Rwanda offers a fertile hunting ground for Kenyan banks seeking to maximise their earnings in the East African region.

Central Bank of Kenya (CBK) data shows the Rwandan banking market offers the highest earnings capacity for Kenyan lenders despite having fewer regional banking subsidiaries compared with Uganda and Tanzania.

The bank’s Supervision Annual Report (2019) released last week shows that Kenyan banks’ subsidiaries operating in Rwanda contributed 25.7 percent or Ksh3.2 billion ($29 million) of the total profits in 2019, followed by Uganda (17.6 percent) and Tanzania (16.9 percent).

Four subsidiaries recorded a combined loss of Ksh709 million of which two operate in Tanzania, one in Uganda and one in Rwanda. The performance of Tanzania subsidiaries was attributed to low business due to competition in a market dominated by established local players.

CBA Rwanda, the only loss-making subsidiary in Rwanda, reported a loss of Ksh187.77 million ($1.7 million) compared with Ksh291.42 million ($2.64 million) reported in 2018.

The loss-making subsidiary, Crane Bank acquired in November 2018, is yet to break even.

NIC Bank Tanzania recorded a loss of Ksh402.57 million ($3.65 million) compared with a loss of Ksh176.49 million ($1.6 million) in 2018.

Kenyan banks subsidiaries in Uganda and Rwanda accounted for 18.5 percent and 17.5 percent of the gross loans respectively.

Liquidity buffers

Those in Rwanda accounted for 14.2 percent of the total deposits while DR Congo, South Sudan and Burundi accounted for 12.5 percent, 3.9 percent and 1.6 percent, respectively.

The number of Kenyan banks with subsidiaries operating in the EAC are KCB, Diamond Trust Bank (DTB), Guaranty Trust Bank Ltd, Equity, I&M Bank Ltd, African Banking Corporation (ABC), NCBA and the Co-op Bank of Kenya Ltd.

Branches of subsidiaries of Kenyan banks in EAC increased to 316 in 2019 from 307 in 2018, with four of the banks KCB, Equity, NCBA and Guaranty Trust Bank increasing their network. Co-operative and I&M Banks maintained status quo while DTB and ABC scaled down their branch network in the region.

Last year, the Kenyan banking industry was resilient as reflected by high capital and liquidity buffers of 18.5 percent and 53.1 percent against the statutory minimum requirements of 14.5 percent and 20 percent, respectively.

Profit declined by 30 per cent in the year to June 2020 and assets quality deteriorated, with the ratio of non-performing loans (NPLs) to gross loans increasing from 12 per cent in December 2019 to 13.1 per cent in June 2020.

Regionally, EAC’s entire banking industry’s assets grew by 12.6 percent, with strong capital and liquidity buffers.

Credit risk remained elevated, with NPLs-to-gross loans ratio increasing to average about 9.2 percent in June 2020 compared with 8.9 percent in 2019 and 7.2 percent in 2018.

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