Banking sector buoyant as net profit rise by 54 percent
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.