As the year comes to the end, banks can ably say that they have survived the liquidity crunch that resulted from the mismatch between deposits and loans in early 2009. In 2010 the banks should be working on improving the quality of their balance sheets.
To facilitate payments and avoid credit stagnation, the Central Bank in this year was prompted to inject sizeable amounts of liquidity between Rwf3 billion to 4 billion into the banking industry, a process that began early this year.
While short-term liquidity conditions generally improved many banks raised interest rates to attract deposits and address maturity mismatches between their assets and liabilities.
This year interest rates on savings accounts shot up to 16 percent from 6 percent in April last year.
In the first semester of 2009, a total of 8 banks made a marginal profits of Rwf4.1 billion with four banks posting significant losses.
Kenya Commercial Bank (KCB) a new entrant on the market registered a net loss of Rwf381.4 million in the first semester of 2009.
Maurice K Toroitich, the Managing Director, KCB Rwanda told Business Times said that the loss was largely due to high start up costs .
“Year 2009 for KCB has been largely an investment year with emphasis on building our branches and other business infrastructure to man our operations.”
“All these are very aggressive and expensive initiatives that we have undertaken in the first year of operation.
Invariably this will result in a loss position for year 2009 which is well within our expectations and budgetary provisions,” he added.
KCB is optimistic that in the year 2010 and beyond, the institution will refocus on building and developing customer relationships.
”We expect to be much stronger in terms of revenues and our projections for profitability remain as originally planned in year 2011,” Toroitich said.
Statistics show that credit to the private sector dropped by as much as 24 percent.
The most underfinanced activities were, leasing, mortgage industry, agriculture seasonal campaign, short term financial needs for companies.
On the demand side, deposits in the banking system consistently declined during the first half of 2009, by 3.7 percent compared to end December 2008. Nevertheless, the second quarter of 2009 saw an upward trend with an increase of 1.3 percent.
“The ministry of Finance (MINECOFIN) and the Central Bank were very proactive and helpful in dealing with the liquidity issues. We now have the capacity to deal with them,” said Steve Cally, the Managing Director of FINA Bank who also doubles as the chairman of the Banker’s association.
Bank liquidity has as well benefited from positive real interest rates resulting from the fall of inflation rate.
In 2010 banks should be cautious in extending long term loans mainly due to risk aversion stemming from the increase in non performing loans until the end June.
The Governor of NBR told Business Times recently that, “The liquidity problem in the banking system has been addressed and banks have been putting in a lot of effort to recover bad loans.”
Kanimba pointed out the banking sector has recovered with the trend in asset deterioration revised downwards in September.
Despite the spills of the global financial crisis the banking industry is expected to account for total assets totaling to approximately $1 billion in the year 2009. Two banks have also recorded significant profit in the last ten months.
They include, the Development Bank of Rwanda (BRD) which made a net profit of Rwf2 billion while the Bank of Kigali made Rwf4.5 billion.
“The year has been very good for us and the health of the portfolio has also improved. We intend to do loan approvals of about Rwf30 billion of which we shall disburse about Rwf23 billion,” says Jack Kayonga, the Managing Director of BRD.
According to Dmitry Gershenson, the International Monetary Fund (IMF) Resident Representative, normal growth in the banking sector will probably resume in 2010, though it is at this stage too early to put a number on it.
This comes after a rapid slow down in 2009. According to the IMF credit to the private sector grew by 20 percent in 2007 and 26 percent in 2008 and is likely not to expand at all this year, as the banks are rigorously evaluating new projects and improving efficiency of their operations.
Forecasts for 2010 in banking
After drafting laws on regulations on liquidity ratio, in 2010 laws on capital adequacy and prompt corrective action are likely to be passed
Full implementation of Fina off-site Surveillance Application for the electronic transmission of data from banks
Opening up of the Private Credit Bureau
Access to financial services
NBR is likely to request banks to develop marketing strategies to raise awareness of low segments of the population by offering them innovative saving and credit products as well as payment services
MTN Rwanda is likely to commercialize mobile banking
SIMTEL will implement VISA certification for cards for personalization in Rwanda.