Renaissance Capital analysis values BK at Rwf89.2bn

Bank of Kigali (BK), Rwanda’s largest lender by market share and capital base, has witnessed a dramatic rise in its value three months after its Initial Public Offer (IPO), according to investment bank, Renaissance Capital. The bank’s value jumped over US$45m (Rwf26.5b) to US$151.2m (Rwf89.2b) from US$104m prior to its listing at the Rwanda Stock Exchange (RSE), elevating the bank’s status to that of its peers in the East African Community, especially Kenyan banks and to a lesser extent with its Sub Saharan African peers in Nigeria.
The headquarters of BK in Kigali.The bank's value has shot to Rwf89.2b since its listing at the RSE.
The headquarters of BK in Kigali.The bank's value has shot to Rwf89.2b since its listing at the RSE.

Bank of Kigali (BK), Rwanda’s largest lender by market share and capital base, has witnessed a dramatic rise in its value three months after its Initial Public Offer (IPO), according to investment bank, Renaissance Capital.

The bank’s value jumped over US$45m (Rwf26.5b) to US$151.2m (Rwf89.2b) from US$104m prior to its listing at the Rwanda Stock Exchange (RSE), elevating the bank’s status to that of its peers in the East African Community, especially Kenyan banks and to a lesser extent with its Sub Saharan African peers in Nigeria.

With a post IPO ownership split of 30 per cent by Government and a further 25 per cent by Rwanda Social Security Board and the remaining 45 per cent as free float at the RSE, Renaissance Capital came up with BK’s total equity, through a method known as bottom line valuation.

The means of valuation takes the averages of the derived value per share from two other calculation sources.

 “Our final valuation implies a target price per share of Rwf136 which is in line with current levels of gains of the stocks at the RSE,” the report states.

The current valuation means that BK stockholders have made a gain of Rwf11 per share while its stocks rose from Rwf125 per share during the IPO to Rwf136 on its debut at RSE.

Renaissance Capital’s report puts BK’s market share at 30 per cent further, stating that its management is focused on gaining additional market share in an industry that is currently experiencing further changes through increased competition mostly from new entrants.

BK, the report states, will be able to sustain its dominant position through its experienced management team and its 38 branch network.

“Part of BK strategy is plans by its management to transform its operations  from the leading classic franchise bank in to a much more dominant, diversified Rwandan financial player”, the report states.

BK is primarily seen as majority deposit-funded bank and is gradually increasing its proportion of debt and long-term financing into its product and service provisions as part of its new strategy.

The report reveals that BK stands out by all key industry metrics. For instance, it accounts for 29 per cent of banking sector deposits and 31 per cent of the credit portfolio and that it has more capital than the industry’s second- and third-biggest banks combined. This scenario painted by the report, however, can be said to illustrate some of the distortions in the banking industry in Rwanda.

It also partly explains why banking service penetration is still low.

“We regard the Rwandan banking sector as classic frontier, and under banked by most metrics,” the report says, adding that banking asset penetration is just 22 per cent of GDP and lending just 11 per cent of GDP.

About 80 per cent of Rwanda’s adult population is considered unbanked or under banked today.

The distortion can also be seen by indications that, the eight licensed commercial banks dominate the market with a 94 per cent asset market share as at last year with BK leading the pack as a classic dominant franchise but with many foreign banks also making up the competitive landscape.

In August 2011, BK raised US$34.8m of fresh capital through a primary issue of 33.3 percent of new shares. Government further sold 20 per cent of the increased capital base for US$27.8m through a secondary placement thus bringing the shares in the free float at RSE to 45 per cent.

The net effect of the move saw the Government’s stake in BK being reduced to 55 per cent of which 30 per cent is now held directly by the Government of Rwanda and 25 percent is controlled by the Rwanda Social Security Board.

BK’s IPO was part of the Government’s ongoing privatization programme that kicked off at the RSE with the listing of Rwanda’s local brewer, Bralirwa Ltd.

Stronger asset quality

By end of first half of this year, net loans accounted for 45 per cent of BK’s assets. Similar to its Nigerian and Kenyan peers, BK has an excessively liquid balance sheet, with 44 per cent of its asset base in held in the form of cash, interbank and liquid securities.

The report adds that BK’s business model is predominantly corporate-based. The credit portfolio comprises 72 per cent of loans to corporate customers with retail loans accounting for only 28 percent while on the retail side, almost 43 per cent of the loan book is formed by mortgages, 35 per cent is consumer lending and the rest is made up of overdrafts and micro overdrafts and other loans.

BK’s bad loans have gradually been falling over the past few years, to a more manageable 8.5 per cent level as at 2010 further going down to 7.5 per cent by this year, out of its total loan book.  Bank of Kigali 28 September 2011

The bank’s primary source of revenue is net interest income, although its share of income shrank to 57 percent by 2011 down from 63-68 percent in 2007-2009. Trading and other income has traditionally accounted for 24-29 percent of the bank’s revenue base, with fees and commissions, on average, contributing 9-14 percent.

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