As a journalist, one of my favourite areas of reporting and analysis in Rwanda is the banking sector. I have closely monitored events within the sector for the last five years, more so, its evolution over time, by talking to sector specialists, industry captains, customers and other stakeholders and fellow journalists.
I have not only read and studied and attended several central bank quarterly report meetings, but I have also often had the privilege of holding lengthy exclusive interviews with the former Governor Francios Kanimba in my mission to gain a deeper insight into the industry.
Like any other sector, the path of Rwanda’s banking sector reforms, in the last 16 years can be described as spectacular.
Starting from the ashes of Genocide against the Tutsi in 1994, Rwanda’s banking sector started from the lowest base ever One does not need to be told how the fleeing genocidaires raped and ransacked what was left of a crumbling banking sector in 1994.
Looking back at how the reform path has unfolded, one can say that the much-talked about transformation of the entire Rwandan economy in the days to come, can find inspiration by studying how the practise of banking has evolved over time.
The healthy performance now is mainly attributed to central bank’s prudent fiscal policy drives over time.
A case in point is how bad debts have been brought under control over the last 10 years. There has been a steady decline in bad debts over time.
They went from a high of 30.7 percent out of the total loan book for the sector in 2000 dropping to 23 percent in 2005 and ultimately down to 14.3 percent in 2007.
By December 2009, it stood at 12.8 percent. Tightened supervision in 2010 put a threshold of 7 percent as provision of bad debts to guide bankers. In addition, complementary measures were instituted to achieve this target.
The new measures included introducing new borrower assessment tools by all the banks with intentions of assisting in growing the entire banking sector’s loan book rather than shrinking it.
What is the next effect of such measures? Rwanda’s banking industry is on a rebound. The sector is riding on the back of a steadily growing economy and increased appetite for loans. Loans given out over the last three years are now better spent.
The effect is that the sector’s entire loan portfolio is better managed than was the case previously. This has boosted the earnings by the licensed banks.
Latest Central Bank quarterly statistics that give the barometer of the state of the fiscal aspects of the entire economy, show that by the end of the fiscal year 2010, the total banking sector pre-tax earnings had soared to an all time high of Rwf 13.1 billion in 2010 as opposed to Rwf 3.8 billion in 2009 a quantum jump of over Rwf 10 billion in a single year.
The central bank termed the record earnings as high profitability. One can add that such earnings reflect a sign of confidence in the economy by lenders and borrowers alike.
The major source of income by the banks was interest from loans, which amounted to 45 percent of total income by the banks.
This means that supervision by central bank and internal management by individual banks is working with varied implications for the entire economy.
Experts credit the sterling performance by the banking sector to the growing confidence in the entire economy.
It means that business operators who took more money to expand production will fuel this and next year’s growth prospects.
Yet, another implication is further confidence in the economy that should ultimately attract new investors.
The author is an editor with The New Times