Banking sector expands by 21 percent to foster economic recovery

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Banking sector expands by 21 percent to foster economic recovery

The positive performance outlook of the banking sector in the first quarter of 2014 is seen to foster the country’s economic recovery from the slowdown of 4.7 percent it registered in 2013.

The banking sector which is pivotal in the financial sector and main contributor to the service sector grew by 21 percent in assets to contribute to the economic expansion that saw real Gross Domestic Product (GDP) grow by 7.4 percent in the first quarter of this year.

“With regard to the performance of the Rwandan financial sector, it continued to be sound, stable and expanding throughout the first half of 2014.

The sector continued to support the growth momentum of the Economy,” said John Rwangombwa, the governor of Rwanda’s Central bank.

With this, there is optimism that the   economic  recovery registered in the  first  quarter of 2014  would continue throughout  the  second quarter  to surpass the  projected  yearly  growth  of 6 percent by December 2014 as service  sector  continues to  show an impressive growth.

The services sector registered an increase of 22.4 percent in second quarter as its total sales increased by 22.4 percent in the second quarter 2014 from 12.6 percent recorded in the first quarter of this year.

Moreover, the sector persisted from external shocks thus remaining profitable, liquid and well capitalized to adequately finance the private sector, seen to boost economic growth.

The  positive performance   of the banking sector according to  experts  is  attributed to  controlled  inflation pressures, increased liquidity to   private sector  as well as  improvement  in the  use of the  country’s Integrated Payments Processing System (RIPPS) in the first half 2014.

For example, banking sector’s new loans to private sector rose 47.8 percent in the first six months of 2014 2014 from a drop of 12.4 percent recorded in the same period of 2013 while microfinance sector recorded and gross loans 10.4 percent

Again, Central Bank maintained the inflation levels below the annual projection of 5 percent as headline Inflation fell to 1.4 percent in June 2014 from 3.4 percent recorded in March this year and is expected to continue stabilize at around 3 percent in the third quarter of 2014.

“BNR will maintain its accommodative monetary policy to continue stimulating the credit to the private sector as long as inflationary pressures remain contained,” Rwangombwa added

On the other hand, interbank transfers rose by 0.2 percent and 4 percent in both volume and value in the first half of 2014 compared to the same period under review 2013 while Cheques transactions registered a decline of 9 percent and 7 percent   in volume and value respectively.

The decline in cheques, central Bank says was as a result of an introduction of e-tax while the number of Automated Teller Machines-ATMs rose by 6 percent , the number of Point of Sales  increased by 33percent  while debit cards saw an increase  of  21 percent  with and credit cards rising  by 32 percent.

“We will focus on increasing payment transactions efficiency by promoting security and accessibility,” Rwangombwa notes  adding that,  “This will be done through the establishment of the cheque truncation, interoperability of payment systems and regional connectivity (East African Payment System- EAPS)”.

Experts believe that with the introduction of the innovative products such as online banking, mobile banking, mortgage sector venturing, the sector is at better position to foster economic growth and shake off global spillovers.

According to the   monetary policy and financial stability report for August, the Capital Adequacy Ratio (CAR) stood at 23.6 percent which is above the minimum required Capital Adequacy ratio of 15percent, as nonperforming loans (NPL) ratio was registered at 6.6 percent by end of June up from 6.9 percent in December and June last year.



About the author

Olive Ndaka is the Junior Editor for RwandaEye. An investor and young entrepreneur, she is a quick learner and has contributed many articles for RwandaEye in Kinyarwanda.

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