Analysts are projecting slow credit growth to the private sector in the East African economies, with Kenya and Rwanda having the highest number of risky borrowers.
As per the June 2017 Financial Stability, and Monetary Policy Committees statements, bad loans in Rwanda increased to 8.1 per cent from 6.2 per cent in the first three months of 2016 — blamed on weak credit analysis, poor loan monitoring and project design.
“To contain the increase in non-performing loans, the National Bank of Rwanda will continue engaging financial institutions on the enhancement of their credit underwriting and monitoring,” said BNR Governor John Rwangombwa.
For Kenya, the first three months witnessed a sharp drop in credit finance for trade, manufacturing, real estate and private households.
The managing director of KCB Rwanda, Maurice Toroitich, said that the coming August election has to a large extent contributed to reduced appetite for credit.
“Over the past few months there has been a wait-and-see attitude towards the polls,” said Mr Toroitich.
Kenyan banks have tightened their risk assessments due to interest rate capping.
In Tanzania, there is growing fear that the move by the government to renegotiate mining contracts will cause a slowdown in the short term, until a new chapter of investment under the new rules set by the government comes into play.
But statistics from the Bank of Uganda show that the risk of loan default dropped from 10.47 per cent as at December 2016 to 6.27 per cent as at March 2017, raising hope of growth in credit to the private sector.
The drop is linked to a fall in the gross value of non-performing loans and a rise in gross loans extended to the private sector.
Uthman Mayanja, partner at PricewaterhouseCoopers said that the Ugandan government needs to come up with a policy to support mortgage financing.
“For example mortgage interest relief whereby interest paid is recognised as a deduction in arriving at taxable income for individuals, would be useful,” said Mr Mayanja.