Rwanda economy slowdown hits KCB subsidiary

A KCB banking hall in Kigali, Rwanda. The slowdown in the Rwandan economy has led to a drop in the pace of credit growth in that country and forced the Kenyan bank’s subsidiary into losses. Photo/FILE  Nation Media Group

By George Ngigi

In Summary

• The Rwandan subsidiary posted a loss of Sh50 million last year reversing its performance in 2011 when it posted a profit of Sh177 million.
• The slowdown in Rwandan economy led to a drop in the pace of credit growth, with the loan book expanding to Sh5.7 billion from Sh5.1 billion.

The slow down in Rwanda’s economy last year pushed KCB’s subsidiary in the country into losses, highlighting geographical risks that Kenyan lenders face as they expand operations in the region.

But its South Sudan subsidiary was a star performer among the lender’s group of five regional arms, earning the bank a significant Sh1.35 billion.

The Rwandan subsidiary posted a loss of Sh50 million last year reversing its performance in 2011 when it posted a profit of Sh177 million.

“Rwanda’s economic growth nudged downwards to 7.7 per cent in 2012 from 8.6 per cent in 2011. This was attributed to foreign aid cuts from major donors and poor climatic conditions during the year. In contrast, South Sudan, Burundi and Tanzania were the region’s star performers in 2012,” said Musa Ndeto, the KCB Group chairman in the annual report released this week.

The slowdown in Rwandan economy led to a drop in the pace of credit growth, with the loan book expanding to Sh5.7 billion from Sh5.1 billion. In 2011 KCB had injected an additional Sh557 million in the Rwandan outfit.

The Rwandan market produced a mixed bag of returns for Kenyan lenders with operations in the country as KCB Rwanda joined Equity Bank in recording losses while Fina Bank reported growth in profits.

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“We have continued to see a steady growth so it is possible they are operating in a different market segment,” said Bhaskar Ghose, the CEO of Fina Bank.

Equity Bank Rwanda last year reported a loss of Sh233 million a dip from previous loss of Sh59 million.

“Rwanda is still very dependent on corporate business and it takes time to do business with corporates because you have to develop relationships. If you want retail market you will need to sensitise the population to start using banking services which will also take time,” said Francis Mwangi, head of research at Standard Investment Bank.

He also noted that competition in the Rwandan market was higher with banks such as Bank of Kigali which operates a representative office and BCR, acquired late last year by I&M, being dominant players.

Fina Bank is a mid tier lender with an inclination to corporate business, while KCB and Equity Bank have a retail market outlook. Bank of Kigali has also been operating in the corporate sphere till 2011 when it started changing tack to enter the retail segment.

Rwanda is ranked as the most pro-business East African nation, according to Ease of Doing Business survey conducted by World Bank has been attracting Kenya investors, attracting growing foreign direct investment.

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KCB established business in the country in 2008 and now operates 11 branches with a workforce of 333 employees. It recorded losses in the first full year of Sh273 million which grew to Sh317 million in 2010 before breaking even in 2011.

KCB Group’s international business also includes Uganda, Tanzania and Burundi.

Their total contribution to the group’s net profit rose to Sh1.4 billion in 2012 from Sh1 billion a year earlier.

The youngest nation in the world also contributed Sh38 billion in KCB’s deposits making its performance comparable with a medium sized bank in Kenya.

Its loans and advances were at Sh5.5 billion, which is attributable to lack of legislative structures allowing use of land as collateral for borrowing. The Ugandan business which had picked up slowly since its establishment in 2006 doubled its profits to Sh54 million while the Tanzania subsidiary contributed Sh139 million up from Sh46 million in 2011.

KCB Burundi, launched last year, had not broken even by end of the year reporting Sh59 million losses.

Kenyan banks have been angling more in the less competitive regional front to grow their books, with South Sudan proving a good hunting ground while others countries have proved less lucrative.