Will BK’s IPO help open up our credit-shy banks?

The concept of Initial Public Offering (IPO) is relatively new to Rwanda. In November last year, Bralirwa Sarl, was the first Rwandan company to issue an IPO, which in February this year was listed on the new Rwanda stock exchange (RSE).Those few Rwandans who bought Bralirwa shares at the initial offer must be smiling all the way to their banks, since Bralirwa’s share price has been rising day after day.  This IPO has so far traded over 30 million shares with a turnover of about Rwf5 billion since February.

The concept of Initial Public Offering (IPO) is relatively new to Rwanda. In November last year, Bralirwa Sarl, was the first Rwandan company to issue an IPO, which in February this year was listed on the new Rwanda stock exchange (RSE).

Those few Rwandans who bought Bralirwa shares at the initial offer must be smiling all the way to their banks, since Bralirwa’s share price has been rising day after day.  This IPO has so far traded over 30 million shares with a turnover of about Rwf5 billion since February.

Until yesterday, Bralirwa’s share was trading at Rwf 220, compared to the Rwf 136 listing price. 

The biggest contribution of Bralirwa’s IPO has been opening up the eyes of Rwandans to the profits accruing to trading shares and the quick returns involved. Many had been skeptical at the initial stages.

This is why Banque de Kigali’s IPO comes at an appropriate moment. Just like Bralirwa, BK has a solid market command with a market share of about 30 percent and a strong asset base forecast to grow to 35 percent within the next five years.

BK will be putting to the market 45 percent of its stake, clearly a good portion of the company’s shareholding compared to the 25 percent that Bralirwa issued.  The asset solidness of this company should be good news to any investor interested in this bank.

In general, the banking sector has witnessed sustainable growth over the past years. However the pace of extending services closer to the ordinary people is what I have issue with and would wish to point out as this premier IPO in the banking sector is issued.

With eight commercial banks today, statistics indicate that these banks serve a mere 14 percent of Rwanda’s bankable population. SACCOs, that were introduced recently and Micro Finance Institutions (MFI), which have had a fair share of their ups and downs cater for another 33 percent. Therefore, this leaves approximately 53 percent of the population unbanked.

There has been a sluggish move when it comes to rolling out products and services of the banks across the country. This partly explains why our economy offers a low banking penetration, estimated at 22 percent of GDP compared to Kenya’s  that stands at approximately 70 percent.

The result of this has been a poor savings culture and yet classical economics teaches us that sustainable growth must be anchored on a culture where saving is a cardinal norm for the majority.

Added to this is the timidity with which our banks approach the issue of credit. With growing competition in the sector, I fail to see the aggressiveness through attractive credit packages normally seen elsewhere.

I don’t see the cutthroat competition where aggressive sales agents are knocking from office to office, door to door, convincing the working class why they should take a loan from their bank.

I fail to see the open smiles that should greet a client walking into any credit office of a commercial.

What I instead see are cumbersome procedures of accessing credit, rigorous paperwork that at times dissuades one from proceeding.

What is dominant is the demand for collateral, sometimes very unrealistic and incompatible to the amount of credit that one needs, which simply chases potential clients away. 

I do agree that with the high percentages of non-performing portfolio, emanating from a poor culture of paying back and the mayhem that befell this country, banks need security to ensure survival.

But equally, the latest figures show that the volumes of Non-Performing Loans (NPL) are diminishing year-in-year-out falling to less than 10 percent.

This means that the Banking sector has put in place stringent measures to counter this problem but also that the bad culture of refusing to re-pay loans is declining, a reason why banks should be more flexible and open up.  

The problem is not only in accessing credit. The loan, if you are lucky to get one, has a high cost of paying back; on average about 17 percent interest rate in most banks.

Therefore, the bottom line is that our banks need to move an extra mile to become more competitive and aggressive in character.  There must be a lot of creativity and innovations in products and services to capture the bigger portion of our people that remain unbanked.

BK’s latest IPO is a good step in the right direction. It will now have its own resource base to finance long term strategic investments, one of which will be rolling out its presence across the country.

But more important is that there will be more pressure on BK, from its new shareholders to capitalize on its lead in the market to capture greater territory. The end results are better products that attract more customers, one of which will be more credit at a good cost.

Will it trickle down to other commercial banks? Time will tell! For now go and buy those BK shares before the outside market consumes them.

On twitter @aasiimwe or Blog:aasiimwe.wordpress.com

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