Equity set to shake up Rwanda banking sector

Equity Bank, Kenya’s largest bank by customer numbers, is expected to shake up Rwanda’s financial sector with the introduction of branchless or agency banking as it looks to rope in millions of households without access to formal banking channels.

Analysts say that introduction of agency banking will force Kigali’s nine commercial banks to rethink their strategies to retain market share.

The entry of Equity Bank comes at a time when Rwanda is said to be looking to attract big regional and international banks to support planned infrastructure projects that the current operators have been unable to fund. The bank, which obtained a banking licence last year from the National Bank of Rwanda, launched its operations on Friday last week, opening seven branches with three set to open next month, and has already registered 30,000 customers. Equity chief executive James Mwangi said agency banking should help drive growth in deposits and loans, as the model had already helped push the Group’s profits up by 42 per cent in the third quarter of 2011.
The Bank’s nine-month net profit rose to $85.9 million from $60 million posted in the period of 2010. It has so far invested $12 million in Rwanda.

Equity is planning on partnering with 200 outlets — such as neighbourhood shops, supermarkets, and hardware stores — to provide banking services such as making deposits and withdrawals and filling in account opening forms. This aggressive retail approach is expected to help the bank reach more than four million Rwandans and will also reduce operating costs because it will be leveraging on already established businesses. For shopkeepers and small business owners, there is the added incentive of earning extra income from acting as the bank’s agents. The agents are paid a commission for each transaction carried out through them.

Industry analysts say they expect the bank to drive competition in the retail market as the majority of existing banks have been focusing on corporates with little activity in the retail market.

Low penetration

It is also expected to increase access to financial services as Rwanda’s economy currently has a low banking penetration of only 22 per cent banking assets to gross domestic product. “The more players and the more competition the better for the customer; competition will definitely have an impact on interest rates,” said Simon Karenzi, chief executive officer of Dyer & Blair Rwanda.
He added, “They might not make profits for the first or two years but they can afford the loss.”

Equity Bank has recruited close to 200 Rwandans and trained about 100 mainly fresh graduates in its headquarters in Nairobi.
The entry into Rwanda is part of the bank’s wider strategy of rolling out its operations into the Comesa region over the next 10 years.
Equity will be the third Kenyan bank to enter Rwanda after KCB and Fina Bank.

“From what we have seen in other markets where they operate, their average lending rate is sometimes below the market rate by 2 per cent. This will ease access to financing particularly for the lower segment of the market and could also push the existing commercial banks to adjust their lending rates and increase lending to small and medium enterprises,” said a banker on condition of anonymity.

The banking sector continues to dominate Rwanda’s financial sector, controlling over 73 per cent of total assets. The International Monetary Fund in a recent report predicted that the financial sector will be a top driver of the economy this year, riding on new entrants such as Equity Bank and the two big microfinance banks, Unguka and Agaseke.

Last year, the sector’s total assets grew by 24.5 per cent to Rwf1,083 billion ($1.76 billion) in December 2011 from Rwf869.8 billion ($1.4 billion) a year earlier.