There is room for new players in the local banking sector, the main industry stakeholders say as plans by Uganda’s largest locally-owned commercial bank to launch its operations in Rwanda reach an advanced stage.
Crane Bank is expected to open shop in the country in a few weeks, a move that is likely to usher in cut-throat competition within the local banking sector.
According to the industry regulator, the National Bank of Rwanda (BNR), despite increasing competition in the sector there is still room for expansion on the market to allow profitability.
Further, 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.
“We still believe there is room for more banks to operate and remain profitable on the Rwandan market,” said Monique Nsanzabaganwa, Deputy Governor of the central bank.
The Herfindahl Index (HI), the most used indicator to measure the industry concentration, shows an increase in the banking sector competition in Rwanda from a high between 2002 and 2009 to moderate concentration after that.
While the country’s financial inclusion is currently below 25 per cent, with more financial institutions entering the market, the government is targeting more than 70 per cent by 2020.
While details of the official launch of Crane Bank in Rwanda are yet to be released, the financial institution is setting up the necessary infrastructure at a building near Union Trade Centre (UTC), opposite Centenary House and Grand Pension Plaza in Kigali city centre.
With more players in the market, analysts say, Rwandans could enjoy more favourable interest rates. Currently, the average lending interest rate is 17 per cent.
The industry’s consolidated balance sheet, measured by changes in total assets, grew by 21.0 per cent to Rwf1,509 billion ($2.2 million) at the end of December 2013 from Rwf1.247 billion ($1.8 million) at the same time the previous year, a development that was largely driven by gross loans to the private sector.
Crane Bank was licensed to operate in Rwanda last year alongside one new microfinance bank, bringing the players in the local banking sector to 10 commercial banks, four microfinance institutions, one development bank and a co-operative bank. However, the sector is dominated by commercial banks, which account for 78.6 per cent of the total banking assets.
Maurice Toroitich, the managing director of KCB Rwanda, said the entry of Crane Bank into the local scene will pile pressure on the industry to retain customers and maintain market share.
“One more bank in town means more competition,” said Mr Toroitich, adding that competition compels managers to be innovative if they are to survive in the market.
Recently, Atlas Mara received regulatory approval to acquire a majority stake in Development Bank of Rwanda (BRD), the country’s largest development bank, in a deal that will see the government divest from the lender.
The company, formed by former Barclays Bank CEO Bob Diamond and Uganda businessman Ashish J Thakkar, said it had agreed to buy the government’s 77 per cent stake in the bank. That would be the company’s second deal in the continent.
The planned entry of Crane Bank in Rwanda is part of its strategy to expand across the region. That would make it the first indigenous Ugandan bank to venture into the Rwandan market.
As of last December, Crane Bank was the fourth-largest commercial bank in Uganda, with an asset valuation of approximately $575.3 million and shareholders’ equity in excess of $114.2 million.
The bank joins two from Kenya — Kenya Commercial Bank (KCB) Rwanda and Equity Bank Rwanda — which have had operations in the country since 2009 and 2011, respectively, as among regional banking institutions with branches in the country.
While in 2004, Fina Bank, at that time, a Kenyan commercial bank, acquired Bacar, a privately owned commercial bank. In 2013, Guaranty Trust Bank, one of Nigeria’s biggest banks, acquired 70 per cent shareholding in Fina Bank Group for a cash payment of $100 million.
In January this year, the bank rebranded to reflect the new ownership structure. and was renamed Guaranty Bank.
In July 2012, I&M Bank Group acquired 55 per cent shareholding in Commercial Bank of Rwanda (BCR), the second-largest commercial bank in the country at the time, for an undisclosed sum of money.
BCR rebranded to I&M Bank Rwanda in August last year.