A strong savings culture will ultimately lead to lower interest rates, says BK’s Diane Karusisi

The National Savings Week (NSW) 2017 closed yesterday. The Ministry of Finance-led awareness campaign involved key stakeholders such as commercial banks and microfinance institutions and the Capital Market Authority to encourage Rwandans to embrace the savings culture. Business Times’ Peterson Tumwebaze talked to Dr. Diane Karusisi, Bank of Kigali Chief Executive officer, for an insight into the importance of savings week. Bank of Kigali is currently running a nation-wide savings campaign dubbed “Bigereho Na BK.” Excerpts: The annual National Savings Week closed yesterday, how important is the initiative to lenders like Bank of Kigali and how did you get involved, especially in helping spread its awareness to Rwandans? We regard savings as the lifeblood of the banking industry that keeps the “heart” of the sector, which is lending, pumping. In other words, it is almost impossible to imagine banking without savings. Whenever banks lend with inadequate domestic savings, the cost of credit goes high, hence the unending complaints about high interest rates. Diane Karusisi. We, therefore, appreciate and support the government’s efforts through the Ministry of Finance which is at the vanguard of the National Savings Week to encourage Rwandans to save. For us, this year’s savings week complemented our ongoing national savings campaign dubbed “Bigereho Na BK” that started in September during the Rwanda International Trade Fair. During the savings week, we dedicated all our media platforms including social media to share or re-share messages on the subject. Although the savings week has ended, Bank of Kigali will continue with its savings education and mobilization activities until the end of the year. Give us an update on ‘Bigereho Na BK’ campaign? This is the tenth week since we launched the campaign and we are happy because Rwandans are overwhelmingly responding to our “call to action” which is opening a Bank of Kigali savings account, or re-activating dormant accounts and depositing money. We have exciting prizes to be won and dozens of customers have already tasted the experience of winning. Last week, a woman from Nyagatare won a cow while another client won Rwf1 million. Dozens of others have been won, including bikes, solar systems and electronics. In the same period, almost 15,000 new accounts were opened and, thanks to the campaign, close to Rwf2 billion has been mobilized in personal savings. This is money that was outside the banking sector. Now that we have it, it means we can lend it to more small-and-medium enterprises to help them expand and create jobs and pay taxes for national development. Most importantly, the people who deposited this money also earn a good interest on their deposits as borrowers pay interest on the money. Here, we are talking about an entire value chain. When you save in a bank, your deposit is traded, lent to a local investor and the ultimate result is economic growth. How critical is a strong savings culture regarding long-term investment? It is very critical and like I said at the beginning, we regard savings as the blood that runs in the veins of the banking sector. Currently, commercial banks can hardly rely on domestic savings to support long-term investment because most savings are short-term in nature. Simply put, if you keep your savings in the bank for just six months, theoretically a bank can’t lend it to an investor for a period of two years unless. This is what is called in our jargon the mismatch between a bank’s assets and its liabilities. Therefore, as we promote a savings culture, we must also encourage long-term saving to facilitate lending for long-term investment. Today, banks rely on international financial institutions for long term credit to facilitate big and long-term investments in the country. What are some of your products that encourage saving? At Bank of Kigali, we offer a wide range of saving account products that are tailored to meet the varying needs of our customers. ‘BK Kira Kibondo’ is the newest product, targeting parents aiming at saving for their children to build for them a firm financial foundation. At an annual yield of 8 per cent, we are happy to say the product is currently the best deal on the market for parents. We have other savings products such as the BK Special savings tailored for individuals with surplus funds and would want to save to cover for future cash outlays like home construction, university education or retirement. With this account, depositors earn favourable interest rates that are among the prime in the market. We also have the fixed deposit account or term deposit where the account holds a specific amount of money for a specified duration at an interest rate pre-agreed with the bank. Others include the student savings account for students interested in saving money for their college upkeep, study materials and personal utilities they would wish to acquire as students. But we also encourage Rwandans to save by investing on the stock market where Bank of Kigali shares are listed and, currently, earning good yields for shareholders. You buy shares today and any value gained tomorrow is a return on what you invested. The public has often complained of high interest rates and yet commercial banks attribute the high cost of finance from global lenders. How is Bank of Kigali helping to ensure customers access credit at lower rates? High interest rates are an effect not a cause. We believe low interest rates will be among the long-term benefits of an entrenched savings culture. But in the short-run, we are encouraging customers to build strong credit histories and ensure strong corporate governance standards, especially business owners, to be able have an attractive risk profile for banks. In banking, every client is risky, but the risk varies. In lending terms, high risk customers attract high interest rates while low risk clients enjoy low interest rates. We don’t have a blanket price for all customers. If you need to learn how to improve your risk profile as a borrower, contact us at Bank of Kigali for free credit risk assessment for individuals or businesses. How much should one save from their monthly salary? I would refer anyone to the 50/30/20 rule of thumb which advises that at least 20 per cent of your income should go towards savings; 50 per cent (maximum) towards necessities while 30 per cent goes towards discretionary items. Now, there’s no criminal charge for breaking this rule, it only requires strict personal financial discipline to follow.

News

A strong savings culture will ultimately lead to lower interest rates, says BK’s Diane Karusisi