Rwanda Commercial Bank (BCR) is to double penal interest charges on loan arrears and temporary overdrafts, saying the move aims at ensuring that clients pay in time.
The bank said in a statement that the charges will increase to 4 per cent effective October 1.
Sanjeev Anand, Managing Director of BCR, told Business Times that the decision will not affect the interest rates but rather clients who default their agreements.
“We are not adding any charge on the interest but we want to encourage our clients to pay in time,” he said in a telephone interview.
Sanjeev also noted that the move will help the bank to cut its Non Performing Loans (NPL), which stands at 3.7 per cent of the loan book.
“When clients don’t pay in time we cannot have enough money to lend to others,” he said, adding that to avoid this, clients will need to fulfill their commitments of repaying within agreed time.
With the current positive performance of the sector in terms of growth in total assets that jumped to Rwf1,207.8 billion in the first quarter of this year up from Rwf1,084.2 billion in December last year.
Any move to minimise NPLs will impact on the sector’s growth.
In fact, the sector’s quality of assets improved significantly as NPL to total gross loans reduced to 6 per cent in June this year from 8 per cent in December 2011 indicating an improvement of 10.3 per cent.
Industry experts that these penalties would make people shy away from acquiring loans from commercial banks which may likely hold back initiatives aimed at increasing access to finance for all.
“It is hard to understand these charges and most people may think they are hidden charges and again you may be willing to pay but you delay a bit that means you have to pay more than what you expected,” Jovani Higiro said.
But Sanjeev says the charges are clear and will not affect any clients who keep their responsibilities and financial discipline adding “if you want to avoid such charges, you need to pay in time”.
By Dias Nyesiga, The New Times