New BNR Governor says financial modernisation is his biggest challenge

The recent appointment of Claver Gatete as the Governor of the National Bank of Rwanda (BNR) was no surprise to many industry experts because of his wealth of experience as well as knowledge in central banking and macroeconomics. He took reigns from Francois Kanimba, a man he believes introduced changes that significantly transformed the banking sector in Rwanda. He also comes in at a time the bank is keeping its key interest rate at a record low of six percent to spur lending to the private sector and boost economic growth. Although he acknowledges that the challenge lying ahead requires focus and strong will, Gatete is confident that his wealth of experience would keep the sector on the right track. In one of his first interviews as the central bank Governor , he tells Business Times about the future of Rwanda’s financial sector, particularly the banking industry. Rwanda’s economy was hit hard by the global financial crisis, faced a serious liquidity squeeze between 2008 and 2009 with growth plunging after a period of prolonged expansion. Gatete believes this was an eye opener to economic policy makers, particularly in institutions like the own he now leads, which has transformed the local banking sector into an internationally focused sector. “Rwanda’s banking sector is a constantly changing; it has graduated from being inward looking to an internationally focused sector.” In the last four years, he said, the role of the National Bank evolved, calling for increased focus on rules that govern the world economy since Rwanda is now connected to international and regional systems. “The world is complex and we cannot predict many things, for example, the rise in fuel prices due to the political revolutions in the Maghreb, the financial crisis and the continuing rise of global inflation.” If we are to minimise the effect of these challenges, we must have a well trained team that can analyse global economic challenges and get solutions, he said. Gatete says one of his major challenges is to sustain new systems like the Rwanda Integrated Payments System (RIPPs), Real Time Gross Settlement (RTGS) and Automated Transfer System (ATS) to efficiently serve the complexity of the sector. He says that the financial sector must keep pace with the tremendous development in other sectors like tourism and mining. “That is why we are implementing modern payment systems like the RIPPs to manage both local and international money transactions efficiently.” RIPPS will be integrated with regional and international systems to handle all forms of interbank transactions swiftly. True, if modernised, the system would facilitate the regulation of the institutions under the jurisdiction of the central bank by providing timely and accurate information on the health of these institutions, helping the bank to craft essential strategic interventions. The institutions under the central bank’s jurisdiction include pension funds, insurance companies, banks as well as microfinance institutions. Moreover, according to experts, improving risk management practices was one of the biggest challenges to the banking system between 2008 and 2009. And they believe so. The credit squeeze in Rwanda was mainly a result of local factors because it was largely fuelled by the sharp mismatch between bank deposits and loan disbursement. The problem originated mainly from the rapid increase of credit distributed by banks in 2008 at the time when growth of banks deposits was slowing down. This led to a drastic decline of liquidity in the banking system and also created a huge amount of non-performing loans on the banks’ balance sheets. Banks would later, as a result, fail to raise long term capital to finance the economy. According to the Governor, with a modern financial system, bank customers would not need to carry liquid cash on them because electronic cards would be accepted by all banks and at points of sale like restaurants and supermarkets. This would help keep the liquidity within the banking system. “The advantage is that bank clients will still manage their day to day transactions while the money stays within the sector. Therefore, inflation will be curbed and banks will have enough to lend to entrepreneurs.” During his tenure, the former Vice Governor intends to focus on capacity building to increase research in monetary policy and financial markets to maintain a stable macroeconomic environment. With a relatively stable currency, low inflation rate and low interest rates (compared to the region), Gatete has inherited a stable macroeconomic environment and a firm foundation was laid for him by his predecessor, Francois Kanimba. “It is an opportunity and a challenge at the same time, 80 percent of local banks are regional, how do we use this foundation to grow the economy, and how do we protect them from external shocks,” he questions. He (Kanimba) had a steady hand on the inflation tiller, Gatete said. The new Minister of Trade and Industry, Kanimba says that the central bank tried to work hard to stabilise the economy by keeping the currency stable and inflation controlled. “It was a very busy time when banks were going bankrupt, when our currency was depreciating on a daily basis, but I am proud of what we have achieved in my term,” he recalls. During Kanimba’s eleven years, the central bank uplifted the financial sector, supporting the establishment of the capital markets and the Rwanda stock exchange as well as improving the supervision and regulation of MFIs, commercial banks, insurance companies and pension firms by establishing relevant legal reforms. Having worked with Gatete for about three years at the central bank, Kanimba expresses his confidence in the incoming Governor. “I’m handing over to a person who has knowledge about the institution.” He cautions that there is still a lot to be done, especially in the legal framework to safeguard the capital in the country. Ends