This year has seen a lot of key developments in the local financial sector. From the takeover of the 50-year-old BCR by I&M Bank, protest over high loan rates and the volatile franc to the recent move to amend the lease loan law, the sector was far from dormant.
However, these events that shaped the industry over the past 12 months are seen by sector players as being instrumental in keeping it grounded despite the developments in the global arena, reports Ben Gasore it has been a long and tough year for the financial industry, that saw some banks and micro-finance institutions being taken over by foreign and bigger ones. The year was also characterised by continued complaints over high lending rates and minimal product diversification.
However, some of these developments could have contributed positively to the industry's fairly-good performance.
Although analysts had predicted a tough year for the sector after some donors suspended aid early this year, the financial industry and the economy were, generally, bullish. Other lows, like the exchange rate volatility, which saw the franc lose over 5 per cent by mid-this month, and increase in non-performing loans, as well as the prolonged dry season which triggered high inflation, in a way hurt the industry but mildly.
The sector remained buoyant and resilient despite the negative developments in the global arena that had an impact on the availability of finance.
This, thanks to the central bank's strong financial policy stance that ensured banks and other financial institutions are adequately capitalised. To this end, financial institutions were able to surpass the 15 per cent minimum capital requirement set by the National Bank of Rwanda, with banks hitting the 23 per cent mark and micro-finance institutions 32.3 per cent, according to the central bank governor, John Rwangombwa.
Banks also had an impressive showing of 48.8 per cent as far as adequate liquidity guideline is concerned, compared to the 20 per cent benchmark.
The industry's total assets increased by 19.9 per cent, from Rwf1,201.4b end September last year to Rwf1,440.9b in September this year, with loans rising by 12.2 per cent to Rwf848.8b from Rwf755.8b. However, bad loans rose to 7.2 per cent, up from 6.3 per cent. This affected some individuals and firms' ability to service their loans.
Rwangombwa said banks' capacity to lend to the private sector was also crippled as a result, forcing the central bank to cut the key repo rate to 7 per cent in July, from 7.5 per cent, to bolster private sector lending.
This move bore fruits as credit to the private sector grew by 11.3 per cent by November this year. Commercial banks' lending rate are at an average of 17.2 per cent, but borrowers say that it is still too high. Micro-finance institutions were also up in arms against what they termed 'doubled taxation' under the lease loan facility. Their cries paid off as Parliament has started a review of the lease law to remove the contradictions therein.
Sanjeev Anand, the I&M Bank Rwanda managing director, is optimistic that the banking industry will do better in 2014 than this year "because of a robust regulatory regime and impressive liquidity position of most banks". Anand also doubles as the chairman of the Rwanda Bankers' Association.
Who secure development finance?
Over the year, some banks were able to secure lines of credit from regional and international financial institutions to fund mainly small-and-medium enterprises. This was a huge boost to the sector that is a major driver of the country's economy. Bank of Kigali, Development Bank of Rwanda and KCB Rwanda all secured funds for onward lending to small-and-medium businesses.
The real estate sector was bolstered by a $10m (about Rwf6.8b) line of credit secured by Development Bank of Rwanda from Shelter Afrique, a Pan-African finance institution to finance affordable housing projects in the country.
Rwanda's largest cement-producing factory, Cimerwa secured a syndicated loan worth Rwf62.6b ($93.7m) to build a new plant that will help respond to increasing demand for cement in the country.
"In general, I forecast a sharp pickup in economic momentum next year. Tourism will grow since the DR Congo situation has improved, and the EAC single visa will encourage more tourists. The mining and agro-export sectors will also do well in the coming year," Anand predicted.
He said next year, most of the funding will target SMEs, mortgages, and tourism, mining and manufacturing sectors, as well as strengthening electronic banking and developing innovative products to tap the unbanked Rwandans into the formal financial sector. Anand, however, noted that more private sector lending and reliable power supply will be key drivers of growth in the coming year.
Banks that changed hands:
Commercial Bank of Rwanda (BCR) was acquired by Kenya's I&M Bank and rebranded to I&M Bank Rwanda; Rwanda Microfinance was acquired by Botswana-based Letsego; with Fina Bank being the latest to be taken over by Nigeria's GT Trust Bank last week. These takeovers have, however, been lauded as good for the industry by experts, saying they will enable the sector to acquire expertise and money to lend to customers.
In 2013, Rwanda's economy is projected to grow by close to 8 per cent. The economy grew by 6 per cent in the second quarter of this year compared to 8 per cent last year.