The net profit of Rwanda’s banking sector shot up by 42.2 percent to Rwf22.8 billion in 2011 from Rwf15 billion the previous year, down to new entrants and improved risk management.

National Bank of Rwanda (BNR) targets to continue supervision and improved regulation as well as compliance with corporate governance by market players. The financial sector is expected to strengthen even further.

According to a monetary policy statement released last week, the sector’s return on assets and equity stood at 2.2 percent and 10 percent, respectively, in December in 2011 compared to 2.0 and 11.2 percent in December 2010.

The banking sector recoded significant improvement, the BNR Governor, Claver Gatete said.

Total assets rose by 24.5 percent; deposits grew by 29 percent while loans and equity rose by 28.4 and 38.4 percent, respectively.

Total assets for commercial banks and other specialised banks indicate that commercial banks recorded the largest share of 82 percent of the total banking sector assets.

"What is more significant is that they (banks) are doing it with less risk because their capital adequacy ratio increased to 27.2 percent from 24.4 percent in 2010. This is compared to regulatory required capital of 15 percent that banks are supposed to use as a benchmark.”

The main drivers of the banking sector asset base in December 2011 of Rwf1.0833 billion included loans and advances that accounted for 53.8, placement in local banks and other financial institutions at 11.9 percent.

Placements in foreign banks contributed 9.8 percent while investments in government securities accounted for 6.8 percent."This means they have more gap and no much risks because when you look at other developing countries, the ratio does not only go to single digit but to as low as five percent,” Amb. Gatete said.

He noted that the growth and fall of the Non Performing loans which reduced to eight percent to Rwf50.5 billion occured concurrently.

According to the monetary policy statement, macro-prudential assessment and stress testing indicate that the banking sector is well capitalised, profitable with improved asset quality and strong liquidity.

In line with government strategy to increase access to financial services and boost domestic savings, SACCOs are on track despite a few challenges.

Rwanda’s sector credit and savings scheme (Umurenge Sacco) deposits reached Rwf14.7b with Rwf1.8b dished out as loans by mid last year.

At least 220 were fully licensed to grant loans by January 31, 2012.

A technical team of 60 inspectors, two for each district, were sent out to execute the oversight duties.

Microfinance institutions and SACCOs combined total deposits last year was Rwf46.5 billion and Rwf42 billion in gross.

A study dubbed ‘SACCOs sustainability study’ is underway to determine the organisational structure and supervisory approach.However, financial inclusion is still a challenge. Recently, the International Monetary Fund (IMF) challenged East African banks especially new entrants to take advantage of the large number of the unbanked population.

The IMF report dubbed Assessing Bank Competition within the East African Community’ indicates that Kenya has the highest percentage of people with access to formal financial services, at 40 percent. Rwanda has 21 percent, Tanzania 17 percent while Uganda has 28 percent.

Gatete noted that the financial literacy campaign will soon be launched.

Government is banking on SACCOs to achieve its target of having more than 80 per cent of the population working with financial institutions by the year 2017.

Currently, Rwanda’s banking sector is composed of nine commercial banks, one development bank, three microfinance institutions and one cooperative bank.