Fiscal year 2011 was touted as one of the best in recent times for the banking sector in Rwanda, but 2012 promises even better returns.
As this year nears the end, information from central bank shows that the entire financial sector (banking, insurance, pension and microfinance) is healthy and stable. The central bank, the regulator of the financial sector, further states that all finance institutions are "well capitalized, highly liquid and profitable with satisfactory asset quality."
The National Bank of Rwanda (BNR) arrived at this conclusion following its quarterly assessment of the performance of the financial sector.
Therefore, all indicators show that commercial banks in the country are once again heading for healthy balance sheets that will please shareholders.
This is well-deserved because this year witnessed the most aggressive innovations in the banking sector as commercial banks stepped up competition for a big portion of the Rwandan population that has no access to banking services.
Statistics show that only about 22% of Rwandans use banking services, implying that nearly 80% of the adult population is outside of the banking sector. Little wonder therefore that even new players in the market have easily picked up their own share of the market and are poised to post good results.
This simply means that the market is still under-served and the demand for banking services is still huge.
Part of the reason commercial banks have done well is the strict monitoring by the central bank that has left no room for poor performance. BNR has also adopted a stringent monetary policy that has ensured interest rates are not only stable, but also the lowest in the East African region. This has ensured lower default rates that enabled banks to operate non-performing loan portfolios that are not so much above the central bank's mandatory 7%. In fact some have even managed lower rates.
The prospects for the financial sector are generously upward looking to the extent that even micro-finance banks and imirenge Saccos are doing well - having reported a near 100% loan recovery. That is why economists have predicted that the vibrant banking sector will be driver of Rwanda's economic growth in the coming years.
That conclusion is certainly not without basis. First of all, this year saw the biggest bank acquisition in Rwanda's recent history when a private equity firm Actis, sold 80% of its stake in BCR to a consortium led by Kenyan lenders I&M Bank. This year, the banking sector also witnessed the coming of another big player, Equity Bank, Kenya's leading lender, bringing to nine the number of commercial banks in the country. All this means more money, more jobs and huge investments to drive growth.
The sector has therefore grown from three limping commercial banks in 1994 to nine adequately capitalized banks, whose total assets were estimated at above Frw 1.2 trillion as of June.
However, for the sector to be the real engine of economic growth, commercial banks need to do business with a human face. This does not mean that they abandon their prime object of making profits and start operating as charity organization. The call is for banks to strike a balance between profit and developing the market within which they operate.
Here, we would expect banks to move in synch with the national development plan by financing those sectors that employ or have the potential to employ the highest number of Rwandans as well as businesses that add value to local products.
Critical areas include housing where there seems to be an urgent need for decent and planned low-cost housing for a majority of urban dwellers; agro processing and agricultural production in general.
Sometimes when one mentions agriculture, most commercial banks do not want to look that direction because of the perception that it is a high risk sector. But how can banks operating in a country where over 90% of the population depends on farming and yet chose no to invest in it?
The burden is with banks to develop products that will first of all encourage local farmers to save and probably borrow against their savings and anticipated crop harvests.
For example, if a farmer has mature maize that can be harvested in a month's time and needs money to invest in a poultry project, banks should have products designed to financially support such activity.