Nairobi — The Kenya Commercial Bank is to widen its regional reach by venturing into Rwanda and Burundi in the next one year.
The expansion forms part of a growth strategy that will see it open a subsidiary in Rwanda by December 2008 and one in Burundi in 2009.
Central Bank of Rwanda governor Francois Kanimba said the bank's entry into Rwanda will improve competition in the banking sector and introduce new products to the Rwandan market.
He confirmed that KCB was expected to start its operations in Rwanda before the end of the year and would open five or six branches.
Last week, the bank advertised for a managing director for the Rwanda subsidiary, signifying its readiness to enter that market.
Kenya's Fina Bank diversified into the Rwandan market in 2004. Barclays Bank is also working on acquiring 70 per cent shares in the Bank of Kigali.
Three other financial institutions -- Actis, Nigerian Access Bank and Ecobank -- have entered Rwanda through acquisitions.
The KCB group will also open at least 51 new branches in the region, with Kenya taking the lion's share with 35 branches.
In Tanzania, the bank will add five more branches to the current two, while in Southern Sudan it will increase its network from two to eight branches.
In Uganda, it will open two more branches to bring the outlets to four.
"We believe we will be able to maintain our growth momentum for the rest of the year," KCB Group chief executive officer Martin Oduor-Otieno said.
Mr Oduor-Otieno was speaking while releasing the bank's 2008 half-year results, which showed a 69 per cent increase in pre-tax profit for the first six months of the year.
The good results reflect positive fortunes for Kenya's banking industry, which has defied predictions early in the year that it would suffer losses due to the post-election violence in the country in January following the disputed presidential election.
The bank recorded a Ksh3.5 billion ($53 million) pre-tax profit for the six months to June 2008, up from Ksh2.07 billion ($31 million) recorded over the same period in 2007.
The increase was partly attributed to 34 per cent increase in operating income from loans and advances -- which rose by 37 per cent from Ksh4 billion ($60 million) to Ksh5.5 billion ($83 million) .
KCB's foray into Rwanda comes in the wake of reports that the country's financial sector is growing at an unprecedented rate.
James Musoni, Rwanda's Finance Minister, was quoted recently as saying that his country's financial sector has been growing at 20 per cent annually over the past five years.
Mr Musoni, attributes the robust growth to the Financial Sector Development Programme.
In the first 12 months of the implementation of the programme, (between April 2007 and March 2008), there was an increase in the minimum capital requirement for banks from $2 million to $8 million.
This, according to Mr Musoni, helped boost the robustness and resilience of banks in Rwanda.
The steady growth of the banking industry saw the National Bank of Rwanda licensing Bank Populaire de Rwanda, a highly successful local savings and credit union with more than 150 branches nationwide, into a fully-fledged commercial bank.
The bank, which teamed up with Rabobank of the Netherlands as a strategic partner to provide retail and international payment services, now has the largest depositor base in Rwanda, with more than 500,000 customers.
According to Mr Musoni, the Central Bank Act has been amended to allow Rwanda's National Bank to regulate non-bank financial institutions, including insurance companies and pension funds.
"This was necessary to regulate and essentially create confidence and also maintain the stability of the financial system," he said.
Other reforms in the country's financial sector included the establishment of a capital market with the creation of an Over-The-Counter market operated and regulated by a Capital Market Advisory Council at the beginning of the year.