17 per cent has the potential to scare away borrowers. When commercial banks borrow at higher rates from the central bank, the cost is transferred to the individual borrowers, which is beyond reach for the majority of private sector players.

Although loans extended to the private sector have been growing over the years, Rwanda’s private enterprises still lack the funds to grow while they are still cautious taking bank loans because of fear of defaulting mostly as a result of high costs of borrowing.

The most affected are individual borrowers who are still subjected to high interest rates.

The increased loan uptake could be attributed to the growing economy where demand for funds to finance projects in different sectors is now high.

Borrowers for along a time have been demanding lower interest rates given the entry of many regional banks on the Rwandan market providing options and competition.

There are 10 commercial banks in the local market but only nine are offering loans to their customers with Crane Bank, the latest entrant yet start to providing credit.

However, banks have also maintained that given the prevailing operational costs in the sector, the interest rates may stay for some time or change slightly.

“Banks don’t reduce the lending rate depending on one factor and the Rwandan environment is faced with challenges such as high operational costs and high deposit rates which are higher than most markets especially in the region,” said Maurice Toroitich, managing director of Kenya Commercial Bank Rwanda.

Deposit rates in Rwandan market stand at 12 per cent compared with 7 per cent in the region while return on capital in Rwanda is 8 per cent compared with 20 per cent in the regional market.

According to the central bank figures, the sector’s balance sheet remained health as total assets increased by 19.3 per cent by the end of last year amounting to Rwf1.8 trillion from Rwf1.51 trillion same time a year before.