The financial sector is perhaps the economy’s most transparent arm of enterprise, thanks to National Bank of Rwanda’s (BNR) regulation that requires all active commercial banks to post full details of their operations on quarterly basis; there are four, 3-month quarters in a year.

The sector’s ten commercial banks (without CraneBank) posted their performance results for the first quarter covering the months of January to March, indicating handsome growth amidst surging competition on account of retail product innovation.

As government heads into a new fiscal year running from July 2017 to June 2018, the taxman has set himself an ambitious target of collecting Rwf1.37 billion in domestic revenues, to finance at least 66 per cent of the total budget.

In theory, that target is possible; in practice, it will be difficult but not impossible. For Rwanda Revenue Authority to hit its mark in domestic revenue collection, the engine of the private sector arm of the economy must be well oiled with financing to power economic activity.

With stronger economic activity comes more investment in productive ventures such as in services, construction and manufacturing under the umbrella of the ‘Made in Rwanda’ national campaign.

The ultimate result will be more jobs created, higher incomes leading to higher net consumption, which will help the taxman’s effort of collecting VAT; however, as economists say, such smooth-sailing projections will be realized ‘if all factors in the mix remain constant.’

Internally, the economy should have nothing to worry about even with the Presidential election coming up just two months into the new fiscal year; thanks to strong institutions, Rwandan elections have an enviable record of being peaceful and un-obstructive to economic activity.

The real trouble has always cropped from external factors; regionally and internationally. Memories are still fresh in most minds, in 2013, when foreign backed brouhaha forced economic growth to sharply decline to 4.6 percent, below the 6.6 percent projected for the year and way-lower than 7.3 percent growth recorded the previous year.

In May, the International Monetary Fund (IMF) announced a 6.2 percent growth projection for Rwanda’s economy in 2017 which will, if attained, be a recovery from a 5.9 per cent growth dip in 2016.

IMF’s projection is founded on the thinking that the government’s efforts and incentives to promote domestic production and consumption of local products as well as value addition of exports will keep the economy buoyant.

On the external front, regionally, the Kenyan election is a factor to watch, and depending on the outcome of the contest for power between incumbent Uhuru Kenyatta and his habitual rival Raila Odinga, effects might be felt, owing to the role of the Mombasa port in the northern corridor cross-border trade dynamics. The election is set for August 8, 2017.

Internationally, the shaky governments in USA and UK may inspire global leadership instability that may destabilize the traditional flow of international development aid and sponsorship of special projects aimed at building capacity in many African countries.

The economic restricting in China, hitherto Africa’s largest consumer for raw materials will also continue to have a negative impact on commodity prices resulting from lower demand on the international market; if China is not buying, demand always dips.

Europe is a lame-duck as it battles to contain the strong forces of disintegration as well as the burden of immigrants from Middle-East. Germany’s Angel Markel and France’s new young leader are attempting to restore confidence in European global leadership but to Africa, this should signal the beginning of serious in-ward looking for self-reliance.

Banks have a key role to play

With an unpredictable global landscape, countries including Rwanda have to put their domestic resources to best possible use to move towards self-reliant economies.

Banks have a core role to play in this regard, as they act as intermediaries between people having surplus money and those requiring money, in form of loans hence fueling economic activity.

Going by their respective published first quarter performance results, Rwanda’s banking sector appears to be in a strong position to play its financing role of the private sector, as the country warms up for the upcoming fiscal year.

The sector will be looking to entice depositors with extra-cash to stash away, with attractive deposit rates while trading the same savings to capital-hungry entrepreneurs looking to invest in new ventures.

As of March 31, 2017, customer deposits held in nine commercial banks (without Bank of Africa and Crane Bank) amounted to over Rwf1.314tn compared to Rwf1.28trn in the same period last year; of that total, Bank of Kigali holds the lion’s share at Rwf433 billion followed, respectively, by BPR with Rwf167 billion, I&M’s Rwf151bn, EcoBank’s Rwf127bn, Equity Bank’s Rwf101bn, and CogeBanque Rwf109 billion.

Although customer deposits with commercial banks have steadily been growing, from Rwf647 billion in 2011 to Rwf1.2 trillion in 2016, an equally fast growing Private sector has meant that those deposits are not adequate to meet the currently high demand for credit.

The other challenge is the short-term nature of those deposits where their respective owners pull the money sometimes before commercial banks could lend it to those in need of loans for investment; this factor has contributed in part to the high cost of credit at which banks lend to borrowers.

In a bid to mitigate that, Bank of Kigali CEO Dr Diane Karusisi is currently on a countrywide tour of the bank’s extensive branch network, using the opportunity to teach customers about the importance of keeping their money in the bank as it facilitates those that want to borrow for investment, to not only access credit but also, inexpensively.

"That way, we can all contribute to the development of our country; keeping money under the mattress obviously makes it warmer but keeping the money in a bank is more productive and benefits everyone directly and indirectly,” Karusisi told customers in Karongi, Friday last week.

As of March 31, 2017, net loans to customers by all commercial banks (minus Bank of Africa and Crane Bank) amounted to Rwf1.13 trillion an increase from Rwf1.09 trillion they had collectively lent out in the same period last year.

Bank of Kigali again topped the list with its net loans to customers standing at Rwf426billion, an increase from Rwf385billion in the same period last year. In a distant second place behind BK is BPR whose net loans to customers grew marginally to Rwf169 billion from Rwf168 billion last year.

The sector growth over the last five years is also impressive indicating that commercial banks’ net loans to customers has increased from Rwf418 billion in 2011 to over one trillion Rwanda francs last year as the size of the country’s private sector continued to expand.

For instance, in 2011, Bank of Kigali’s net loans to customers only amounted to Rwf123billion; it is now close to half a trillion.

This positive growth in lending is also reflected in other banks such as CogeBank whose net loans to customers have surged from Rwf38billion in 2011 to an impressive Rwf111billion as of March 31, this year; Equity’s net loan book has grown from Rwf305 million in 2011 to Rwf81 billion in the first quarter of this year.

While commercial banks’ net loan books have continued to grow impressively over the last five years across ranks, borrowers are still lamenting about the high cost of credit manifested in form of high interest rates.

In what was seen as a positive response to that concern, Bank of Kigali recently unveiled a new risk-based pricing model that favours customers with a good financial track record, enabling them to borrow interest rates lower than the prevalent average market rates.

"The risk-pricing model enables customers with a good individual financial track record as well as businesses with strong management structures to borrow at lower rates,” Dr. Karusisi said during a press conference to announce the BK’s first quarter results.

While it doesn’t address all factors behind perceived high lending rates, BK’s new pricing model, coupled with efforts to improve operational efficiency, will, experts note, significantly benefit borrowers, and also help inculcate the culture of good corporate governance.

All banks stand to benefit from improved corporate governance standards among especially corporate borrowers as this would impact positively on the quality of assets held by banks, and push downwards the ratio of non-performing loans.

Commercial banks’ assets held by nine banks amounted to nearly two trillion, at Rwf1.9tn as of March 31, 2017 having increased from Rwf1.8trillion in the same period last year and Rwf891 billion in 2011.

But as commercial banks ready to finance the economy in 2017/2018, they should prioritize improving their efficiency considering the current level of the sector’s operational cost which stood at Rwf31 billion as of March 31, 2017, representing a 7.2 percent rise from last year.

The high operational cost for the banks may be blamed for the slim profit margin of Rwf10.4bn posted in the first quarter of this year, representing only a cartoon growth from Rwf9.2 billion in the same period of last year.