Financial sector: Commercial banks’ debt to BNR increases as MFIs face stringent regulations

Last year the National Bank of Rwanda’s (BNR) domestic debt to commercial banks increased greatly by 16.2 per cent.

Last year the National Bank of Rwanda’s (BNR) domestic debt to commercial banks increased greatly by 16.2 per cent.

This debt increased from Frw49.3 billion to Frw57.3 billion between the end of 2006 and the end of 2007.

François Kanimba, the governor of BNR attributes this to the sterilisation policy that was adopted by BNR to control the excess liquidities in commercial banks.

The method that was adopted was to withdraw base money through open market operations: This means selling of government bills in the money markets.

"To align the banks’ liquidity with monetary indicators, BNR had to regularly borrow from the money market and sell currencies to banks," he explained.

The monitory policy statement released by BNR on February 21, shows that excess liquidities declined from $75.2 millions (about Frw41 billion) to $65.2 millions (about Frw35.5 billion)

The statement says that in spite of significant increase in the amount of foreign exchange that BNR was able to sell to the banks, demand remained insufficient to absorb the banking system’s excess liquidities.

These financial inflows where mainly generated by increasing budgetary support to government.

"To keep the monetary programme on track, it is important to reinforce the economy’s capacity to absorb growing inflows from scaling up of external assistance," Kanimba said.

Performance

The performance of commercial banks improved considerably with the total balance sheet of all banks last year growing by 43 per cent from Frw275.5 billion in December 2006 to Frw393.7 billion in December 2007.

David Kuwana, managing director Commercial Bank of Rwanda however said that growth did not match with their expectations.

Adding that, this growth was triggered by the overall national Gross Domestic Product (GDP) growth rate.

Credit distribution in commercial banks increased by 26.6 per cent, something which also accounted for the improvement in the banks’ activities in the country.

The amount of gross credit in commercial banks increased from Frw171.3 billion in December 2006 to Frw224.8 billion in December 2007.

At consolidated level, banks’ solvency markedly improved to 16.3 per cent at the end of December 2007 against 13.7 per cent at the end of December 2006.

So far, from the first quarter of 2008, all the banks’ current solvency ratio has been higher than the required 10 per cent.

Concerning quality of credit portfolio, Kanimba said that banks’ share in the gross credit portfolio significantly improved, decreasing from 26 per cent to 18.6 per cent in 2006 and 2007 respectively. The governor said that this rate becomes 14.3 per cent at the end of 2007 if the suspended interest and bank charges are not considered.

Micro finance sector

The minimum authorization capital of micro finance institutions’ (MFIs) that have adopted legal statutes of limited companies was increased from Frw100 million to Frw300 million.

"Majority of those concerned with the issue (micro finance) took the necessary steps to mobilise the resources required," Kanimba said.

Those unable to comply, according to the governor, are negotiating to merge with other MFIs or to be absorbed by them.

Gasabo Micro Finance was last year forced to cease its operations on grounds of not meeting the above requirements while Inkingi micro finance is blacklisted because of having a lot of unpaid loans.

The liquidation of MFIs that were closed in 2006 continued in 2007. The liquidator signed a contract that enabled them to start debt collection process with support from district-based collection commissions.

The process of paying off the depositors also accelerated. In 2007 an amount of Frw1.036 billion had already been given out to declared depositor.

This amount accounted for 96 per cent of installment of 50 per cent that the government committed to compensate the depositors whose declaration were in conformity with the liquidator’s records

Ends

 

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