Assessing the Systemic Importance of Banks in Rwanda using Portfolio Similarity and Clustering Methods
Loading...
Date
2021-11-18
Authors
Ntirushwamaboko, Dominique
Mugenzi, Patrick
Nyalihama, Christian
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research Consortium
Abstract
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
Description
Keywords
Systemic risk, , Banks’ portfolios, , Cluster analysis