As it emerges that a recession is eminent on the African continent affecting business across the continent, eyes are on the financial sector on their role in rescuing enterprises.

With a number of supply chains and businesses having halt their operations, they will be seeking capital to resume and restart operations with banks and other financial sector players being viewed as a way out.

However, the financial sector is not untouched by COVID-19, like other sectors, they too will be impacted negatively by the crisis.

A position paper by the East African Business Council noted that among effects on the financial sector include banks credit to the private sector is expected to decelerate rapidly due to both supply – and demand-side factors.

 "On the demand side, there will be lower household demand for credit as many applied austerity measures and weak corporate sector balance sheets as well as cash flow problems facing many companies impacted on credit uptake,” the East African Business Council position paper noted.

Local and regional banks are also likely to take precautionary measures and tightened their lending standards to minimise further exposures to risks associated with COVID-19 by increasing their holding of government securities considered to be much risk-free.

Further impact and effect is likely to be manifested in the elevated credit risks in the banking sub-sector which could be caused by the deterioration of their asset quality due to increased Non-Performing Loans (NPLs) and provisions.

The insurance industry could also see declining margins and falling performance metrics measured by Return on Assets and Return on Equity. This experts attributed to the challenging economic adverse effect of COVID-19.

The East African Business Council noted that in the corporate sector, profitability and liquidity problems could be reported in several companies, including those listed on the Stock Markets.

There is no expectation of Initial Public Offerings (IPO) or new corporate bond issuances amid of COVID-19.

Further effect is likely to be on the pension sub-sector will be negatively impacted on growth in assets due to exposure of its assets to excessive stock market volatility in the banking sector and off-shore investments as a result of COVID-19.

Among the measures the position paper noted could salvage the sector include  aspects such as lowering the reserve requirement ratio required by Central Banks to boost the liquidity of the commercial banks so that they can have more cash to lend to the private sector.

Rwanda has already taken the measure by lower the reserve requirement ratio from 5 per cent to 4 per cent, in order to allow banks more liquidity to further support affected businesses.  This has improved liquidity by up to Rwf 26B increasing funds available for lending to support the economy.

For the next six months, the Central Bank has offered to buy back bonds at the prevailing market rate and also reduced the waiting period if one fails to sell the bond at the secondary market from the current 30 days to 15 days further boosting the financial sector performance.

 The regulator has also out in place a Rwf 50B from which Rwandan banks can borrow from to increase their liquidity to support lending to the private sector.