10 August 2011

Rwanda: Banks Record Rwf13.8 Billion Net Profit As Competition Stiffens

The net profits registered by commercial banks soared to Rwf13.8b despite stiff competition by June this year up from Rwf4.1b last year an indicator of the country's financial sector soundness.

Central bank says in the just released monetary policy and financial stability statement that the continued strong growth in the banking sector is partly attributed to increasing competition away from what it termed as the previous case of concentration of sector activities in the hands of a few players.

"Banking industry concentration is continuously decreasing showing an improvement in the banking sector competition," the statement says, adding that one way of highlighting increased competition in the sector is the dwindling market of the largest three banks in terms of totals assets that has reduced from 54.9 per cent last year to current levels of 49.9 per cent.

The pace of competition within the sector, according to the report, has seen the upgrading of IMF Unguka and CFE Agaseke from the status of microfinance institutions to that of microfinance banks, while military savings and credit society Zigama CSS has since been elevated to the status of a cooperative bank.

In the same breath, increased competition can be seen through the much awaited entry of Equity Bank into the local market whose launch is anticipated by the third quarter of this year.

Central bank adds that the continuous improvement in the sector performance is due to its stimulation activities such as what it terms as "rigorous and supervisory reforms" carried out under the period of review.

"Central bank's supervisory role among others is to continuously review and assess if licensed banks have sufficient income to grow with markets and to build a capital base over time in order to have the necessary cushion for stability," the statement says.

Consequently, banks continued to clean up their books by further reducing their bad debts also known as Non Performing Loans (NPLs).

The report indicates that NPLs ratio within the sector, which is the amount of non-performing loans over total loans, expressed as a percentage, during the first half of 2011 , reduced from 10.8 percent in December 2010 to 9.2 percent in June 2011,and from 12 percent in June last year .

On the other hand, total assets increased by 13.9 percent to reach Rwf 990 billion in June 2011 up from Rwf 869.8 billion in December 2010.

Deposits went up from Rwf 565 billion in December 2010 to Rwf 665.8 billion by June 2011 representing over 17.8 percent increment in just 6 months. The sector's loan books increased to Rwf 516.8 billion by June 2011 up from Rwf 449.40 billion representing an increase of 15 percent.

Capital adequacy ratio (CAR), which is the measure that the Central Bank uses to assess the amount of a commercial bank's core capital stood at 24.6 percent as at June 2011 up from 22.3 percent by December 2010.

This figure, Central Bank says, implies that banks have built significant capital buffers over the period under review, further adding that stress testing has shown that the entire sector is well capitalized.

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