23 July 2012

Rwanda: Why BCR Is a Good Buy for Its New Investors

Neither the buyer nor seller in arguably Rwanda's biggest bank acquisition, so far, won't reveal the price at which private equity firm Actis, relinquished its stake in BCR.

But what is known is that when Actis acquired 80% shares of BCR in 2004 through private equity investment, this bank was a loss-making operation weighed down by non-performing loans (above 20%) and operated only a handful of branches offering limited products. However, by last week when it sold its stake to a consortium led by Kenyan lenders I&M Bank, Actis had turned-round BCR fortunes to become the second largest commercial bank in Rwanda. With assets worth about Frw 93 billion, a branch network to 15 and a highly motivated workforce of 250 people, BCR returned to profitability raking in a whooping Frw 2.9 billion in net income last year on account of its growing loan book.

So, how much did Actis reap from its four-year investment in BCR (Rwanda Commercial Bank)?. Your guess is as good as mine, but certainly Actis exited BCR several million dollars richer.

Yet the story of BCR's turn-round cannot be told in isolation. It is about the success story of Rwanda's banking sector in general that has grown from a mere three limping commercial banks of 1994 to nine adequately capitalized banks, whose total assets are projected to top Frw 1.2 trillion as of June 2012. There also 3 micro-finance banks.

Supported by a national policy that aims at bringing more Rwandans into the financial sector, through savings and credit cooperative societies locally known as Imirenge Sacco, the country's banking industry is increasingly becoming attractive to investors. Attractiveness of Rwanda's banking sector has also been boosted by strong regulation that has seen the industry's non-performing loans (NPL ratio) fall below the central bank benchmark of 7% to about 4.3% as of June 2012 even as lending to private sector grew to about Frw 744.5 billion.

It is this business environment that has increased investor apatite for the tightly controlled Rwanda banking sector that central bank governor Claver Gatete says is open to only those newcomers who have something new of value to add onto the industry.

That is why, I&M Bank that led a consortium of two European development financial institutions--DEG of Germany and Proparco of France to acquire a controlling stake in BCR--is upbeat its entry into the Rwanda market.

"We are guided by our customers' expansion in the region, and this acquisition is no different. It further strengthens the position of I&M as a truly regional player able to offer seamless one-stop solutions to our customers who transact within the region," says Sarit S. Raja Shah. Executive director of I&M Bank. The bank has operations in Kenya, Tanzania and in Mauritius where it trades as Bank One Limited.

This acquisition gives both BCR and I&M a regional position that puts them at equal footing with Kenyan lenders such as KCB, and Equity Bank that have well-established presence in the region. Kenya-owned KCB, with operations in Uganda, Tanzania, Rwanda and South Sudan currently has the largest network in the region.

For Actis, perhaps its biggest gain is not the undoubtedly handsome return on its equity investment, but a big boost to its credentials as a true pan-emerging markets equity investment firm. In helping to build a strong profitable finance institution from a ruined post-genocide bank that BCR was; and exit at the time when the bank is at its best, Actis can rightly claim to be truly pro-emerging markets.

Not only has the 2004 privatization of the bank contributed to the building of a resilient banking sector in Rwanda, but has also uplifted the value of the 20% stake the Government of Rwanda still holds in BCR.

Finance minister, John Rwangombwa does not hide his excitement about this deal. "This acquisition contributes to Rwanda's continued path towards creating a strong, efficient and inclusive financial sector. The Government's aim is to encourage all industry players to offer diversified services and products which tailor to all segments of Rwandan society. In addition, we believe that the partnership with two reputable Development Financial Institutions - DEG and PROPARCO - will highly contribute to mobilizing long term financing for the economy," he said.

Private equity firm Actis invest in emerging markets in Africa, Asia and Latin America and currently has about 1.5 billion worth of investments in 18 African countries--including Rwanda, Uganda, Kenya and Tanzania.

Even after exiting BCR, the firm's total investments in east Africa still remain above $300 million. In Uganda, Actis has investment in DFCU Bank and in the country's only electricity power distributor, Umeme. In Kenya, it has interests in power generator, Tsavo and in real estate.

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