Overall, credit risk, capital strength, operational resilience of systems and people due to remote working have been reported as the main areas of concern that will be the supervisory priorities going forward.
The financial sector is expected to remain resilient in the near term on account of existing capital and liquidity buffers as well as economy recovery hinged on the planned global domestic rollout of the vaccine commencing in the first quarter of 2021.
As per the committee’s observations during a quarterly meeting held on 16th February 2021, assets of the financial sector increased by 24% 9 year –on- year) to Rwf 4,310 billion in December 2020 (and represented 53 percent of GDP), against 12.5% registered in December 2019 on the back of growth of deposits (especially institutional investors), borrowings from other financial institutions and injections.
Microfinance sector’s assets increased by 11 percent to Rwf 356 billion in December 2020 lower than 14.7% percent in 2019 as the pandemic significantly impacted the cash flows of households, micro, small and medium enterprises, thereby reducing their capacity to save and increasing their deposit withdrawal needs to cater for the pandemic’s uncertainties.
Insurance sector’s assets (private and public) grew by 15 percent to Rwf 591.7 higher than 14 percent growth registered in the previous year due to retained earnings and capital injections.
Growth of the public pension fund assets moderated to 10.7 percent to Rwf 985.6 billion as at the end of December 2020, lower than 15.3 percent growth registered in 2019 due to revaluation losses on some assets as well as reductions in pension contributions following suspension of some employers from declaring and paying pension contributions, reduced employees’ salary base in some institutions, either due to reduction in salaries or termination of some employees in response to the pandemic.
Increased credit risk
The pandemic and required containment measures resulted in a contraction of GDP by 4.1 percent year-on-year in the first three quarters of 2020, led to a reduction in incomes of households and businesses thereby weakening debt service capacity, and increased credit risk.
In response banks provided loan repayment deferrals to their customers and at the end of December 2020, restructured loans were worth Rwf 799.9 billion representing 31.7 percent of total loans.
In the microfinance sector, restructured loans stood at Rwf 14.8 billion representing 7 percent of total loans. Insurance premium receivables also increased from Rwf 4.9 billion in December 2019 to Rwf 8.5 billion in December 2020.
The significant restructured loans in the financial sector are indicative of a potential uptick of non-performing loans and provisions for bad loans in 2021 and into 2022.
Digital payments uptake
In 2020, Financial Service Providers (FSPs) increased their rollout and users increased the adoption of digital payment channels. The number of mobile payment subscribers increased by 13 percent from 4,139,075 to 4,688,124 while mobile payment transactions increased by 85% from 378.8 million worth Rwf 2,349 billion in 2019 to 701 million worth Rwf 7,177 billion in 2020.
Other electronic payment channels such as mobile banking, internet banking as well as card based payment services also experienced notable growth and recommended among other things, continued engagement with relevant stakeholders on measures to support recovery of severely affected sectors like tourism and its value chains, public passenger transport and education among others.