Last week I had said that privatization and liberalization are the only ways to go for purposes of deepening the local banking industry.
To drive my point home, I pose a query; how can a new player make entry into the local banking industry? In my opinion I will share with readers my interaction and perception of what seems to be happening in the industry.
When Kenya Commercial Bank (KCB) Rwanda landed in Kigali, its entry was different from what other new players had taken.
It was awarded a green field entry license, meaning that it had to create a brand virtually ‘from scratch’. Locally many people, given the dynamics within the local financial markets had never heard of the KCB Banking Group.
Some till now do not have an idea about KCB Group’s strengths within Africa’s continental banking landscape.
Some even here in Kigali still call it a microfinance institution. You can imagine that given such perceptions within metropolitan Kigali, what the ‘muturage’ in say western province somewhere in Rubavu would perceive it as it fans out its branch network programme.
My sources within the regulatory regime tell me that the outcome of the KCB’s entry strategy is bound to inform future licensing procedures for those making an entry. What is my point precisely?
To drive my point home I will turn to another local brand this time with an established market presence. Rwanda Commercial Bank (BCR) is Rwanda’s most visible banking brand.
BCR visibility came to fore in light of the government’s privatization in which UK-based emerging markets equity firm, Actis, bought into this bank.
The focus was to turn around the fortunes of a government bank that was not doing quite well, by turning it into a more agile and hence profitable player. Another notable player in this line of entry was that of Rabo Bank of Netherlands, a very reputable player which bought into Bank Populaire.
The evaluation of the entry by both Rabo Bank and that of Actis in contrast to that of KCB makes a very interesting comparative analysis of how future players ought to consider their entry dynamics.
After talking about KCB’s uphill task of building presence from scratch, I will talk about the challenges of making a dive into the market through a buy in of an existing brand.
While discussing with a senior operative of one of these banks on this comparative analysis, this officer pointed out certain critical pointers on the agony and challenges posed by buying into existing brands. One was the culture of ‘conservativeness’.
The ‘business as usual’ culture in which most of the local brands are premised. This seems to be a challenge for those who bought into these brands.
Further still my sources alluded to me that transparency through embracing best practice accounting and other financial reporting had to be enforced by the new shareholders after they bought into these brands.
A lot of ground has been covered in this regard but much still needs to be done.
For instance to deepen their financial bases and by extension their management capacities in a situation where these banks made only $5 million as profit across board last year, these banks ought to pursue alternative, cost effective and cheaper avenues of accessing funds for onward lending to the public.
One such alternative is trading their stocks or issuing bonds within the Rwandan bourse. That in itself is a herculean task for some local brands.
My sources intimated to me that transparency as a corporate governance issue is still a challenge.
To trade in the Rwandan bourse transparency and optimum levels of corporate governance are some of the basic requirements. This is where KCB seems to have made a difference.
Even before unveiling its national branch rollout programme, the bank went straight into cross listing onto the Rwandan stock exchange.
So for KCB Rwanda they are currently facing an uphill task of market presence. However, once that is done then they contend that they will move in to capture market share as their corporate governance systems are very strong from day one.
KCB does not need in any way to strike compromises within its corporate boardroom politics as would be the case in a situation where entry is premised on buying into an existing brand.
After buying into an existing brand the board of directors is normally split into ‘two camps’.
Meaning that they would have to strike a ‘come we stay’ comprise on each and every major decisions affecting the brand which will have to be made. This in itself slows down decision making and expected outcomes.
I am saying that mixing new wine in old wineskin in itself has challenges.
In conclusion I can only say that the choice of entry whether green field or through buying into an existing brand should thoroughly be considered by incoming players who are interested such as Barclays Bank, Diamond Trust or Equity Bank.
There are serious short, medium and long term opportunity costs to consider in both scenarios.