The local banking sector continued its robust performance this year, with its assets growing marginally over the first six months of 2016. The sector has continued to attract new players with Atlas Mara completing acquisition of the former Banque Populaire du Rwanda in January, which was rebranded BPR. However, there was a scare when social media claimed the National Bank of Rwanda (BNR) was planning to take over Crane Bank Rwanda after its parent firm in Uganda, Crane Bank Limited, was put under administration by the country’s central bank in late October for being undercapitalised. The closure rumour was, however, dismissed by the BNR as baseless "since the bank is adequately capitalised and operates independent of its mother company”. Despite this false alarm, the banking industry remained largely unfazed.

Experts attribute the continued growth and stability of the Rwandan banking sector to strong supervision by BNR and supportive laws. Maurice Toroitich, the KCB Bank Rwanda managing director, says the sector has remained vibrant over the past 12 months, registering many positive developments, especially in the area of digital banking.

"We also had new entrants into the market and more are expected in the coming year. However, the banking sector has also had its challenges with rising non-performing loans and an increase in incidences of fraud,” says Toroitich, who is also the Rwanda Bankers Association chairman.

He says the strong investments banks have made in e-banking platforms, coupled with the general reduction in the cost of Internet, means more people will benefit from formal banking services in the future.

"We should see greater uptake of self-service banking in the years ahead and an overall improvement in banking service penetration,” says the regional banker. Toroitich, however, argues that the sustainability of any banking business must be deeply rooted in strong governance mechanisms and ethical foundation through all its structures.

Patrick Uwimana,  a Kigali-based economist says, "Rwanda needs a stable and sound banking industry to support its efforts geared at reducing poverty to help transform the country into a middle-income status by 2020.”

He says the sector’s performance this year has laid a firm foundation that players should build on in 2017 and deepen their reach and financial inclusion.

He says the positive performance is evidenced by the increasing number of commercial bank branches agencies, client accounts, ATM network, and banking services that use mobile money services.

"All these are a result of Rwanda’s medium-term sector development targets, including building an inclusive financial system.”

The figures

BNR says the sector has continued to hold significant capital buffers and higher liquidity positions, significantly above regulatory requirements for the year ended June 2016. This shows the current stability, but also lays ground for future financial stability as banks can fall back on these buffers during times of financial stress, according to the central bank.

Figures from the central bank indicate that the sector expanded 13.9 per cent year-on-year to Rwf2.3 trillion from Rwf2 trillion in June last year. Its liabilities inched up 13.3 per cent to Rwf1.9 trillion from Rwf1.4 trillion in June 2015, with customer deposits accounting for 81 per cent of total bank liabilities.

BNR chief John Rwangombwa says the regulator will continue to conduct prudent surveillance of the entire financial sector through regular onsite inspections and offsite analysis to maintain stability and efficiency in the financial sector.

More expert views

Sanjeev Anand, the chief executive officer BPR, says more Rwandans are now formally banked. "Financial institutions are moving closer to people through network expansion and digital financial services,” says Anand.

Anand says the cornerstone of modern banking has shifted to include innovation and digitisation, which have helped banks to reach more people in the most efficient and affordable way.

Meanwhile, Diane Karusisi, the Bank of Kigali chief executive officer, says the challenges and disruptions facing the sector presently are normal and not an exception.

"It is difficult to predict what banking will be like in 50 years. Nonetheless, regardless of the evolution of the industry,  banks must embrace innovation to remain relevant in the lives of people who want to save, invest or do any form of business. The bank made a landmark in its development stage, clocking 50 this year.

Loan book drops

BNR figures indicate a slowdown in outstanding credit to the private sector between December 2015 and June 2016, attributed to a drop in the economic activity, particularly during the second quarter of the year.

However, the central Bank noted  that the new authorised loans expanded by 18.3 per cent to  Rwf426.7 billion in the first half of 2016 against  Rwf360.8 billion in the corresponding period of 2015. In the first eight months of the year, new authorised loans increased by 11.5 per cent to Rwf514.1 billion. However, this did not translate into a higher credit stock due to the predominance of short maturity loans in the former, according to the central bank.

Sector profits surge

The banking industry has remained profitable throughout the year, with banks posting a net profit ofRwf19.4 billion. However, throughout the year, interest rates remained relatively high, raising concerns among the private sector.

However, Marc Holtzman, the Bank of Kigali board chairman, says there is always room for improvement, adding sector players should continue to look for ways to improve services, as well as design relevant and affordable products.

"As the market develops, with a more predictable environment for investment, I believe interest rates will decline organically. That is because the competitive forces in the market will demand that interest rates become more competitive, especially considering that inflation is relatively modest in this market, Holtzman told The New Times early this year.

He also believes that with more people embracing formal banking services, deposits will increase, leading to cut in rates as banks access less costly finance locally.

E-banking way to go

Robin Bairstow, the I&M Bank chief executive officer, says it is essential for the banking sector to embrace e-banking and other electronic facilities going forward to ease operations and improve service delivery.

Bairstow says e-banking, agency banking, and cashless facilities like credit and debit cards could also help players cut costs. "This way, the sector will be able to reduce the cost of transactions and boost cashless economy, as well as efforts for green and sustainable development,” he said in an earlier interview with The New Times.

In fact, all the key financial sector players are working to adopt e-facilities and e-banking so as to bring more Rwandans into the formal banking sector, especially in rural areas. This is crucial to achieve government goal of boosting access to bank services and deepening financial inclusion in the country.

Bank takeovers

Attijariwafa Bank, one of Morocco’s leading banks, acquired 76.19 per cent of one of Rwanda’s leading banks, Cogebanque at $41 million. The Moroccan based bank on October 18, 2016 signed the acquisition of Cogebanque ahead of the State Visit by King Mohammed VI of Morocco. The partnership is expected to further boost the sector going forward.

United Bank of Africa completed takeover and rebranding of Ageseke Microfinance Bank this month after over a year since the acquisition was announced in October 2015. The firm secured a 90 per cent controlling stake with SORAS remaining with a minority share of 10 per cent.

$204m reserve support kitty, franc under pressure

Rwanda acquired a standby $204 million (about Rwf159.7 billion) credit facility from the International Monetary Fund (IMF) in June to support the country’s reserve capacity. The development buttressed the central bank’s reserve position and capacity to intervene in the forex market and help smoothen operations in case of any instability.

The country has faced currency depreciation, with the local unit shedding over 6.9 per cent value against the dollar by mid-August, weighed down by pressure from low export earnings and high import demand and high appetite for the greenback. This has affected performance of many sectors of the economy, including banking. The unit depreciated by 7.5 per cent last year, the biggest drop in the local currencies value in decades, according to the central bank.

The Rwanda franc depreciated by 4.6 per cent during the same period (August) in 2014. The local unit has been trading at an average of 820/838, buying and selling over the past 10 days.