The Rwandan banking sector demonstrated robust growth in the first half of 2024, with net profits soaring by 36.7 per cent to Rwf132.5 billion. This positive trend reflects the sector’s resilience and strong performance, the National Bank of Rwanda (NBR) has indicated.

The surge in profitability was fueled by a combination of factors. Increased revenues, primarily driven by higher investments in earning assets like loans and government securities, played a significant role.

At the same time, a reduction in the cost of funding, and improved operational efficiency contributed to the overall financial health of the banking sector.

Efficiency improvements are reflected in the overhead cost-to-income ratio, a measure of how efficiently the industry is using available resources to generate revenue.

Cost-to-income ratio dropped to 33.4 per cent in June 2024 from 37.5 per cent in June 2023.

The cost-to-total income ratio, another key metric that measures the overall efficiency, taking into account all sources of income, moved to 63.4 per cent from 67 per cent over the same period.

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The banking sector’s return on assets (ROA) and return on equity (ROE) grew by 4.9 per cent and 21.8 per cent, respectively, while the combined assets of the industry reached Rwf7.8 trillion.

The banking sector remains the leader in the financial sector, controlling 67.5 per cent of the total financial sector assets.

While presenting the Monetary Policy and Financial Stability Statement (MPFSS) on September 25, John Rwangombwa, Governor of the central bank, said the returns have positioned the country’s banking industry competitively in the region.

The governor boasted about the fact that Rwanda and Kenya were the only countries in the region whose return on assets sit well above 20 per cent.

"This is a good indication that our banking industry is attractive to investments. It is good business but it is also contributing to the general performance of the economy,” he noted.

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Private sector credit

Outstanding loans in banks grew by 16 per cent, fueled by increased demand for loans and a favorable business environment, BNR showed in its latest monetary policy presentation and financial stability statement.

In the first half of 2024, new authorised loans in the banking sector increased by 29 per cent toRwf1.05 trillion. The top financed sectors were wholesale and retail trade, personal loans, construction, and manufacturing.

While the manufacturing industry has significantly benefited from new loans, the agriculture sector continues to face challenges in securing adequate financing from banks.

The high perceived risks associated with agriculture have hindered lending in this crucial sector. To address this gap, the insurance sector is seen as key in mitigating risks and enabling increased financing for agriculture.

Namara Hannington, Managing Director of Equity Bank Rwanda, observed that the agriculture sector presents an opportunity for both banks and insurers to collaborate to finance the sector and other key underserved economic sectors.

He noted that this would promote economic activities and boost growth while providing business for the insurance sector as well.

New loans to the manufacturing sector reached Rwf47.3 billion in the first half of the year, accounting for a significant 9 per cent of total new authorised loans.

According to Diane Karusisi, CEO of Bank of Kigali, while manufacturing companies have been a major driver of bank lending, they have also contributed to a rise in non-performing loans, particularly among newer firms and those participating in the Manufacture and Build to Recover program.

This, she said, has meant that the sector’s growth has been accompanied by challenges related to loan repayment.

The central bank data indicate that non-performing loans ratio increased to 5 per cent, up from 3.6 percent in June last year, whereas loans overdue for less than 90 days declined to Rwf303 billion from Rwf362 billion in June 2023.

According to the May 2024 quarterly survey by NBR, in which all banks participated, they plan to increase lending while maintaining current interest rates, supported by an improving economic outlook and greater lending capacity.

Overall, the financial sector continued to perform well, with the total assets growing by 18.3 percent to Rwf9.6 trillion from Rwf8.1 trillion in June 2022, a growth buoyed by the banking sector.