Rwanda: Why Rwandan Banks Operating Costs Are Going Up

Operating costs of local banks have been rising steadily in the last three years, statistics from the Central Bank show.

In 2019, Rwandan banks incurred Rwf372.5bn in operating costs up from Rwf278.4bn in 2016. The largest driver of the rise in costs was interest expenses as the 16 local lenders have to borrow money at times outside the country and often in foreign currency which drives up the cost. Banks also lend from customers deposits which can be expensive to collect as it requires a countrywide network and value chain.

Diane Karusisi, the Bank of Kigali chief executive, said often drives up the cost of operations as banks do not borrow from the Central Bank. Karusisi was speaking during last week’s Central Bank Monetary Policy and Financial Stability Statement.

Banks incurred up about Rwf105.6bn in interest expenses.

Local banks also saw a rise in costs due to the adoption of digital services which is expected to drive up financial inclusion, more services to clients and improve their relevance. Digital services adoption comes with costs such as the acquisition of systems and necessary infrastructure and training of staff.

Bankers who spoke to this paper said that adoption of digital services is among the highest drivers of costs and will remain so for a number of years going forward.

The returns from the investment is not instant and will also take several years with some putting it at 5 to 7 years.

The period before banks can reap the returns on the investment is among other things dependent on the pace of uptake by the public and impact on financial inclusion.

Robin Bairstow, the President of the Rwanda Bankers Association, told Doing Business that the highest cost most banks are currently incurring costs in digitization.

Bairstow said that the cost of operation is further likely to go up with the year as investments in the technology continue.

Globally, digitization of banking services is a popular trend as lenders seek to innovatively reach out to clients replacing the habitual long queues in banking halls. Across the world, bank services are increasingly available via mobile phones and internet banking. This, however, requires better and cleaner data that the new systems banks are acquiring and building are expected to address.Banks operating costs also went up due to provisions for bad debts which were about 18 per cent of all expenses, about Rwf 67.8B. This is because there was a significant write-offs in bad debts […]

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