Large capital requirements coupled with a rigorous licensing process have locked out many banks in Rwanda from venturing into custody services.
A custodian holds securities and other assets in electronic or physical form. Since they are responsible for the safety of assets and securities that may be worth hundreds of millions or even billions of dollars, custodians generally tend to be large and reputable firms.
Rwanda has 12 licensed commercial banks, but KCB Rwanda, riding on the big asset base of KCB Group — its parent company — is one of the few lenders offering custody services.
The KCB Group’s assets grew to $5.5 billion in 2015.
Bank of Kigali, Rwanda’s biggest bank by assets, is the other bank offering the services. It recorded $790 million assets in the first quarter of this year.
Players say the Rwandan capital market is still too small to support many custodial services.
Market players are however optimistic that custody services could pick up because of the current pensions law, which has liberalised the pensions sector. There are several pensions funds that need custody services.
The business, according to analysts, is also expected to post a healthy growth with three initial public offerings set to be floated at the Rwanda Stock Exchange this year.
KCB Rwanda’s custodial services have helped the bank grow its assets to $150 million over the past five years, mainly from commissions and fees.
Though the lender is silent about the exact revenues from the custody services, market players say it has grown given its ties with global custodians and pioneering the business in Rwanda.
Banks earn 25-75 currency points annually (0.25 per cent- 0.75 per cent) from regional and overseas clients who have invested in equities and bonds in the country.
“Our market share is 69.4 per cent as at April 30, the remaining 30.6 per cent is shared between Bank of Kigali and the eight stockbrokers,” said Maurice Toroitich, managing director of KCB Rwanda.
The business in Rwanda is picking up despite fluctuations in the domestic capital market.
“The custodial service business thrives on new assets introduced by the capital market. With new IPOs expected, the custody portfolio is set to increase,” said Mr Toroitich.
According to Mr Toroitich, the greatest challenge for custodial services in Rwanda, is the small size of the asset book versus the portfolio handled, which worries investors.
“For us, this is currently mitigated by parental guarantees issued by the KCB Group,” said Mr Toroitich.
The Rwandan market is sometimes constrained by a scarcity of foreign currency, especially when investors want to repatriate large sums after trades.
Being a new market, it lacks security lending and back-to-back trading. But players are optimistic the services will develop with the advancement of the market.
KCB Rwanda offers custodial services such as equity and fixed income securities settlements, safekeeping, corporate actions, income and entitlements collection, cash management, reporting, and information services to clients.
“The service of a custodian is a critical component in the capital market value chain,” said Mr Toroitich.