Focus on Banking Part Two: Banking sector Nets in More players

In the first installment of this four part series focusing on the  local banking sector we saw that the appetite by foreign banking institutions to invest into the Rwandan financial markets has been  getting enlarged with time as more robust institutions have been registering  entry mostly through acquisitions of locally incorporated players.

In the first installment of this four part series focusing on the  local banking sector we saw that the appetite by foreign banking institutions to invest into the Rwandan financial markets has been  getting enlarged with time as more robust institutions have been registering  entry mostly through acquisitions of locally incorporated players.

As a result the onset of  2009 is set to see the Rwanda’s banking sector experiencing a further level playing field as more entry is expected to be registered. Meanwhile the regulator National Bank of Rwanda is upbeat that the sector will witness further deepening.

Better sectoral growth prospects

According to a recent report on industry supervision by NBR , while the 2007 was seen as a sound year for the Rwandan financial sector as a whole, it adds that ‘ NBR is also optimistic about the future prospects of our financial sector which, in our view, will largely contribute to the prosperity of the national economy’.

NBR Governor Francois Kanimba said in this report that , ‘I am persuaded that the Rwandan financial sector, which was rebuilt and developed after the 1994 war and genocide, is now on a right track and stand on increasingly sound and solid foundations’.

Within the context of internationalization, the industry’s performance has of late been more and more subjected to the external appraisal from different perspectives including from the general public, shareholders as well as local and international investors who have interest on the industry.

Banks are not only required to attain excellent earnings, as it was the case for the year 2007 and 2008 for most of banks, but they are also reminded to ensure the quality of earnings. This requires, therefore, making particular attention on banks’ internal risk management system, the strategic development planning and the equity policy.

NBR spelt out and enumerated on four conditions that are deemed essential in ensuring a continuous financial sector success for the years to come.

Firstly, it points out that the financial sector is required to meet all the internationally accepted principles and best practices for achieving a sound financial system and to adapt them to its particular context. In this regard, NBR has continuously updated the Rwandan financial institutions’ legal and regulatory framework.

Secondly, Rwanda has, more than ever before, is more conscious about its need to have a robust regulation and supervision of its financial sector, owing to its ambition of developing its tertiary sector.

Particularly, a vibrant, prosperous and disciplined micro-finance sector has to be supported. This sector is deemed to be the cornerstone of the financial inclusion and the development of the Rwandan population.

This coincides with the establishment of an active and profitable capital market whose aim is to avail medium and long term capital to the public so as to predict the interest rate curve and consequently its downward revision.

Thirdly, professional experience, under its various aspects has constantly to be improved, because a well trained staff constitutes an essential element for the competitiveness and the attractiveness of the financial  sector in the long term. This testifies the consciousness being taken by Rwanda towards grappling with its challenges.

Fourthly, and more than ever before, finance professionals have to place client’s interests at the centre of their concerns because a satisfied client is the basis of a prosperous financial sector.

The trends within commercial banking activities

As at 31st December 2007, the Rwandan financial sector was made up of six commercial banks, a development bank, a housing bank, a micro-finance bank, a discount house and two hundred thirteen micro-finance institutions, from which two hundred were cooperatives while twelve were public limited companies and one was a private limited company.

Among other financial institutions operating in Rwanda, there is the unit of the Giro Account of the Post office, five insurance companies and the Social Security fund of Rwanda (SSFR). The Rwandan banking sector activities have been focusing on credit granting which is the industry’s’ main source of income. Other incomes are generated from banking commissions, Treasury bond investments and forex transactions.

The overall aggregated banking sector balance sheet situation showed that commercial banks activities have increased to the level of 32.7% in 2006 compared to that of the year 2005.

Total assets increased from Rwf.293,683,197 billion in 2006 to Rwf.384,782,781 billion in 2007. Asset items that have been subjected to the increase are loans (+30.9% in 2006 and +35.3% in 2007), Cash (+103.6% in 2006 and +152.5% in 2007) financial instruments (+31.0% in 2006) as well as interbank funds (+24.0% in 2006) essentially composed of variations of foreign deposits in correspondent banks.

Earnings History or Performance

For the fiscal year 2007, the commercial banks’ overall return was Rwf.5.4 billion against Rwf.6.1 billion in 2006. The industry net income had an increase of 36.3% and the operating earnings increased to Rwf.9.5 billion.

In fact, since 2004 and due to a financial soundness, banks were easily able to experience increased incomes whereby total net incomes stood at Rwf.30 billion in 2007 compared to total earnings of Rwf.20 billion in 2006.

Total loan allocations to the entire economy stood at Rwf.195 billion in 2007 compared to Rwf.157.9 billion in 2006.As such players have continued to see their operations seeing improvement across board.

For instance Bancor’s acquisition by Access Bank Plc last year has been  in line with the new entrant’s African expansion strategy which commenced in March last year.

Herbet Wigwe, Group Managing Director, Access Bank said that the Access Bank acquisition which is tied to certain guidelines will bring in a strengthening component of Bancor’s customer base, support of the bank’s retail services and assist it to fully migrate the bank to electronic payments.

Herbert revealed that Access will use the Bancor acquisition as a plank to gain entry into the East African region. He emphasized that Rwanda’s favorable macro economic fundamentals played a great role in choosing its economy as a base for its Eastern African entry and growth strategy.

Hannington Nammara the head of corporate banking at BCR sees the entry of such more players as an opportunity to the Rwandan society. He contends that this entry will bring a healthy competition within the entire sector as more services are likely to be introduced into the market.

Already a positive spillover effect is that the local banks have experienced a tremendous turn around in terms of management and service offerings as opposed to the operations of yester years.

The high levels of expertise which comes with the acquisitions have assisted with the transformation of some of these banks into vibrant institutions meaning that the foreign banks making an entry into the local banking scene have cut out a niche as leading drivers of change within the financial markets.


In the next installment of ‘Focus on Banking’ the writer will examine NBR’s supervision strategies.