Oct 19, 2021

Mawazo Writing Africa

Writing about the main

Rwanda, a darling of Kenyan banks with regional footprint

KCB’s increased investment in Banque Populaire du Rwanda Plc (BPR) signals the increasing attraction of the landlocked country’s banking industry to Kenyan lenders.

Other African banks such as Nigerian banking giant, Access Bank Plc, have also shown huge interest in the country of more than 13 million people, by acquiring an additional 16.22 percent shareholding in its Rwandan subsidiary valued at $9.55 million thereby growing its stake in the Rwandan unit to 91.22 percent from 75 percent.

Data by the Central Bank of Kenya (CBK) shows that Rwanda continues to dominate the East African region as the most profitable banking market for Kenyan lenders for the third year in a row, signalling increased investment into one of Africa’s fastest growing economies.

CBK’s Bank Supervision annual report (2020) shows that Kenyan bank subsidiaries operating in Rwanda made the most profit before tax of Ksh3.55 billion ($33.17 million) in 2020, with Tanzania being the least profitable banking market that generated a paltry Ksh641.13 million ($5.99 million) of gross earnings.

Rwanda is followed by Uganda which made a profit of Ksh3.53 billion ($32.99 million), Democratic Republic of Congo that realised Ksh1.87 billion ($17.47 million) profit, South Sudan (Ksh1.33 billion, $12.42 million), Mauritius (Ksh1.19 billion, $11.12 million) and Burundi (Ksh661.44 million, $6.18 million).

Last year, Kenyan banks operating in the region saw a combined profit of Ksh12.79 billion ($119.53 million), representing 0.51 percent growth from Ksh12.72 billion ($118.8 million) in 2019.

“The impact of Covid-19 that continues to disrupt growth in global markets has impaired profitability of the Kenyan banks across borders,” the report says.

Kenyan banks operating in Rwanda are Equity, KCB, NCBA and I&M.

KCB is also in the process of acquiring Banque Populaire du Rwanda Plc from British financial services conglomerate Atlas Mara (62 percent) and other minority shareholders (38 percent).

According to the report Rwanda contributed the highest earnings capacity translating to 27.75 percent of the total profits while subsidiaries operating in Tanzania were the least profitable and contributed five percent of the total profits of combined subsidiaries in all host countries.

“The performance in Tanzania was affected by losses reported by some subsidiaries attributed to provisions for loan losses,” according to the report.

Gross loan book

In 2018 and 2019 Rwandan banking market also offered the highest earnings capacity for Kenyan lenders despite having fewer regional banking subsidiaries compared to Uganda and Tanzania

The performance of Tanzania subsidiaries was attributed to low business due to increased competition in a market dominated by established local players.

Last year, the combined gross loans for Kenyan subsidiaries in the host countries increased by 25.2 percent to Ksh421.1 billion ($3.93 billion) from Ksh336.4 billion ($3.14 billion) in 2019.

The Kenyan banks operating in Tanzania recorded the highest level of gross loans at $981.3 million accounting for 25 percent of gross loans in all the subsidiaries outside Kenya.

This was followed by subsidiaries in DRC which accounted for 23 percent of the gross loans while Uganda and Rwanda accounted for 18 percent and 17 percent of the gross loans respectively.

Mauritius recorded gross loans of $579.43 million accounting for 15 percent of gross loans.

Kenyan subsidiaries accounted for a combined deposit base of Ksh746 billion ($6.97 billion) in 2020 compared with Ksh514.4 billion ($4.8 billion) in 2019, with the main contributor of deposits being Equity Group’s subsidiary in DRC, Banque Commerciale Du Congo with total deposits of Ksh243 billion ($2.27 billion) representing 33 percent of total deposits of subsidiaries in host countries.