3. Working Papers

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Assessing the Systemic Importance of Banks in Rwanda using Portfolio Similarity and Clustering Methods
(African Economic Research Consortium, 2021-11-18) Ntirushwamaboko, Dominique; Mugenzi, Patrick; Nyalihama, Christian
This paper assesses the similarity among Rwandan banks, especially looking at how the assets side and lending portfolios have been evolving, and their implications on systemic risks in the Rwandan banking system. The aim was to gauge a systemic risk that might originate from a cluster(s) of small banks, which is not well captured by traditional means of using the size or interconnectedness in network analysis. We used a variety of empirical approaches to tackle this aspect in the context of Rwanda, with data from 2016 to 2019. Our key findings suggest that the general measure of the portfolio similarity between individual banks is quite stable over time and driven predominantly by big banks. Conversely, we noted that some medium-sized banks have been consistently similar in terms of the loan portfolio and associated risks in the last four years, and therefore they can be exposed to common risks with impactful consequences, as the cluster is more sizeable than banks have taken individually