NBR policy rate cut eases liquidity crunch

CREDIT to the private sector increased significantly last month, thanks to the National Bank of Rwanda’s (NBR) move to cut the reserve requirement ratio that has infused liquidity in the banking system.
François Kanimba
François Kanimba

CREDIT to the private sector increased significantly last month, thanks to the National Bank of Rwanda’s (NBR) move to cut the reserve requirement ratio that has infused liquidity in the banking system.

François Kanimba, Governor of the NBR said that in the month of November commercial banks approved Rwf26 billion, the highest performance ever in Rwanda’s credit market.

“The liquidity issue has been addressed and now banks have the financial capacity to resume long-term lending,” Kanimba told Business Times Wednesday during a courtesy visit by the NBR management to the Commercial Bank of Rwanda (BCR).

As one of the ways to ease the lending squeeze to the private sector, early this year the NBR slashed it reserve requirement ratio by three percentage points from 8 percent to 5 percent.

“The cutting of reserve requirement ratio has been  fundamental because this was a structural measure which has re-established a new base for bank liquidity,” Kanimba said.

However banks say the impact of this measure by the central bank has only helped to regenerate short-term liquidity.

In July, NBR also injected cash in commercial banks to increase the capacity of the banks to deliver long-term loans through a deposit facility.

Kanimba said that in November the volume of withdrawal from this facility has been significantly high between Rwf3 billion and Rwf4 billion.

“Both measures put together have created this new framework where banks feel comfortable in terms of liquidity to extend new loans,” the Governor explained.

However, the biggest percentage was disbursed to large firms where MTN Rwanda alone was given Rwf10 billion or 38.5 percent of the total loans disbursed, through a syndicated loan that was coordinated by Commercial Bank of Rwanda.

“But even when you remove this one, Rwf16 billion in one month is higher than what we have been able to achieve in the last couple of years,” Kanimba said.

SMEs, which comprise  of over 65 percent of Rwanda’s businesses are failing to reach their full potential as a result limited access to funding due to lack of collateral..  

“There is a turn around in the way banks are now behaving in terms of distributing new long-term loans to the economy. SMEs are still queuing for a positive response from the banks,” Kanimba said.

Kanimba said that throughout 2009 banks have not only been addressing the liquidity problem but also the general slow-down in the economy which has negatively impacted the capacity of the borrowers, particularly their means to pay back the loans.

“The banks have been fine-tuning their risk management in terms of approving new loans to the SMEs,” he said.

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