6 June 2017

Rwanda: Banks Post Good Profits Despite Loan Defaults

Listed Rwandan banks have posted impressive profits in the first quarter of this year, despite a sharp increase in loan defaults.

The four listed lenders reported profit growth, attributed to diversification of business and tapping into non-interest revenues.

Bank of Kigali, the biggest lender by market share and assets, posted a profit of Rwf5.6 billion ($6.8 million), maintaining its leadership in the market.

I&M Bank Rwanda, which listed on the Rwanda Stock Exchange in March, reported a profit of $1.5 million driven by non-interest income generation and digital banking.

Equity Bank Rwanda posted $809,127 in profit, and KCB Rwanda recorded $539,382 net profits.

KCB Rwanda and Equity Bank Rwanda are subsidiaries of KCB Bank and Equity Bank, which are listed on the Nairobi Securities Exchange.

KCB Rwanda managing director Maurice Toroitich said they are counting on sectors that are resilient to the current shocks and those generating steady cash flows to reduce their non-performing loans.

This move will see mining and agriculture production locked out of the credit bracket. These sectors have received the least credit from the country's risk-averse lenders.

The average non-performing loan ratio from the 12 banks that announced their January-March results was 9.6 per cent, above the 5 per cent mid-term target of central banks in the region.

"Last year the agriculture sector performed poorly because of the drought, and the export sector witnessed reduction in cash flows due to low export earnings in line with low commodity prices," said Mr Toroitich.

Last year, Rwandan banks recorded a steep rise in bad loans, forcing them to spend billions of francs in provisioning. In total, the eight leading banks reported a 92 per cent surge in loan loss provisioning, from Rwf14.6 billion ($17.7 million) in 2015 to Rwf28 billion ($34 million), almost wiping out their profits.

Ecobank Rwanda saw its net provisioning swell to Rwf8.3 billion ($10 million) from Rwf3.2 billion ($3.8 million) in 2015, costing the bank losses estimated at Rwf3.2 billion ($3.8 million).

The pan-African lender has also recorded the highest non-performing loan ratio at 29.30 per cent in the first three months of this year. The bank's bad loans were Rwf21.9 billion ($26.2 million) in the first three months.

In 2016, the banking system liquidity was Rwf263.6 billion ($315 million) in December 2016, from Rwf302.9 billion ($362 million) in December 2015.

"That decline was explained by the slowdown in economic activities and BNR interventions on foreign-exchange markets by selling dollars to banks," the central bank said.

Bank Populaire du Rwanda, a bank that was acquired by the Atlas Mara Group, reported a sharp rise in profits boosted by a decrease in operating costs, as well as the bank tapping into corporate and small and medium market segment banking.

Once a loss-making bank, BPR made a profit of $897,405. The lender is weighed down by bad loans of $28.7 million.

Eric Rutabana, head of corporate affairs at BPR said the bad loans were inherited from the previous bank, and will continue being reflected in their balance sheet for two more quarters.


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