Government through the Central Bank will assess the liquidity volumes in local banks to determine whether it should proceed with injecting long-term capital as a stimulus package to accelerate credit to the private sector.

The thinning liquidity in local commercial banks has put a tight grip on private sector access to long-term investment capital, prompting state intervention.

"According to their books of accounts (local banks), they have comfortable liquidity levels, but they keep telling us it’s for only short term lending,” Francois Kanimba, Governor of the National Bank of Rwanda (BNR) told The Business Times on phone yesterday.

The assessment will be conducted throughout the second half of this year.

Government plans to inject a significant amount of cash as deposit to commercial banks at an interest rate of less than two percent for a period of five years.  

However, Kanimba said it is the assessment that will determine if the banks need facilitation from government.

He said it is after the assessment that government will decide the amount that needs to be set aside to boost the long term lending capacity.

"If the assessment report indicates that liquidity is built on grounds to maintain long term lending without government facilitation, the funding will be suspended,” Kanimba explained.

Government identified areas of intervention which would include acquiring productive motor vehicles, mortgages, equipment leasing, transportation and general investment.

The governor also clarified that the declining liquidity is not related to the global financial crisis but the growing private sector which has in return increased the absorption capacity.

"There has not been a law or a rule from central bank alerting commercial banks on long term lending as many speculate because of the current global recession,” he clarified.

The decision to assess the banks follows a meeting between bankers and government that discussed challenges faced by the industry.

Ends