Rwanda's banking sector remains generally sound and performed satisfactorily in the first half of 2016, the National Bank of Rwanda (BNR) has said.

The central bank estimates that the industry’s total assets increased by 13.9% in June 2016 (year-on-year) - from Rwf2.0 trillion in June 2015 to Rwf2.3 trillion in June 2016 with issued loans accounting for 60%.

Overall, the banking sector remained profitable with banks posting a net profit of Rwf19.4 billion.

This, however, reflects a decrease of 18.2% when compared to 23.6 billion reported for the same period in 2015.

The decline in profits according to Central Bank is due to high growth in expenses (increase in remunerated savings, deposits and operating costs).

For example, the sector’s return on assets (ROA) and return on equity (ROE) declined to 1.7% and 9.2% respectively as at June 2016 from 2.4% and 13.1% in June 2015.

None the less, the overall growth in the banking sector was also attributed to increased level of competitiveness due to generic growth of new players entering the market and favourable legal environment on financial services which is coping with international and regional dynamism in the banking area, John Rwangombwa, Governor Central Bank said.

Rwangombwa, noted that BNR will continue to ensure the industry continues to enjoy the benefits of increased competition through support of innovative financial products and services, which in turn will increase access to finance.

He was speaking during his presentation of the Monetary Policy and Financial Stability statement, last week in Kigali.

According to the governor, all operating banks were adequately capitalized in the period under review, with the Capital Adequacy and Core Capital Ratios surpassing the minimum prudential of 15%.

The banking sector’s capitalization levels continued to remain high with capital adequacy ratio (CAR) recording 23.3% during the quarter under review compared to 24.3% recorded in June 2015. The change was largely due to increased appetite for loans and advances by banks.

However, total liabilities of banks grew by 13.4% from Rwf1.6 trillion in June 2015 to Rwf1.9 trillion by end June 2016 with customer deposits accounting for 81%.

Sector experts say that a strong banking industry means Rwanda can actually fast track and accelerate its rate of economic development.

They argue that a stable banking industry means stable interest rates, which gives investors the confidence to continue investing in the country.

Lawson Naibo, the chief operating officer, Bank of Kigali believes a stable financial sector often translates into consistency in strategic planning.

"For-example, instability in interest rates   affects long term planning,” he said adding that the challenge of deposited mobilization is still a reality facing sector players.

Overall performance

Meanwhile, according to central bank statistics, the banking sector’s average liquidity ratio (the company’s ability to pay debt obligations) stood at 42.8 % as at June 2016, down from 49.5% in June 2015.

This liquidity level is significantly above the minimum prudential liquidity ratio of 20%.

The slight drop in liquidity level between June 2015 and June 2016 reflects increased loans and advances provided by banks.

The asset quality of the industry slightly deteriorated with non-performing loan ratio (NPLs ratio) increasing to 7.0% end June 2016 compared to 5.9% recorded end June 2015, mainly due to prudent measures on loan classification and workout plans by banks as well as enhanced supervision to ensure compliance with prudential standards. However, banks are able to absorb related risks due to strong capital buffers which re-assures safety on depositors’ funds and stability of the banking system.

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