The financial effects of the COVID-19 pandemic continue to impact the Rwandan credit market, with the newly-released TransUnion Q3 2021 Rwanda Market Analytics Report showing a major decline in the number of new consumer and business accounts being opened and a steady increase in the number of non-performing loans.
However, there is light at the end of the tunnel, with the country’s GDP growing by 20.6% in Q2 2021 over the same period in 2020 as the economy starts showing signs of recovery from the pandemic.
Further good news is that the country’s financial sector continues to be ‘stable and resilient’ despite the economic effects of the Covid-19 pandemic, according to the Financial Stability Committee . Banking sector assets grew by 20% between June 2020 and June 2021, from Rwf 3,853 billion to Rwf 4,624 billion driven by growth in loans to customers on the back of increased customer deposits, borrowings from international lenders, local interbank borrowings and capital injections.
The financial sector remains adequately capitalised and liquid, although the FSC noted increased credit risk in lending institutions as a result of the pandemic. This means that while the credit market remained under significant pressure in Q3 2021, the improved economic conditions should lead to a steady recovery in the credit market in coming quarters, said Samuel Tayengwa, the Head of Product for TransUnion Rest of Africa Regions.
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This pressure was reflected in the TransUnion Report, which reviews emerging trends in the Rwanda credit landscape and is designed to help lenders identify new dynamics and to make more informed lending decisions. The report showed a decline of 48.2% in new loans opened in Q3 over the previous year, with 102,987 new accounts opened in Q3 2021, compared to 198,862 new accounts in Q3 2020.
The principal value disbursed also decreased by 53.8%, from Rwf 418.21 billion to Rwf 193.43 billion.
Q3 2021 saw the lowest number of loans and principal disbursed reported in the microfinance sector since 2018, with 14,191 loans worth Rwf 19.79 billion. Mobile loans accounted for the highest volume of accounts opened in Q3, with 37.4% of new loans opened. Mobile loans are characterised by high volumes and low principal amounts, with a total principal value of around Rwf 0.4 billion.
At the same time, the non-performing loan (NPL) ratio increased to 6.6% in Q3 2021, from 5.1% in Q2 2021 and 5.2% in Q1 2021. The banking sector’s NPL ratio increased to 7.5% in Q3 from 6.4% in Q2, while the microfinance sector’s NPL ratio was up to 5.2% from 3.5% in Q2.
The report showed that commercial banks hold the majority of the new loans reported in Q3 2021 at 72.1%, with development and cooperative banks accounting for 12.6%. Commercial banks disbursed 49.8% (Rwf 91.2 billion) of the principal amount, with other banks disbursing 38.5% (Rwf 74.52 billion).
Millennials (born between 1981-1996) still dominate the borrowing market, at 56.4%, ahead of Gen Xers (1965-1980), at 21.5%. Mobile loans are more popular among Gen Z (1997-to date), making up 68.2% of all their loans, compared to 56.3% for Millennials and 41.2% for Gen X.
The highest risk customers are the so-called silent generation (1926-1945), with an average NPL ratio of 9.0%, as most are retired and have shrinking incomes that make it difficult for them to meet their credit obligations. The youngest generation, Gen Z, has an NPL ratio of 7.0%, as a result of a lack of financial education and a need to develop improved credit management skills, said Tayengwa.
Insights, digital journeys to drive market growth
Tayengwa said the Q3 2021 numbers highlighted the fact that banks and lending institutions will have to reimagine the role of lending in the economy and adjust their operations to the current circumstances if they are to stay on a growth path. This will mean a greater focus on risk management and customer-centricity, with customer segmentation and data insights critical for decision-makers to make more informed judgements.
“We’re going to see a greater emphasis on driving strategic value through data, which can be used to make more accurate predictions to inform strategic decisions like increasing wallet share, identifying cross-sell opportunities and prevention of customer churn,” said Tayengwa.
“We will also see a greater drive towards digitalisation in Rwanda’s banks, with consumer appetite for seamless, friction-right online transactions likely to grow due to increased competition between lenders, pushing more institutions to provide more digitised services.”
Tayengwa said the pandemic had also sparked a greater focus on customer financial wellness, with lending institutions becoming more active in helping their customers achieve lasting financial well-being – and in the process, driving greater customer loyalty. Loan portfolio diversification would also be essential if lenders were to reduce their exposure to precarious segments of the economy.
On the technology front, banks should identify technology that strengthens their capabilities in areas like risk management, cybersecurity, credit card fraud detection, customer service, and product development. For instance, conversational artificial intelligence (AI) systems could provide personalised customer experiences and improve call-centre efficiency, said Tayengwa.
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Recognised as a leader in the African credit, risk and fraud markets, TransUnion provides consumer reports, risk scores, analytical services and decisioning capabilities to businesses across the continent. TransUnion is the only company in Africa’s IT industry that manages multiple complex databases containing insurance, cellular, consumer, commercial and auto data assets. In addition, it manages leading African databases in property and deeds, qualifications and telecommunications.