Rwanda’s financial sector is expected to remain stable in the short and medium term, the central bank has said even as it warns of vulnerabilities related to increasing credit risk.

The outlook is contained in the Bank’s latest report which highlights a strong rebound of the financial sector from the slowdown in economic activity that was brought about by the Covid-19 pandemic.

According to the breakdown, the structure of the financial sector remained relatively unchanged with the banking sector holding 67 percent of financial sector assets.

Pension held up to 18 percent followed by 9 percent in insurance and 6 percent in microfinance.

"All these sub-sectors recorded double digit growth for the period ended in September with the pension leading by 25 percent followed by the banking sector at 21 percent,” the bank said in a statement.

The growth, the statement added, was induced by the progressive recovery of economic activities which saw customer deposits, pension contributions, and insurance premiums grow significantly.

Consequently, financial institutions held sufficient capital and liquidity buffers, citing that the two have been crucial in safeguarding the sector against the negative effects of the pandemic.

Credit risk remains a key concern

Despite a stable outlook however, the national bank said that risks continued to build up as loans in watch category (loans whose repayment is delayed by 30 to 90 days) increased by 70 percent (year over year).

This brought the figure to Rwf476 billion and represented 14 percent of total loans up from 10 percent in September last year.

Meanwhile, the bank observed a slight reduction in non-performing loans ratio which reduced from 5.7 percent in June, this year to the current 5.1 percent.

"The reduction was mainly induced by write off of long outstanding non-performing loans and as well as the growth in gross loans,” reads part of the report.

The Bank also pointed out that in a bid to avoid moral hazard risk related risks and instill balance sheet transparency, the credit restructuring forbearance granted to banks in response to the pandemic expired in September.

All Banks are therefore required to revert to normal regulatory guidance in loan restructuring, classification and provisioning.