Rwanda's banking sector performance update

Rwanda's banking sector has showcased resilience amidst credit risks and growth challenges, according to the National Bank of Rwanda's monetary policy and financial stability statement for March 2024. In 2023, banks recorded a significant 38.7 per cent increase in new lending, while the use of digital lending channels also experienced substantial growth. To delve deeper into the current state of the banking performance in Rwanda, CNBC Africa engaged Kevin Karobia, Senior Investment Analyst at BK Capital Ltd. in a candid conversation. Karobia highlighted the increased credit risk looming over the Rwandan banking sector, with the non-performing loans ratio surging to 4.1 per cent from 3.1 per cent. He identified the energy sector as a significant area of concern, with loan defaults impacting several banks. Despite challenges, sectors like agriculture show signs of recovery, although credit risks remain elevated. In discussing the sustainability of current lending growth amidst inflation concerns, Karobia emphasized that the credit-to-GDP ratio in Rwanda stands at 31 per cent, indicating ample room for expansion compared to the global average of over 100 per cent. He dismissed the notion of potential asset bubbles forming, citing the sector's capacity for further growth, with credit to the private sector still below optimal levels. Regarding capital adequacy ratios, Karobia noted a boost in capital levels driven by improved sector profitability in 2023. While some banks display significant deviations above the regulatory limit of 15 per cent, others face challenges in maintaining adequate capital amidst rising non-performing loans. The overall sentiment, however, is positive, with the banking sector demonstrating enhanced performance. In conclusion, Rwanda's banking sector continues to show resilience in the face of evolving challenges, with opportunities for growth and stability on the horizon. With a focus on prudent risk management and sustained profitability, the sector remains well-positioned to support economic growth and financial stability in the country.