BNR releases billions to free up loan-shy banks

NYARUGENGE - The Central Bank has announced new approaches towards reinstating liquidity in local banks but noted economic growth may further slowdown if there is no strong recovery in credit markets. In the new Monetary and Financial Stability Statement released yesterday, the National Bank of Rwanda (BNR) said the current liquidity crunch in the banking system has strongly reduced Rwanda’s growth prospects. François Kanimba, the Governor of BNR said that to infuse long-term liquidity into the banking system, in the first quarter of 2009, a medium and long term refinancing facility was introduced to allow banks to borrow from the central bank for 3-4 months. The monetary policy statement shows that so far Rwf2.072bn has been released against treasury bonds as collateral. But all indications point to more billions flowing into the banks to give them confidence to engage in both short and long-term lending. This is the first time since 2004 the Central Bank has injected liquidity into the banking system. Kanimba noted that in February this year BNR slashed the required reserve ratio from eight percent to five percent. The central bank also decided not to rollover short-term treasury bills expiring in 2009 as measures to building confidence within the banking sector. “As a result, the short-term liquidity in the banking system was rebuilt progressively from negative numbers in January 2009 to Rwf31.7 billion at the end of June 2009,” he told stakeholders at the monetary policy review workshop at Kigali Serena hotel. Drop in loans According to latest figures, loans authorised by the banking sector dropped by 24 percent from Rwf94.4bn in the first half of 2008 to Rwf71.7bn in same period this year. Leasing, mortgage industry, agriculture seasonal campaign, treasury needs for companies were the most underfinanced activities. The liquidity squeeze has led to an increase in both deposits and lending rates. Lending rates fluctuated between 16.2 percent and 17 percent by July this year while deposit rates oscillated between 6.2 percent and 10.5 percent. Experts react Experts and the business community were optimistic about central bank’s strategy, saying it was timely and could induce banks to unfreeze cash to the private sector. “This is extremely important and timely intervention. It’s now down to the response of the private sector,” said Robert Mathu, the Executive Director of the Capital Market Advisory Council. Experts said it will benefit medium enterprises that had suffered as big companies withdrew their deposits to finance their investment projects, something that had a hand in draining liquidity. Gloria Nyambok, Head of Business at Kenya Commercial Bank (KCB) said it clearly tries to address the issues the private sector is facing. “Certainly it will help,” she said. Economic outlook In the first half of 2009, agriculture harvests increased by 11.2 percent in seasons A and B due to favourable weather conditions and government’s green revolution policy. However, activity slowed down in the industry and services due to the global financial crisis which affected the demand and prices of Rwanda’s exports coupled with tightened credit conditions. On the basis of macroeconomic performance, annual overall inflation fell from 22.1 percent in December 2008 to 10.1 percent in June this year while the Rwandan franc maintained stability, depreciating by only 2.3 percent between December 2008 and June 2009. In terms of external trade, imports increased in value and volume in the first six months of 2009 compared to the same period last year while export receipts registered a significant decline. Imports increased by 26.9 percent in value in the period under review against a decline in export value of 32 percent, causing an import/export coverage ratio of 13.6 percent in 2009 from 25.3 percent last year. However, according to BNR there was a slowdown trend in imports since the second quarter of 2009. According to Kanimba, domestic saving mobilisation will be critical in the mid-term to sustain high growth rate “The long term liquidity facility to be implemented starting from July 2009 should rebuild confidence in the credit market,” he said. Ends