The entry of Crane Bank of Uganda in the Rwandan banking sector is likely to usher in cut-throat competition for a piece of the market share.

With three banks already controlling 50 per cent market share for total assets, net loans, customer deposits and equity, experts say there is still room for expansion despite increasing competition due to similar product offerings.

Crane Bank from Uganda will be struggling to gain a footing since the bank is not offering any different products from what is available on the market.

The Ugandan bank is focusing mainly on provision of services to the three segments of the market — corporate banking, retail and Small and Medium Enterprises.

“We are not bringing different products on the market but our cutting edge will be in how to provide service to our customers with flexibility and innovation which will earn us a market share with time,” said Edigold Monday, Crane Bank country managing director.

Ms Monday, however, said that the current branch network is still their biggest challenge.

Crane Bank currently has one branch and is planning to open four branches before the end of this year and two branches every year in the subsequent years.

Bank of Kigali (BK), Bank Populaire du Rwanda (BPR), Cogebanque and I&M are the biggest banks in terms of market share with more assets and equity.

In 2012, the top three local banks — BK, BPR and Cogebanque — controlled the market share by total assets to the tune of 57.1 per cent while the remaining was held by six foreign banks.

At the end of the first half of last year, top three Rwandan banks controlled 55 per cent of market share by total assets while the remaining 45 per cent was controlled by six foreign banks.

Analysts say stiff competition in the banking sector will not only reduce the cost of borrowing but also increase access to affordable financial services as the existing banks fight to retain and expand their market share.

“The industry is well regulated and operators are competing without any of them being favoured which is healthy for the sector and there is still room for competition given the level of penetration by financial services,” Eric Rutabana, chief investment officer of Business Partners International.

However, while the traditional local banks in the country are enjoying the dominance in the market, new entrants from the region and the continent are finding it hard to penetrate the market.

Although new entrants have strong capital base especially from their headquarters, they have lost the market share to local banks mainly because the new players are still investing while local players have been operating for a long time giving them an edge.

The National Bank of Rwanda has in the past accused the banking industry for inefficiencies, which leads to less innovation and products development.

According to the 2014 Economic Development in Africa report published by United Nations Conference on Trade and Development, the financial system in Africa is dominated by banks, which are relatively small and concentrated compared with other banks on other continents.

According to the report, some of the inefficiencies created by concentrated banks are that they tend to lend to large firms instead of small and medium enterprises, which are the drivers of the economy.

Market operators attribute the dominance of less than five local banks mostly to their longevity in the market as well as the ability to raise additional funds for capitalisation.

However, operators say that although the industry is operating in a free market economy, the concentration is limiting the financial service delivery.

“With this concentration, it creates a monopoly tendency in the market which does not give the best to the market causing inefficiencies in service delivery like any sector with a monopoly,” said Mr Maurice Toroitich, managing director of Kenya Commercial Bank Rwanda.

Availability of additional capital for expansion also play an important role in the acquisition of market share.