In an exclusive interview with Business Time’s Berna Namata the Central Bank Governor Francois Kanimba gives an insight   on the Rwandan economy.  Below are the excerpts;

QN: To what extent has the banking sector recovered from the liquidity crunch experienced in the first half of this year?

Banks never stopped to distribute new loans. What is true is that the there is a sharp decline in volume of new loans approved by the banks in 2009 compared with 2008.

But when you compare the total volume of new authorized loans in 2009 with the trends before 2008, still banks are distributing loans at comfortable levels.

From 2005 to 2007, the volume of new approved loans in ten months period from January to October increased from 16.2 billion to Rwf110. 9 billion. But in 2008 there was a jump - in 2009 in the same period there is a reduction but still higher than the performance of 2007 at Rwf119.2 billion.

Actually the current decline which is being decried by the people is that banks have not been able to sustain the trend observed in 2008. The discrepancy was created by the speed of giving out loans.

The year 2008 created a lot of momentum in demand for new loans in the banking system because banks where really lending.

And when the liquidity crunch came still there where a number of applications pending, new applications being prepared yet at this time banks were already in the process of slowing down the credit growth. That is why there is this feeling from the market that banks are no longer lending money. 

QN: Looking ahead, what are your prospects for credit growth in the economy?

Compared with 2008, I do not expect a significant growth in the credit to the private sector in 2009.  This is because, what the banks have afforded to inject in the economy is now fully equivalent to what people are putting in back.

Despite the fact that the volume of new approval is still significant, it is not enough to push the whole trend of outstanding amount of credit to private sector at higher levels as it used to be the case before 2008. 

This means banks are injecting in the economy, what the borrowers are paying back at the same time.

What is creating confusing is that whereas people are complaining that banks are not distributing credit, banks are telling me they are not getting demand from the market as well.

Probably there is a problem of demand from the big companies because these are well served but there is a lot of demand that is not served from Small and Medium Enterprises (SMEs).

Banks have strengthened their risk management as far as lending to SMEs is concerned because the size of Non-performing loans in SMEs has been increasing. 

QN: As the end of the year comes closer, what are your current estimates for economic growth?

The current estimates show that growth in 2009 will be in the range to 4-5 percent. But this is very provisional data.

Most of the growth is coming from the agriculture sector because there is no growth from manufacturing and the service industry

Commodity prices for tea, coffee and minerals are recovering compared to the status of affair in the first half.    But when you look at the total receipts from our exports for the whole year 2009, definitely it will be significantly lower than 2008. 

The value of exports has been declining in the range of 29 percent and minerals have been most affected.

The figures for imports from January to October show an increase of 24 percent in value but mainly the increase comes from consumer goods and fuel.

QN: What are your prospects for growth for next year?

My prospects for next year are that the economy will experience significant growth because we do expect agriculture to continue doing very well. 

For the export sector I do not think Rwanda can achieve low performance as 2009 was, this was the worst we can have.

The commodity prices and the Global economic outlook for 2010, show that there will be recovery in developed countries and developing countries as well.

Prices for commodities are projected to increase but at the same time exports from Rwanda should performance better next year.

The mining sector as well, because part of the volume of minerals, was constrained by low demand from emerging economies like China during the recession now the demand is recovering. 

The local credit markets as the liquidity crunch has been addressed and banks have been putting a lot of effort to recover bad loans.

The trend in asset deterioration has been revised in September. There are incentives for the banks to increase again the volume of loans to the economy.

QN: In your view would you say the effect of global recession on the economy is over? Do we see the Central Bank withdrawing its "stimulus” package from the banks?

We can not say the crisis is fully over. We see some signs of recovery in the banking system as  banks are in better position to increase new loans to the economy, export sector can do better because demand from the international market is increasing, and the prices are improving.

We are not going to withdraw "stimulus” facilities in the short-term because they are still needed, even if the situation in the banking system has improved. 

Banks do believe their liquidity is the short term and their capacity to transform them into significant loans is still limited, this is why it is important that this deposit by governments remains for a few months to come. 

QN: There are media reports about a number of banks such as Barclays and Equity bank queuing up for licenses. What is your view?

First of all there are no banks queuing for licenses here. It is very wrong information because Barclays bank expressed interest to acquire Bank of Kigali at the time when the government wanted to privatise the bank.

But we did not reach an agreement because the offer was not very attractive.

Equity bank- we have been in discussions with the bank for more than two years now. They have been collecting all the information related to licensing but still we are waiting for the application. 

They have not applied – they wanted to pattern with a number of Micro–finance institutions and I know they have been discussing with them.

But when they were informed that certain banks in Rwanda they were in the process of being privatized, also they got the appetite of coming in via existing banks.

To be clear they also expressed interest to buy Bank of Kigali but we clearly told them Equity Bank was not the kind of model for Bank of Kigali.

But I know they are looking at other banks in the market to see if they can partner with them.  The idea to operate a green field operation i think they realized it is most efficient option for them. But they still are looking forward to coming to this market but I do not know exactly when.

QN: Banking the unbanked is still an issue. What is the way forward on banking the unbanked?

Significant progress is already being made in banking the unbanked. For instance constraints to opening bank accounts such as requirement of minimal capital have been removed; this is why the number of people queuing in some banks has increased. 

The number of small depositors opening accounts has increased significantly while some banks were not prepared to receive such numbers.

What is happening now is that banks are expanding their branch networks to increase their capacity to deliver. 

The micro–finance Institutions development programme is also fundamental to addressing this problem. For instance the restructuring of Bank Populaire to a fully fledged commercial bank has helped because it is now open to any body.

Efforts by government to establish a savings scheme in each village (Umurege Sacco), definitely from my point of view - this is the most an unconventional way to increase the number of people who have access to financial services. 

This program will definitely contribute.

Ends