Govt moves to revamp operations of central bank to spur efficiency

Parliament has approved, in principle, a draft law governing the National Bank of Rwanda as the Government moves to strengthen the central bank’s operations in line with the latest developments in the financial sector.
National Bank of Rwanda headquarters
National Bank of Rwanda headquarters

Parliament has approved, in principle, a draft law governing the National Bank of Rwanda as the Government moves to strengthen the central bank’s operations in line with the latest developments in the financial sector.

The Minister for Finance and Economic Planning, Amb. Claver Gatete, tabled the Bill before the House, yesterday, explaining that it seeks to amend the existing one of 2007 and bring about more efficiency in the central bank’s operations.

 

Gatete told members of the Lower House that the new law seeks to update the bank’s business to the latest changes in the area of financial sector, with some of its existing operations explicitly mandated in the new law and its management team broadened to meet the current needs.

 

The central bank’s new law will also seek to harmonise its operations with those of sister institutions in the East African Community (EAC) bloc and the financial year of the bank will start on July 1 of each calendar year and end on June 31 of the following year.

 

In line with harmonising with the EAC, the title of “Vice Governor” will be replaced by “Deputy Governor” to fit with the commonly used term in the region.

“The bank will abide with international accounting principles and other global standards. We need to harmonise with central bank standards in line with the Basel principles,” Gatete told the legislators.

Basel principles are a set of international banking regulations recommended by the Basel Committee on Bank Supervision (BCBS) that sets out the minimum capital requirements of financial institutions with the goal of minimising credit risk.

The committee’s secretariat is located at the Bank for International Settlements (BIS) in Basel, Switzerland, and it sets guidelines and standards in different areas such as the international standards on capital adequacy, the core principles for effective banking supervision and the concordat on cross-border banking supervision.

Revision of mandate

In line with complying with the latest Basel principles, the draft law will have the Board of Censors at the National Bank of Rwanda, which reports to the Ministry of Finance and Economic Planning, removed from the supervisory organs of the central bank while also ensuring well-established corporate governance and accountability of other existing organs.

Two core committees at the bank will also be strengthened, namely the Monetary Policy Committee and the Financial Stability, with the draft law aiming at making them statutory and extending the composition of the Monetary Policy Committee to include external members to ensure that the committee gain from additional expertise from outside the bank’s staff.

The new law will also explicitly provide powers or prerogatives which are classically known to belong to central banks and that were currently performed by the National Bank of Rwanda while not clearly formalised in the law.

They include the power to designate financial institutions to act as the bank’s agents in Rwanda and any financial institutions abroad to act as the Bank’s agents or correspondents abroad as well as the power to establish policies regarding payments, clearing and settlement systems.

The central bank will also be officially in the proposed law given the power to adopt policies to safeguard the rights and interests of depositors and creditors of the financial institution, hold balances in foreign currency with foreign central banks or with bank’s agent abroad, and invest those balances in marketable foreign securities.

The central bank’s powers that will also be explicitly stated in the proposed law include the power to open accounts for foreign central banks, foreign financial institutions and to act as a banker to those institutions.

The powers to be explicitly stated in the law also include the right to establish electronic systems for the settlement of payments and securities, as well as set up reserves required to be maintained by banks and other deposit taking institutions within the framework of implementation of the monetary policy.

Under the new law, the Governor of the central bank will also be given the right to appoint a lawyer to represent him or her before the courts and to delegate his or her powers to officers of the bank for the purpose of decentralisation and smooth management.

The Bill was unanimously welcomed by the legislators, with most of them saying that it genuinely aims to improve the way things have been working at the central bank.

Its further scrutiny will proceed at the parliamentary committee level in the Lower House to allow for more inputs and necessary modifications.

The changes...

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Minister Gatete said the central bank’s proposed law also seeks to harmonise its operations with those of sister institutions in the East African Community bloc and the financial year of the bank will start on July 1 of each year and end on June 31 of the following year. In line with harmonising with the EAC, the title of “Vice Governor” will be replaced by “Deputy Governor” to fit with the commonly used term in the region.

editorial@newtimes.co.rw

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