The country’s banking sector is set for cut-throat competition as they increase their core capital following a recent directive by the central bank to increase the minimal core capital for commercial banks fourfold or 300 per cent from Rwf5 billion to Rwf20 billion.

The move was partly prompted by the growing financing needs of the economy as well as the need to increase financial stability and protect public deposits. However, the increase in the minimal core capital is likely to influence further consolidation of the sector with mergers and acquisitions of relatively small banks.

Small banks have up to five years to either raise the required capital or merge or face the risk of closure.

For instance, Kenyan-based Equity Bank Group recently announced that it is seeking to acquire 62 per cent of shares in BPR Atlas Mara with the transaction still subject to regulatory approval.

Kenya’s biggest lender by assets, KCB Group, also recently announced its plans to buy a bank in Rwanda and one in the Democratic Republic of the Congo.

If both transactions materialise, it will likely influence consolidation of the banking sector, which is likely to fuel cut-throat competition in the sector which currently has 16 licensed banks.

Well capitalised banks will also mean increased financial muscle to finance big investment projects.

The mergers should spur healthy competition among banks and strengthen the financial sector as a whole in terms of liquidity and customer service.

BPR Atlas Mara and Equity

“The merger of BPR Atlas Mara and Equity will mean that competition is going to get stiffer for all of us, which is always good because we shall need to up our game” said Diane Karusisi, the CEO of Bank of Kigali.

She said consolidation is good for the market because it will create stronger players, more competition and it is good for customer pricing.

Maurice Toroitich, the managing director of BPR Atlas Mara and the chairman of Rwanda Bankers Association said the local banking sector as it is now requires substantial investments and small banks have to look for opportunities to grow organically or find partners.

“If a bank wants to play big, it is important for it to be big and to invest substantially,” said Mr Toroitich, adding, “It doesn’t mean small banks will have to close because they can grow their business by focusing on areas the big banks are not involved in.”

Ms Karusisi said small banks are part of groups so it won’t be difficult for these groups to capitalise their subsidiaries.

Local banks like Bank of Kigali have been expanding and diversifying over the years, the group boasts of four subsidiaries, including a bank, an ICT firm, and insurance firm and the recently launched investment firm BK capital.

It recorded an after tax profit of Rwf27.4 billion in 2018, a 17 per cent growth from the previous year. However, it is the entry of regional commercial banks into the Rwandan market more than a decade ago, which has had the biggest impact on the sector, and also seems to hold the key for innovating around the current challenges.

“The banking sector has become more efficient, responsive and resilient as the management of banks has greatly improved due to better regulation” said Mr Toroitich.

He said the entrance of regional banks created competition, which has benefited customers in terms of more stable interest rates and better pricing.

BPR adjusted its base lending rate from 16.5 per cent to 14.5 per cent, and has also scrapped a monthly fee on current accounts, while many other banks offer customers access to their money through mobile money wallets and cheaper transactions cheaply.