FOCUS ON BANKING: Banking sector nets in more players

The appetite by foreign banking institutions to invest into the Rwandan financial markets is getting enlarged with time as more robust institutions gain entry mostly through acquisitions of locally incorporated players. During the course of 2008, Rwanda’s banking sector has witnessed acquisition of three local banks by some of Africa’s leading banking brands. The latest is the entry into the market of the Kenya Commercial Bank Group, one of Kenya’s foremost fully indigenous banking outfits. Oluoch-Ojiwah Fred in this three part series offers an analysis of how this growth pattern within the Rwandan Banking sector is playing out. New Players better services The first shots of the acquisition streak had been fired in 2005 by the emerging markets equity firm Actis through its 80% takeover of BCR. The BCR (Commercial Bank of Rwanda) takeover was courtesy of the Government of Rwanda’s privatization program which had slated BCR for uptake by the private sector. Later on a bidding Consortium led by Fina Bank followed suit in acquiring 80% shares of Bacar another financial institution which was under privatization. Bacar was renamed Fina Bank Rwanda. The privatization of both BCR and Bacar has been highly successfully as both are now leading and vibrant banks. BCR on one hand has emerged among the top three in terms of national branch network while local banking analysts contend that it is currently one of the most vibrant in terms of diversity of product portfolio. Yet another entrant into the Rwandan banking sector was EcoBank, a Western African brand. EcoBank bought into the former and moribund Bank of Commerce, Development and Industry known with the acronym BCDI in 2007. BCDI operations had become untenable with the regulator BNR(National Bank of Rwanda) moving in to halt its operations owing to management malpractices. EcoBank moved in and as part of its takeover bid it turned around its operations and renamed it EcoBank Rwanda. EcoBank Rwanda is on a positive path and it is poised to claim top 5 leadership within the short term according to its management team. The 30th July 2008 signaled yet another milestone within Rwanda’s banking sector with the 75% acquisition of the Bancor S. A Rwanda by Access Bank Plc, one of Africa’s rising banking brands. This followed closely on the heels of a 40% acquisition of the Cogebanque stocks by Sharecap International, Africa Invest and Belgium Investment Company(BIO). Just prior to this deal, in May 2008 Rabo Bank, one of Netherland’s agile financial players made its entry into Rwanda through a 35% acquisition of Bank Populaire Du Rwanda. KCB’s entry has promises of further leveling the playing field within the Rwandan financial sector. Analysts contend that KCB’s entry will bring forth better service offerings which is bound to raise the local banking industry standards making the financial markets more robust and better placed at embracing innovation. For instance BCR has so far with its Actis intervention invested over US$7 Million in the provision of its famed mortgage portfolio. This product has provided a critical bridge head within Rwanda’s real estate sector and the financing sector. On the other hand Fina Bank’s market engagement strategy is premised on servicing the small and medium enterprises sector in effect a virgin area for corporate financial institutions in Rwanda. The new players will seek to outsmart each other by attempting to craft new forms of specialty business within the Rwandan banking sector. Key among these is the actual deepening of the lease product. International Finance Corporation, World Bank private sector lending arm approximates Rwandan leasing portfolio at US$25 Million. This new line of business within banking is set to continue experiencing growth prospects as more banks continue to embrace the concept while the Rwandan corporate sector gets to fully grasp its key utility functions. Prudent national policy framework The vibrancy of the local banking sector is a result of a host of favorable factors. Banking sector analysts point to a pragmatic ‘three pronged policy’ drive by the Government of Rwanda. This includes the privatization of hitherto state financial institutions, robust regulatory framework through better inspection capability and prudent fiscal policy as key value drivers of the phenomenal sectoral growth and turn around experienced within the last 3 years. One analyst remarked that this state policy intervention is , ‘an open regulatory regime which allows investors to bring in and take out capital as they may wish’. In other words the Rwandan banking sector is fully liberalized. The liberalized regime is what has actually attracted this new horde of players. Part of the key fiscal incentives which has attracted these new players is the country’s low inflation levels which has boosted such inward investment moves by these entrants. Statistics by BNR reveals that the Rwandan Franc has appreciated by 0.92 against the US Dollar compared to the previous year while interest rates remained stable at 16%. The treatment accorded to Rabo Bank, Actis, EcoBank, Access and others was a key determent for the entry of the KCB group. Rwanda Development Board refers to this special treatment as part of the Government’s larger ‘ investment promotion steeped in real red carpet promise’. However financial sector mandarins still argue that a lot still needs to be done owing to the ‘virgin’ nature of the Rwandan banking sector. Robert Mathu, Executive Director Capital Markets Advisory Council (CMAC) describes the Rwandan banking industry as one such sector with a huge growth potential. ‘The level of banking penetration is however still significantly low’, he said. This should actually be seen as an opportunity rather than a weakness. Thus market watchers on the other hand are not surprised if the Barclays Bank bid to take over Banque de Kigali is finalized early next year to follow closely on the heels of the KCB entry. The Barclays entry after that of KCB is bound to take the competition to another level as the eagle brand will add even more value to the market dynamics of the sector. James Musoni, the minister of Finance and Economic Planning is upbeat about the entry of these new players. Musoni is happy that foreign banks are investing in the Rwandan banking sector as they are bound within the investment guidelines to deploy expertise, capital and best practice inputs which are primary to the deepening of the local financial services industry. With the entry of these new players the sector is now set to enter into markets which were previously ignored as the players are to out compete each other. One of these areas is rural Rwanda which is largely unserviced. In the next issue of Business Times the writer will examine the growth prospects of the new players in the coming years. Ends