The International Monetary Fund (IMF) has warned of the risks to financial stability if the sector’s ambitious objectives are implemented at a rapid pace and not sequenced appropriately.

According to the IMF’s Financial Sector Assessment Program (FSAP) report, Rwanda’s financial sector faces new challenges affecting financial stability and development, especially by the agenda to improve access to finance and provide more long-term financing to the economy.

The banking sector has recovered from a period of restructuring and cleaning up legacy problems and the industry as a whole can absorb major shocks, but a few banks are still vulnerable,” the report.

Lawson Naibo, the Chief Operations Officer (COO) of Bank of Kigali told Business Times that banks are challenged in terms of establishing group branches and having information on the profitability of the office once it is instituted.

Bank of Kigali targets to establish 45 branches across the country.

For instance, creating new depository institutions before establishing an adequate supervisory system can create a situation where non-viable entities are not closed but still accept deposits from the public, the IMF report says. 

Regarding encouragement of long term financing, the assessment indicates that banks are already exposed to the risks posed by the large maturity gap between their assets and liabilities, thereby encouraging them to increase long-term lending without a more stable funding source would only aggravate these risks.

Also, among the major challenges are the considerable capacity constraints for qualified personnel in both the public and private sectors.  The team advised that government should address shortage of qualified labour in the financial sector through dedicated professional training programs.

Naibo said banks do not have the capacity constraint and that a big problem is experienced in micro-finance institutions.

The IMF’s FSAP assessments are designed to evaluate the stability of the financial system as a whole and not that of individual institutions.

They have been developed to help countries identify and remedy weaknesses in their financial sector structure, thereby enhancing their resilience to macroeconomic shocks and cross-border contagion.

In the assessment report, IMF recommended several measures among them the development of appropriate regulatory environment for mobile banking and payments in the short and medium term.

It also encourages leveraging the experience and capacity of existing institutions, in particular Rwanda Cooperative Agency and AMIR to build capacity with the SACCOs.

However, IMF team hailed the significant progress made in reforming the financial system since the initial one in 2005 when the program started with many sufficiently capitalised to absorb a shock to their credit portfolio.

Government made progress in improving the stability, structure and efficiency of the financial system, modernising the financial sector legislation and infrastructure, and strengthening the framework for monitoring and mitigating systemic risks.

All banks operate well within the liquidity requirements set by the National Bank of Rwanda with a few banks that are vulnerable. However, the regulator’s track record of dealing with emerging problems suggests that these vulnerabilities are manageable.

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