Veracruz Bayo is the Guaranty Trust Bank (GTBank) Rwanda managing director. The banker is confident mobilising more long-term savings and embracing cashless banking will reduce the cost of borrowing and ensure sustainable development. High interest rates charged by banks have been a big issue for long, especially among the business community. Though the National Bank of Rwanda (BNR) slashed its key repo rate, banks never follow by cutting interest rates that average 17 per cent presently. The central bank rate is now at 5.5 per cent, down from 6 per cent previously. In an interview with Business Times’ Peterson Tumwebaze, Bayo also said the financial sector particularly banks must embrace digital banking to drive innovation and enable banks to serve customers more efficiently.

In 2016 you closed some of your branches in favour of digital banking. What has been your experience? Is it time for banks to go branchless?

When a branch is not generating income, it doesn’t make economic sense to keep it running; however, it is important to understand that operating branches as a bank is a thing of the past and digital is the future of banking.

We as bankers should have gone digital long time because as we speak even the digital phase has actually passed. It is true that when we acquired FinaBank, we tried to close branches because we understood where the business trend was heading. However, most people did not understand our intentions.

As banks we believe that the "to go market strategy” must be quick and fast if we are to remain relevant to customers.

What is GTBank’s position presently as far as e-banking is concerned?

We are a head of the game because for us digital banking has become our culture; besides we very much understand that as a bank, we must try to innovate mechanisms that will help us keep up with the market trends.

The idea is to always be customer centric because it is the right thing to do.

We have invested heavily in IT and other alternative channels to try and serve our customers more efficiently. What do you say to scholars who now say that embracing digital will lead to big job losses and also thus more problems to the industry?

Digital banking does not necessarily mean loss of jobs or that banks won’t need more people in other departments. For example, when we closed our branches, we established more departments, including e-business departments and employed more people.

All banks must do is enhance skills and have them aligned to the future of the banking. I am confident that banks will be more profitable when they go digital because it is the business we create that generates more money.

Therefore, it is crucial that banks embrace digital to stay competitive.

What is your assessment for Rwanda in terms of digital banking?

Rwanda is already doing what needs to be done, but to further deepen digital banking, we must address the issue of human capital, train more skills but also have the country’s education system aligned to the current market requirements.

This is because adding value to the banking sector requires right skills and will help make a difference in terms of economic growth.

It is also very important to understand that we as bankers must put the youth at the front of these innovations because they are the future of this country.

How important is digital banking in terms of financial inclusiveness?

Digitising banking sector will help deepen financial inclusion, and eventually boost access to credit. The more people you include into the banking system the better for everyone.

It is important to understand that banking is a game of numbers; the more people you have the better profits you make.

Therefore it is very important to bring everyone into the country’s financial system to be able to capture cash flows along those lines.

The drive to cashless; will change banking business dynamics?

This actually is what we are saying that attaining a cashless economy will actually help address some of these questions including lowering down the cost of borrowing.

Secondly, going cashless means you are able to bring and retain more money into the system which gives banks enough liquidity to lend at a much lower interest rate.

Most people, including the business community, say interest rates are very high. What is your take on this issue?

The rates are not high, because when you say it is high, you should be in position to define what is high. However, customers should know, there are so many factors that come into play when we set interest rates. And these include the level of risk; it is important to note that the higher the risk the high the interest rate.

So are you saying the level of risk is high in Rwanda?

You have to understand that the price I may give a large company like Bralirwa is not the same that I will give to Bayo as an individual because the level of risk is different. We charge according to the risk we are taking. I want to give my loans to people am sure they will pay back, because we are using depositors money which has to be protected.

Secondly, the cost of lending and doing business itself is always factored into the so called interest rates. When you have a situation where banks’ profitability is low what do you expect.

Remember high there is a difference between the ease of doing business and the cost of doing it. Fortunately enough for Rwanda, government is doing everything within its means to ensure some of these costs are reduced to facilitate businesses across the country.

What should be done to bring these rates down?

Ensuring that we mobilise more long-term savings and deepening financial inclusion is critical when it comes to lowering interest rates.

It means you have more money as deposits and which can be given out to borrowers at a much lower rate. In economies when interest rates are lower the system is efficient. Therefore interest rates is about, long term saving, how much money is in the system, and how efficient is actually that system.

What is your take on the question of growing non-performing loans?

It is a problem not only in Rwanda but everywhere in the world. However, often we get bad loans because in the first place that loan should not have been given from day one. This is because if you give a loan that was not supposed to have been given from word go, then you expect the customer to default.

It is important to understand that a bank with too much bad debt cannot properly provide companies with the credit they need to invest and create jobs.

Therefore, there is need to strengthen their loan application assessment processes as banks to address this challenge.

We also have to put in place strong monitoring mechanisms and also have customer profiles because better data means better risk-assessment and client profiling.

It is important to have correct information on borrowers’ assets, their financial and consumption behaviours and devise tailor-made approaches for low-value clients and high-value ones, and also those will help reduce costs. In addition, we must adopt a more efficient value-based compensation model that depends on the value effectively recovered.

You had reservations about the new global financial reporting standard 9...

The truth is that if it is implemented well, there will be no problem. However, the provision that is being requested could actually negatively impact on the industry. For example, it could affect our ability to do new loans and affect our profitability as banks.

Why are banks reluctant to finance SMEs despite the sector’s huge potential?

First of all we are not reluctant but remember banks are there to make money and not to lose it. The question is that we want to first evaluate and look at these ideas and projects to assess whether these projects are actually viable and bankable.

It is when we do this that some people think we are reluctant. Otherwise, the objective is, not only to support the SME sector financially, but also support them in terms of advice, training and monitoring. People must understand that banks have a role to play in supporting the country’s economic development.

How are the prospects of the local banking sector?

The future is very bright for as along we keep innovating to meet customer needs; the economy will perform better than it did last year which is better for bankers.

Equally, investor confidence is growing which is good for the industry.

What should customers expect from GTBank?

They should expect more customer-friendly and innovative products, we are also working to ensure we actually refine the existing products to best suit customers’ needs. We want to innovate so that we keep ahead of the market curve.