When news of Crane Bank takeover by Uganda’s regulator started trickling in, many customers of its local subsidiary feared for the worst. However, National Bank of Rwanda reacted fast, assuring the anxious customers that their deposits were safe as the Rwanda Crane Bank branch was operating independently. Sector watchers say the move was instrumental in confidence building, calming the situation that was would have easily gotten out of hand, thanks to social media, writes Business Times’ Peterson Tumwebaze. 

Bankers and financial sector experts have lauded the swift action by National Bank of Rwanda (BNR) to reassure the public, particularly Crane Bank customers, after it emerged that Uganda’s central bank had taken over its parent company, Crane Bank Uganda. The experts say the fast reaction by BNR was instrumental in confidence building, calming the situation that would have easily gotten out of hand, thanks to social media. When Business Times visited the two branches of the bank in Kigali, operations were going on normally and customers were transacting their business smoothly.

The spark

Last week, Bank of Uganda (BoU) took over the management of Crane Bank Uganda and suspended its board of directors as the bank did not have minimum capital requirements, which BoU said posed a "systemic risk to the Ugandan financial sector”. The development caused unease among Crane Bank clients in Rwanda.

But as many of the bank’s clients were still weighing their options, BNR sent out a statement on the matter, reassuring customers on the financial health of Crane Bank Rwanda and its operations.

In the statement, BNR governor John Rwangombwa assured the Rwandan public that the takeover of Crane Bank Uganda by Uganda’s central bank would not "in any way have an immediate effect on its local subsidiary”

Rwangombwa added the regulator would, however, was keeping an onsite team at Crane Bank Rwanda to monitor all its operations. The bank started operations in the country in 2014 and has two branches in Kigali.

Later, the bank’s chief executive, Edigold Monday, too, reassured clients and the general public, saying their deposits were safe, adding that the bank was operating normally.

"The bank is autonomous from Kampala and is regulated as a Rwandan-based entity,” she said last week.

Monday reiterated that the situation in Uganda will not in any way affect the operations of Crane Bank Rwanda.

Experts weigh-in on the situation

Now experts say more needs to be done to streamline the sector and steer the local and regional financial sectors toward good practices to avoid recurrence of a similar scenario. They called on regulators and stakeholders to put in place strong mechanisms to ensure transparency and governance in the local and regional financial sectors.

Maurice Toroitich, the chairman of the Rwanda Bankers’ Association and KCB Bank Rwanda managing director, said it is regrettable that a bank should end up in a situation as Crane Bank Uganda has found itself in.

"As pointed out by the governor of the National Bank of Rwanda, Crane Bank Rwanda is registered, and licensed locally and operates as a separate entity from Crane Bank Uganda. Therefore, it is not expected that the events in Uganda will have a direct effect on the Rwanda bank.”

Toroitich attributed the recent bank failures in the region to avoidable governance problems

"I believe that the sustainability of a banking business must be deeply rooted in a strong governance and ethical foundation that permeates through its structures,” Toroitich said in an exclusive interview with Business Times.

Liliane Uwizeyimana, a banker in Kigali, said the central bank has prudential standards all lenders have to meet.

"If one does not meet those standards, the regulator often has no choice but to swing into action. This is normally done to ensure stability of the sector and minimise risks, but also to protect customers’ deposits,” she noted.

And, in this case, I believe the regulator in Uganda was convinced that Crane Bank Uganda had fallen below these standards, and that its management was incapable of salvaging it to statutory minimum requirements, she added.

Kenneth Agutamba, a commentator on the regional economy, said the business of banking is founded on absolute trust by the public.

"People should have the confidence to keep their money and other investments with you and be able to access it anytime they want,” he said.

He said earlier rumours on social media about the "impending” closure could have caused a ‘bank run’ worth billions of shillings.

A bank run, also known as a run on the bank, occurs when a large number of customers withdraw cash from their deposit accounts with a financial institution at the same time, because they believe that the institution in question is about to run bankrupt.

Customers speak out

Meanwhile, Crane Bank clients say they have been surprised by the developments at the Bank and hope for the best.

"I had thought of withdrawing my money after reading in papers about the takeover,” a Crane Bank Rwanda client, said.

She added that she has since changed her mind, thanks to statements issued by the BNR and the bank assuring clients on safety of their deposits.

She said she hadn’t known that the local subsidiary was independent of its mother bank in Uganda.

"It’s reassuring to know that the situation in Uganda will not affect us,” said another client of the bank.

Banking sector performance

Overall, Rwanda’s banking sector remained generally sound in the quarter ended 30 June 2016, with total assets of banks recording a 13.9 per cent increase, year-on-year, from Rwf2 trillion in June 2015 to Rwdf2.3 trillion during the same period this year. The sector’s total transactions increased to Rwf281.5 billion in the first six months of 2016, up from Rwf242.5 billion recorded in 2015 and Rwf224.5 billion in 2014.