Impact of borrowers 'information on financial performance and resilience of Commercial Banks in Rwanda. (Case Study: Six commercial Banks)

Abstract

This study seeks to determine the impact of borrowers’ information on the financial performance and resilience of commercial banks in Rwanda. The independent variable for the study is borrowers 'information whereas the dependent variables include bank performance measured using Loan, Net Interest Margins (NIM), and Return on Assets (ROA) and resilience measuring using Non-Performing Loans (NPL) and Z-score. This study uses a sample of six commercial banks operating in Rwanda over the period 2007 to 2018. Using Ordinary Least Squares (OLS) estimation technique, findings reveal that. Borrowers’ information sharing through Credit Reference Bureaus (CRB) significantly improve banks ‘resilience and performance. Specifically, findings show that borrower information increases banks’ Z-score and reduces loan defaults (NPL) and also increases banks’ return on assets, growth in loanable assets and reduces banks’ cost of intermediation (Net interest margin). This study has both academic and policy implications. First, the study adds to the debate on the role of information sharing on borrowers in enhancing bank stability in a developing country context. From a policy point of view, this study recommends the vital importance of strengthening credit information infrastructures in Rwanda to increase bank resilience and performance.