Similar to Kenya’s policy changes, the National Bank of Rwanda has issued new regulations to cushion the banking sector in response to the Covid-19 pandemic. We expect these moves to help stabilise the sector over the next six months, although we still anticipate increased non-performing loans (NPLs) and lower loan growth.
1. Banks have been allowed to temporarily ease loan repayment terms for borrowers. The central bank has not disclosed the period over which this will be applicable. However, we see it as positive for Rwanda banks as it will soften the formation of NPLs, especially in Q2-Q3.
2. Mobile wallet charges have been revised for the next three months to encourage digital transactions, including: 1) no charges on all transfers between bank accounts and mobile wallets; 2) no charges on all mobile transfers; 3) no merchant fees on payments for all contactless point-of-sale transactions; 4) the limit on individual transfers using mobile wallets has been increased to RWF1.5mn from RWF0.5m for Tier 1 customers and RWF4.0m from RWF1.0mn for Tier 2 customers.
For Bank of Kigali (Buy, TP RWF309), however, we expect the impact of this specific change to be negative, albeit temporarily so. As of 2018, the contribution of fees to its total income was 16%, the largest sub-segment being payment facilities, which accounted for 6% of total income.
Although a positive outcome for Bank of Kigali would be increased usage of alternative channels, which it has been targeting, non-interest revenue growth is likely to be flat in Q2 20 and Q3 20. Thereafter, though, if fees revert to normal rates after the worst of Covid-19 is over, we expect the new adoption of alternative transaction modes to boost non-interest revenue growth.
Table: Rwanda banking sector liquidity ratios (end-Q3 19)
|Liquidity coverage ratio (LCR) (min. 100%)||193%|
Net stable funding ratio (NSFR) (min. 100%)
Liquid assets/total deposits
Interbank borrowings/total deposits
BNR borrowings/total deposits
Gross loans/total deposits
3. An extended lending facility for banks. The National Bank of Rwanda has put aside an additional RWF50bn (US$52.5mn) for banks that could face liquidity challenges. The tenor will be 3-12 months and will only be available for the next six months. We believe this is important, especially for the smaller banks, which will need this support. Compared with Kenya banks, Rwanda banks have a lot less liquidity. Bank of Kigali had a liquidity ratio of 35.9% at end-Q3 19 (Kenya banks had an overall ratio of 51.1%). It had a net loan/customer deposits ratio of 109.8%, and we believe the bank will need to scale back on lending to enhance liquidity.
4. Treasury re-discounting window regulations revised. The regulator has offered to buy back bonds at the prevailing market rate and the waiting period if one fails to sell the bonds in the secondary has been reduced to 15 days from 30 days. This will offer banks the opportunity to boost their cash positions should the need arise within the next six months.
5. Cash reserve ratio reduced to 4% from 5% from 1 April. This will help banks keep more usable liquidity, which they can use to cushion customers.
Unlike Kenya, Rwanda has enacted a full lockdown in the country following confirmation of 17 Covid-19 cases. All unnecessary movements outside the home have been banned for an initial two weeks, except for essential trips, such as for health-care purposes and shopping for groceries. Public and private workers have also been ordered to work from home to help prevent the spread of the virus.
Rwanda also closed its borders completely, except for goods and cargo and returning citizens (although Rwandans coming home face two weeks of quarantine before they are allowed to re-integrate). These measures should slow the spread of the virus, but will also hit economic growth significantly.