The year 2015 is closing on a good note for the financial sector, thanks to the positive performance that now projects optimism for the sector in the first half of 2016.
Through the year, the sector that is composed of banks, Microfinance institutions and insurance companies continued to perform well,the Central bank says, amidst changing inflation levels and unstable foreign exchange market.
The sector hovered through changing inflation levels since the beginning of the year jumping from 0.7 percent in January 2015 to 1.4 percent in February, 2015 but reached high for the year in November at 4.8 percent after falling 2.9 percent in October from 3.7 percent in September,2015.
Also, the uncertainty in the foreign exchange market was another challenge for the sector with francs record high Rwf 800 in the first half of 2015 before settling to Rwf735 in November,2015 making most banks record low performance in their non commission fees.
“Of course the uncertainty in the foreign exchange market somehow affected the banking sector as a whole,” Maurice Toroitich, The chairman of the Rwanda Bankers Association told this website on Tuesday.
But despite this,the financial sector continued to perform well in its profitability as well as keeping credit flowing to the private sector thus contributing to the healthy growth of the economy that continued to grow at 6.1 percent in the third quarter of 2015.
For example, as of September 2015 capital adequacy ratio of banks and Microfinance institutions stood at 24.2 percent and 31.2 percent respectively.
The sector continued to post a profitability outlook with the banking sector’s return of assets increasing to 2.3 percent to 1.9 percent while return on equity stood at 12.7 percent in the nine months of 2015 from 10 percent.
While for Microfinance Institutions’ return of Asset stood at 3.5 in the nine months of 2015 remaining constant compared to the same period in 2014 while its return of equity grew from 10.7 percent to 11.2 percent in September, 2015.
“The asset quality of banks continued to improve but slightly worsened for Microfinance Institutions,” Rwangombwa further noted.
The non performing loans for banks remained constant 6.3 percent in September 2015 while MFIs went up 7.8 percent in the first nine months of 2015 from 7.7 percent in the same period under review.
Whilst for insurance companies, return on assets was at 9 percent in the nine months of 2015 but recorded a low profitability from private companies which pushed the return on Equity stood at 12 percent below the central bank’s mark of 16 percent.
The solvency margin ratios for the public and private insurance companies stood at 2000 percent and 108 percent respectively below the central bank’s prudential benchmark of 100 percent.
During the year, the financial sector witnessed an increase in the credit flowing to the private sector with outstanding credit to private sector grew by 26.3 percent year on year in September 2015 compared with 17.5 percent in the same period under review.
Moreover, this saw the sector’s new authorized loans growing by 13.0 percent year on year in September 2015 on account of positive performance which has prompted the Central ban to maintain its key repo rate at 6.5 percent for first quarter of 2016.
“The Rwandans financial sector remains adequately capitalized,” said John Rwangombwa, Governor of the Central Bank.
Again, experts say that 2015 would still remain a year where almost all banks recorded a positive performance in terms of profit margins with banks recording profit in the second half of the year. For example Bank of Kigali, country leading b assets recorded a Rwf16 billion net profit in November, 2015.
While Kenya Commercial bank which witnessed a sluggish year in 2014 that resulted from its loss in 2013 recorded a profit of Rwf 1.32 billion in the second half of the year, thanks to its growing mortgage industry with Equity bank recording an increase in its profits of 29 percent in the first six months of 2015.
Experts believe that despite global uncertainties that would still affect the domestic economy, the financial sector is posed to further grow in the first quarter of 2016 on account of innovative products mainly in insurance sector, adoption of technology and a healing band loans portfolio.