7 January 2013

Rwanda: 2012 - the Best Year Ever for Commercial Banks

The year 2012 will go down memory lane as having marked a turning point in Rwanda's banking sector.

In the past twelve months, the sector witnessed unprecedented growth in customer deposits, bank assets as well loans to the private sector even as the world economy struggled under a recession.

At the same time, the industry was boosted by the biggest bank acquisition ever in the history of the country when a private equity firm Actis, relinquished its 80% stake in BCR to a consortium led by Kenyan lenders I&M Bank for an undisclosed price.

This deal, coming hard on the heels of Equity Bank's (Kenya's largest lender) coming injected more vigor in Rwanda's young banking sector.

With assets worth over Frw 93 billion and a rapidly expanding branch network, BCR is the second largest commercial bank in Rwanda after Bank of Kigali and its success tells the story of the rapid transformation of the country's finance sector.

"Well performing, resilient and stable" is central bank governor Claver Gatete's verdict on the state of the finance sector, All commercial banks are in good health--reporting growth in all aspects of the business such as total assets, customer deposits, loans to customers, profit after tax as well as substantial reductions in none-performing loans.

A recent report on the status of the banking sector by the National Bank of Rwanda (BNR) says all banks operating in the country are highly capitalized, liquid and even resilient to any external shocks.

For example, while the capitalization regulatory requirement is 15%, local banks were at an average of 25.1% by June this year. Not only was this above the regulatory requirement, it was also an improvement from 25.0% of December 2011.

Non-performing loans

Any banker knows that one of the major challenges in the business of lending is recovering loans and therefore keep the rate of default to the minimum. BNR is also impressed by the declining ratio of non-performing loans this year at about 5.8%-several percentage points below the regulatory minimum of 7%.

This is particularly encouraging because banks did lend out a huge sum of money--estimated over Frw 744.5 billion by June this year alone--going up by about 7%. More lending that is followed by fewer non-performing loans is indeed a sign of a well-performing banking sector.

Growth in microfinance has hard a major impact on the banking and financial sector in 2012.

According to official statistics, the number of Rwandans with access to formal sector financial services increased to 42% in 2012, up from the previous 21% thanks to savings and cooperative credit organizations (SACCOs).

According to official statistics, the number of Rwandans with access to formal sector financial services increased to 42% in 2012, up from the previous 21%.

Through SACCOs, the government aims at achieving at least 80% access to financial services by 2017. The central bank is expanding its supervision role so as to provide adequate oversight to the SACCOs.

There are 416 Sacco's in the country through which funds are channeled to grass root people as part of the government strategy to boost economic activity in the country-side through promoting financial inclusion of the entire population.

The year 2012 also saw commercial banks launch a massive drive to go for the unbanked population using tailor-cut products that take services closer to the people.

Such products include agency banking where banks partner with retailers and other business that deal with large numbers of people on a daily basis to provide basic services like cash deposits and withdrawals.

KCB Rwanda, the pioneer of agency banking in Rwanda saw its customer numbers climb to nearly to 100, 000 at the end of 2012. Maurice Toroitich, the managing director says the bank has 3,296 agents countrywide.

"It takes minimal cost to access the service and it is far less than the costs customers currently spend visiting branches to access banking services," he said.

Bank of Kigali also has agents and recently backed up with mobile vans posted to each province.

Mobile vans offer all services, but most importantly, they ensure agents deep in the villages don't run out of liquidity. They have proved effective in reaching those areas where operating a bank branch is not a viable option.

While banks and SACCOs have taken services within reach, many people shy away from using banks with ignorance and poverty being the major barriers. According to the 2012 study by FinScope on financial inclusion in the country, lack of awareness or understanding of how use f bank services could improve their lives in keeping away over 2.3 million adults from banks.

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