As Rwanda extended the Covid-19 lockdown for 15 more days, banks in the country and the region are bracing for major shocks, expected to be felt long after the pandemic.
Players in the financial sector say as much as they support the government decisions, the lockdown is likely to put some of their clients out of business, passing on the problem to lenders.
“Banks are only a conduit of exchange of value, when people are not trading, banks are also not trading, most banks depend on the day-to- day transactional fees and commissions.
“Currently, people are not transacting so banks are not making money,” said Maurice Toroitich, chief executive of BPR Atlas Mara.
He said although the central bank’s intervention to set up a Rwf50 billion credit facility and restructuring of loans will help in the short term, with persistent inactivity some of the businesses that had bank loans are expected to close, which will worsen the non-performing loans problem.
“The performance of the loan book is very critical to banks, restructuring of loans will help in the short run but if inactivity persists there businesses that will not even recover, so banks will suffer the losses even long after Covid19 subsides” he said.
To mitigate health and sanitation challenges of coronavirus, banks urged customers to use mobile and digital transactions, and then waived transactional fees which has further shrunk their revenues and compounded their problems.
The banks listed on the Rwanda Stock Exchange like Bank of Kigali and I&M recorded impressive growth according to the latest financial reports they released.
I&M Bank recorded a Rwf10, 817,4212billion ($11.3million) profit before tax for the year 2019, a 12 per cent increment interest and similar income, mainly attributed to the growth in loans and government securities.
BK Group Plc, the sector’s market leader recorded a net income of Rwf 37.3 billion ($40.5million) in its last quarter of 2019, an increase of 36.3 per cent compared with 2018.
BK’s net loans and advances increased by 19.3 per cent to Rwf 678.0 billion ($735.8 million), while client balances and deposits increased by 20.8 per cent to Rwf 642.7 billion ($697.4 million).
Despite the stellar growth last year, BK group chief executive Diane Karusisi cast a gloomy picture for 2020, saying they expect a slump in their loan book as well as a general decline in revenues due to the inactivity that came as a result of the pandemic.
The IMF is asking banks not to hide the losses they accrue during the coronavirus pandemic but instead uphold transparency and regulatory measures to support their recovery. IMF says banks, investors, shareholders and even taxpayers have to bare the losses of stalled economy activity ushered in by lockdowns.
“Transparency helps prepare all stakeholders; surprises only worsen their response, as was proven during the 2008 crisis,” the IMF said on Tuesday.
“Don’t change the rules” IMF warns, adding that doing this in the midst of a crisis will likely cause more confusion.