FOCUS ON BANKING: An industry shaping up

Rwanda is designated as the investor’s paradise. The country’s investment regime has been crafted with competitiveness in mind. Banking and financial services are those complementary industries which are expected to assist with the national endeavour meant to turn around the economy into a path of transformation. According to minecofin real GDP grew by 6% per annum fueled by construction boom as well as market liberalization which has greatly boosted higher forms of FDIs. With increasing FDI inflows in which banks are expected to be conduits of these deliveries, 2009 is expected to be a year of significant growth for Rwanda’s banking industry. Banking the unbankedThe regulator –the National Bank of Rwanda has instituted very conducive terms for banks to continue experiencing growth patterns. Government programs such as liberalization of telecoms, privatization within agriculture and deepening of the services sectors is keeping liquidity levels on a higher note by bringing in massive deposits into Rwandan banking industry. A case in point is telecoms. RwandaTel S.A was sold to Lap Green for US$100 Million. It went on a technology migration drive from CDMA to GSM and this enabled it to rope in 120,000 subscribers in just 4 weeks of its migration. RwandaTel plans to net 600,000 subscribers by mid 2009.MTN on its part has announced a US$100 Million market dominance campaign having bagged 1 million subscribers as they are keen to retain the telecoms market leadership tag. What has banking got to with this telecoms power play? Pretty simple. The Telecoms value chain in Rwanda is being revamped and elongated. A host of new players within the value chain will definitely need banking services. We are talking about those at the very bottom of the ladder-the recharge voucher vendors for instance. The real players in banking sector are those who will develop products and services to assist with creating better value within telecoms as new value addition is set to be ‘a cash cow’ at least within the short term going by the US$300 Million or so which telecoms players MTN, RwandaTel S.A and now Tigo are going to put up to be counted. Thus banking like any other industry will have to develop new forms of operations to add value to telecoms boom which is slowly playing out. The banks will be expected to take their wars to rural Rwanda for instance where a host of these wars will be fought. Realignments within Rwanda’s agricultural sector is another case in point. The Government’s divestiture program in tea will see farmers being empowered economically meaning that tea sector assets such as farms and tea factories will be transferred from Government to private sector operatives of which a significant chunk will be acquired by the hitherto poor rural farmers. Banks will have to come up with products which will have to address the needs of such newly empowered groups. Expansion ProgramsTo help address these new clients banks will have to embrace technological innovations. Corporate governance of these banks will have to emphasize increased returns on capital and total assets. Almost all banking players I have spoken to are gearing up for expansion. Players are opening up new branches, embracing state-of-the art facilities with an intent of rolling out better services. Generally ‘the big three’ that is BK, BCR and Ecobank appear sound with adequate and requisite capitalization, with improved earnings and other forms of assets. Since regulation streamlined supervision activities banks have improved lending procedures while tightening internal and external controls to check in on bad debts. A key outcome according to NBR performance report for the Year ending 2007 is that average non-performing loans ratio has seen a marked decline. Deficient practices in granting and managing loans due in part to bad risk appreciation had led to a situation of a poor recovery profile prior to instituting such reforms. In the report NBR pointed out key areas which led to this sad state of affairs. Among them these included a lack of clear and transparent policy regarding loan granting; lack of qualified staff to manage loan books; poor assessment of risks coupled with poor management of such risks; deficient collateral and over valuation of collateral value; and, limited human resources and efforts devoted to loan recovery teams. Other factors which had impacted negatively on banks included inadequate legal structures and attendant outdated judicial procedures. Supervision activities thus moved with speed to redress this situation. Consequently non-performing loans have reduced from 32.5% within the books in 2002 to 13.5% in 2007. On a broader level restructuring of the industry has created better, fully fledged sector players capable of undertaking aggressive expansion drives to support the Government’s growth prospects. For instance Bancor S.A has been bought by Access Bank Plc. Bank Populaire has been reenergized by the entry of Rabo Bank while BCDI has been restructured by the entry of EcoBank. The entry of KCB through its ‘new slate’ strategy where it is starting afresh as a brand is a sign that the industry should witness positive growth patterns. In the next series on Focus on Banking the writer will examine KCB’s entry strategy within Rwanda’s banking industry and how this is likely to impact on the entire industry. Ojiwah@gmail.com