BANKING ANALYSIS : Banking sector gains ground

Despite the spills of the global financial crisis the banking industry still maintained it bullish mood attracting some $880 million in total assets in the year 2009, writes Fred Oluoch-Ojiwah With assets totalling almost $1 billion the local banking industry is set for a new stage with new entrants injecting specialized services and additional capital in line with a fully liberalized regime. The industry is responding well to the liberalization policy which kicked off in 2003. Within this environment more players loaded with cash and expertise have since gained entry. This has consequently deepened service offerings while driving efficiency levels to higher standards. This can be deduced by pointing out that the industry survived the effects of the global financial crisis as it continues to consolidate a growth phase despite current gaps. According to statistics from the regulator, the performance of the industry in the first quarter of 2009, total assets reached $880 million. The 2009 first quarter results indicate that banks were able to avoid over exposure during the worst part of the global economic crisis. Information availed shows that Banque De Kigali(BK) held over 40 percent of these assets followed by Commercial Bank of Rwanda and Ecobank. While making a reflection of the banking performance for the last 6 years ever since liberalization of the industry, Central Bank Governor Francois Kanimba said that as the market regulator the National Bank of Rwanda (NBR) has been focussing on efforts to restructure financial institutions for the purposes of rebuilding the infrastructure after it was destroyed in 1994. The bank has been focussing on establishing some kind of new jurisdiction for the purposes of further protecting the industry from any shocks. “Concerted efforts were to be instituted to address the size of non-performing loans while at the same time we had to think of ways of attracting new forms of capital into the sector. I must say that all these efforts have been done”, Kanimba said. “When you look at the situation today, our banking system has grown to an extent that it can with stand some of the shocks that accompany a country’s financial system,” he added. According to the Governor non-performing loans have on one hand significantly reduced from 40 percent 5 years ago to 11 percent. Central Bank says that the total solvency ratio for the whole banking industry is now close to 19 percent against a minimum standard industry requirement of 10 percent. This means that those few banks which have significantly been affected by the financial crisis, their capital positions are not severely compromised as they have significant levels of liquidity. “This means that banks now have the means to expand their branch network, or implement new IT platforms for the purposes of boosting their efficiency levels. So there is a lot of vibrancy within the banking sector as we speak” ,he added. According to the Ministry of Finance and Economic Planning (Minecofin), Rwanda as an emerging market represents an exciting opportunity for investment and future banking growth. Minecofin pointed out that a prudent fiscal policy has been instituted as part of reforms geared towards boosting the national reconstruction efforts. The economic prospects that have come with the integration of Rwanda’s economy into the East African Community (EAC) has further seen its banking industry attracting a bevy of regional and continental heavyweights. The other factor that has served to stimulate the banking industry has been the economy which has continued to register low inflation while attracting robust trade with the increase of Foreign Direct Investment (FDI). It is within this economic setting that Rwanda’s ten licensed commercial banks operate. The Central Bank has been reporting that these commercial banks’ total assets have positively increased for most banks. The industry’s activities have also been focusing mainly on granting credit. Other incomes are generated from banking commissions, treasury bond investments and forex transactions. The overall aggregated balance sheet showed that commercial banks activities have witnessed significant growth trajectory since 2006. The net equity capital has increased from $37 million in 2005 to $49.5 million in 2006.This jumped to $72.6 million in 2007. It is currently standing at over $141 million. This significant increase in equity capital is due to the high earnings registered by the players and the increase of the minimum share capital as part of the new requirement s by the Central Bank. Consequently customer operations have considerably increased and this is attributed to what is refered to as, a, “‘the sustainable dynamics since liberalization kicked off in 2004 as well as the strengthening of prudential standards that led certain banks to inject new capital on the market.” According to the Central Bank, since 2002, banks have increased their liquid assets and placements at an accelerated pace as compared to that of loans. Since 2002 the structure remained unchanged, even for foreign currency deposits, although there has been some appreciation of the Rwandan Franc against the US dollar. According to officials about $150 million has been invested into the local banking industry ever since the sector was liberalized 5 years ago. A huge chunk of this injection has been through acquisition of equity of local banking brands by foreign based players. A notable difference has been the entry by Kenya Commercial Bank (KCB) early this year. KCB is East Africa’s third largest bank with a capital base of $301 million. As the latest entrant KCB made a foray into Rwanda through a $20 million green field entry license. Consequently other banks from the region and further afield have expressed interest to gain entry. Among these likely entrants Governor Kanimba told Business Times that Equity Bank, a Kenyan brand has been scouting the industry. However Central Bank is still waiting for their formal application. Equity’s preferred entry mode of entry would most probably be through buying into an existing. In the next and final part of The Business Times Insight into banking this writer will closely look at challenges within the sector Ends

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BANKING ANALYSIS : Banking sector gains ground