Rwanda banks now post losses, blame the dollar

The volatility of the Rwandan franc against the dollar, coupled with growing competition, has affected the profitability of local banks this year.

IandM Bank and Bank of Kigali recorded marginal growth in profits in the third quarter, as regional banks from Kenya and Uganda and West Africa reduced their market share.

IandM Bank, the oldest in the country, is rapidly losing market share. As of September 30, the bank’s profit margin dropped by 22 percentage points. Its net income declined from $4.8 million in the first nine months of 2014 to $3.7 million during the same period this year.

The Bank of Kigali (BoK), which is listed on the Rwanda Securities Exchange, recorded a 13.7 per cent year-on-year growth in net profit, but the management acknowledged the growing competition.

The bank has remained strong partly because of its strong local corporate clientele, supported by a growing retail banking segment attracted by the innovative services and products it has come up with.

The bank’s profits grew marginally to $22 million in the first nine months this year, up from $20.6 million in the same period last year, driven by what chief executive Dr James Gatera called a competitive brand equity and continued dedication to efficient customer service.

“The figures show that the bank has defended its position as a market leader in Rwanda, with market share of over 30 per cent,” said Dr Gatera.

The banking sector in Rwanda was reinvigorated by Atlas Mara, which is associated with Bob Diamond, the former Barclays bank boss, buying Banque Populaire de Rwanda (BPR), with plans to recapitalise the bank with $21 million. Atlas Mara also bought the Development Bank, a subsidiary of the Rwanda Commercial Bank. 

READ: Rwanda banks merger takes Atlas Mara near the top

Low return

Another concern in the banking industry is the low return on invested capital, meaning investors have to wait a little longer before they start earning better returns.

On average, shareholders of regional banks earn over 20 per cent on the capital invested while their counterparts who have invested in local banks earn about 13 per cent.

“At 13 per cent, the banking sector in Rwanda is not as competitive as its regional peers. The ideal returns should be 20 per cent,” said Maurice Toroitich, managing director of KCB Rwanda.

Mr Toroitich is also the chairperson of the Rwanda Bankers Association.

National Bank of Rwanda official figures show that the average return on equity was 12.5 per cent as of 2014.

But Paronella Namubiru, a senior manager at Deloitte, said in a small economy like Rwanda, low returns on capital invested are expected.

“It is wrong to compare return on capital invested in the Ugandan, Kenyan and Tanzanian banking sector with Rwanda,” said Ms Namubiru.

Figures from the National Bank of Rwanda show that the banks’ total assets increased by 13.1 per cent between June 2014 and June 2015.

KCB, which started operations in 2009, Rwanda has been making consistent profits.

Although by press time, KCB Rwanda had not officially released its financials for the 3rd quarter, the bank’s 2015 half year results showed a 162 per cent increase in pretax profit while total assets grew by 37 per cent to $189 million (Rwf140 billion).

The half year financial results for the bank show that the total assets grew from $138 million (Rwf102 billion) during 2014 to $189 million (Rwf140 billion) in June 2015 due to a strong growth in customer deposits and long-term borrowing to support long term lending.