Banking sector buoyant as net profit rise by 54 percent

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The banking sector remained   profitable in 2014 recording a net profit increasing by 54.3%, a positive outlook that   provides optimism for a better performance this year.

The sector  that  dominates the   financial sector  is looked at to   boost  access to credit  by  private sector to  drive  economic growth needed to  push the  country  to  middle income   by 2020.

Central Bank  statistics indicate that  the  sector’s  net profit  after tax for the industry rose to Rwf34.94 billion December 2014    up from   rwf22.64 billion  in the same period in 2013 while its Return on assets  (ROA) and return on equity (ROE) stood at 1.9% and 10.8% respectively.

“From stability and robustness perspective, the sector is sound and resilient to shocks as it remains well capitalized, profitable and liquid,” said John Rwangombwa, Governor of the Central bank

According  to  central  bank, the  sector’s  balance sheet   remained   buoyant  as total  assets   increased by   19.3% by end of  December 2014 totaling to Rwf1.80 trillion up from  rwf1.51 trillion realized in December 2013.

Total assets of the banking sector were dominated by loans to the private sector accounting for 56.1% and by investment in financial securities (13.5%), Governor Rwangombwa noted, a positive gesture for the private sector’s growth.

But   the banking system’s loans and deposits continued to decline from 0.14 and 0.15 in 2010 to 0.12 and 0.13 in 2014 respectively.

“In addition, the share of three biggest banks in loans, deposits and total assets also declined from 52%; 55% and 57% in 2010 to 45%, 47% and 46% in 2014 respectively,”  Rwangombwa  noted

Experts  say that there is need for  banks to  lessen  credit  requirements  to   increase  loans   going to the private sector, which  has been  reduced by  lack  of  requirements such as business   plan and collaterals.

Small and Medium Enterprises-SMEs   compose   to a large extend part of the private sector and are looking at borrowing more capital to expand.

The capital adequacy ratio (CAR) stood at 24.2% compared to 23.1% recorded in December 2013 well above Basel committee benchmark of 10% and the BNR regulatory minimum requirement of 15%, serving to protect depositors and promote the stability and efficiency of the financial system.

On the other hand, total liabilities of banks were dominated by deposits accounting for 81.2% of the total liabilities.

Again, the   sector continued  to remain  liquid with  its   liquidity ratio measured as liquid assets to total deposits ratio  was at  51.7% by end of December  2014 which  is  above the  required  prudential limit of 20%.

The   banking sector that is  dominated by  comem4rical  banks also   saw their  bad loans  ratio  declining  6.0% end December 2014 from6.9% end December 2013, a move that   continues  to strengthen   the sector’s  profit portfolio.

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