Bank of Kigali building.Bank's annual financial report shows that diversification of non-profit sources of revenue
Bankers agree that 2013 was not particularly a very good year for the banking industry in Rwanda. First, the ratio of non-performing loans suddenly shot-up to worrying levels of 7% - the highest in about five years and way above the central bank's benchmark of 5%.
Secondly, in order to stem the tide of rising bad loans, commercial banks adopted a more cautious approach--scaling back on new loan approvals especially in the first half of the year. This resulted in low growth of lending to the private sector.
And since lending is the core business of banks, profitability was bound to suffer--as the industry managed a miserly 12.9 percent growth in net income down from 27.8 percent of the previous year, according to latest figures from the regulator, the National Bank of Rwanda (BNR) .
Yet despite a generally bad year, Bank of Kigali, the country's biggest lender, managed to post an impressive balance sheet that will see shareholders pocket Rwf 7.4 billion in dividends. This is half of net income of Rwf14.8 billion that the bank made during the year, increasing by Rwf3 billion from the previous year.
At their annual General Meeting scheduled for May 29, shareholders will be told that despite a bad year for business, they will be paid Rwf11.10 per share. This is approximately 3.36% dividend yield on the current share price of Rwf 330. Shareholders in Rwanda's only bank listed on the stock exchange will be paid their dividends on June 27.
BK has a three-year on-running policy to retain half of the profit and plough it back into the business--a sure source of cheaper working capital that has perhaps helped the bank to a comfortable lead against competitors.
By June last year, there were already signs that BK shareholders would still reap from their investment despite challenges, when the bank net loans fell by 1.5% during the second quarter of the year compared to the same period the previous year, but the bank went ahead to post net half year profit of Frw7.3 billion.
The bank's annual financial report, released on March 27, shows that diversification of non-profit sources of revenue played a huge part in boosting income during the year when lending was slowed down.
During the year, the bank opened a representative office in Nairobi, Kenya aiming to spread its footprint in the region, launched a stock brokerage firm (BK Securities Limited) and increased the number of deposit-taking automated teller machines to 65. This is in addition to 568 point-of-sale machines that took bank services closer to customers.
As a result of these innovations, BK raked in Rwf 2.5 billion in fees and commissions by the end of the last quarter of the year, 19 percent increase from the previous year.
"Our performance during the year remained consistent with our position as the market leader in the banking sector with our share of the sector's profits increasing from 43% to 65% in 2013. We made significant investments in delivery of innovative and inclusive financial services to customers across all our distribution channels," the chief executive officer, James Gatera said.
According to Gatera, the bank's focus in 2014 is on expanding provision of long-term financing. This, he said will be achieved by mobilising deposits from customers as well as from long-term lines of credit.
Last year, BK's net loan book increased marginally by 1.9 percent quarter-on-quarter and by 7.5 percent year-on-year to Rwf 199 billion as at 31 December 2013. This was attributed to another modest increase in availability of funds from customer deposits that saw an annual increase of 32.4 percent to Rwf280.5 billion.
According to the report, this was mainly driven by corporate depositors who accounted for Rwf 205.9 billion. Retail deposits, although small at just Rwf74.6 billion, did grow by 18.5 percent as the bank expanded its retail outreach and brought on board over 71,600 new retail current accounts. During the year, the bank opened six new branches, bringing to 65 the total number of branches.
In places where the BK did not find it viable to open a branch, agents were recruited under the bank's agency banking platform called BK Yacu with a network of 569 agents as of 31 December 2013. This platform, according to official figures, handled more than 284,000 transactions during the year and mobilised Rwf 42.9 billion in deposits--a huge success, according to officials of the bank.
LadoGurgendize, the chairman of the board of directors has signaled that the bank plans to open more outlets in its quest to reach more Rwandans currently without access to banking services. "As we seek to grow our loan book, we will continue to focus on broadening our retail banking franchise and growing our penetration in the segment by attracting new customers as well as aggressive cross selling of our products," he said.