April 4, 2014 / 2:46 PM / 6 years ago

Rwanda to offer local bonds to boost market, says central bank governor

KIGALI (Reuters) - Rwanda will offer domestic bonds in August and November as part of a plan for regular issues to develop the tiny capital market, attract foreign capital and create more savings instruments in the poor African nation, the central bank governor said.

Governor John Rwangombwa also told Reuters that an increase in bank credit and a pick up in agriculture would help Rwanda’s economy expand by “a minimum of 6 percent” in 2014 after growth tumbled well below expectations to 4.6 percent last year.

“Normally our performance is above 7 percent and I don’t see why we won’t achieve that,” he said on Wednesday at the National Bank of Rwanda in Kigali. “We can’t be sure but it is possible.”

The land-locked nation of 11 million people which still relies heavily on aid and where many depend on small farm plots wants to diversify its economy. Its plans include attracting more service industries and creating a financial hub for Africa.

But such ambitions begin from a tiny base. None of the nine commercial banks operating in Rwanda are global players and the stock market trades just five listed firms - three of them cross-listed from Kenya - alongside a few bonds.

To expand the number of instruments, the governor said the central bank had agreed with the Finance Ministry for quarterly bond listings this year, even if the state did not need funds.

“We have been issuing T-bills and getting any money the government wants through T-bills but ... it is not helping us to develop the capital markets,” the governor said, adding the next two domestic bonds would be issued in August and November.

The amount for each issue had not yet been finalized, he said.

The new bonds follow the issue in February of a three-year domestic bond worth 12.5 billion Rwandan francs ($18.4 million) with a yield of 11.625 percent. The auction was oversubscribed.

In the second quarter, the bank will not issue its own paper but will support a domestic bond issue in May worth 15 billion francs by the World Bank’s private sector arm, the International Finance Corporation, to fund its activities in Rwanda.

Rwangombwa said the bonds would help attract foreign capital and encourage the creation of new products, such as collective investment schemes. “It is really supporting the local population to get channels for investing their small savings.”

Government debt stands at about 24 percent of gross domestic product, up from 21 percent after last year’s $400 million Eurobond. The governor did not say when Rwanda might approach international markets again, but said of the Eurobond: “It wasn’t a one-off at all.”


The government wants to mobilize more of its own resources and draw in investment to wean the country off aid, which in fiscal 2013/14 accounted for 38 percent of the budget. That was expected to fall to below 20 percent by 2018, the governor said.

The risks of reliance on aid was exposed in 2012, when Western donors halted donations temporarily over charges Rwanda backed a Congo rebel group - which Kigali denies. That was one of the main factors blamed for the 2013 economic slowdown.

With aid flowing again and government spending back to normal levels, Rwangombwa said growth would revive in 2014. Alongside a better performance from agriculture, he said a forecast 15.8 percent rise in bank credit to private business would also help.

That compares to an increase of 12.9 percent in 2013.

But he said he also wanted to see banks lower lending rates from the current average of 17.1 percent. “At 16 percent banks would still make good profit if they can contain expenses and deal with the non-performing loans issue,” he said.

He noted banks still faced challenges raising deposits - the governor stepped in last year to stop banks bidding for cash from one big depositor. The shortage pushed deposit rates as high as 11 percent last year, but have now eased to 8.8 percent.

The level of non-performing loans on balance sheets had also come down from as high as 7.1 percent in September to about 5.1 percent in February. “We want to keep it at 5 percent,” he said.

Attracting big global banks to Rwanda would also help expand products available in the market, he said. “We need at least some international banks here. It’s still a young economy that is growing and the banks we have are also young and growing.”

He did not name big banks he would like to see operating, but global players already present in the region include Barclays (BARC.L) and Standard Chartered (STAN.L).

The governor said international banks would be approached as part of broader plans to build a financial center. That could mirror developments in the Indian Ocean island of Mauritius, which has a growing offshore industry.

“We don’t want to be a tax haven, at least that’s clear from the beginning,” the governor said. “What kind of center exactly we want - that will be fine-tuned in this working group,” he added, referring to a team that includes officials from the central bank, Finance Ministry and Rwanda Development Board.

“The preparatory work should be done by the end of this year, speaking to the international banks, establishing what regulations we would need and looking at the tax code,” he said.

($1=680 Rwandan francs)

Writing by Edmund Blair

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