Banks cry foul in 2014, hope for better 2015
The banking industry is struggling to register profits despite heavy investment that the players have injected into their operations over the years.
Over the past nine months, Kenya Commercial Bank set aside Rwf1.2 billion to cater for bad loans and injected Rwf1.1 billion as additional capital. However, the bank has registered a staggering Rwf4 billion loss.
Equity Bank in 2013/2014 financial year capitalised its operations to the tune of Rwf5 billion and set aside Rwf306 million for bad loans. However, the bank registered a loss of Rwf2.2 billion.
GT Bank, a Nigerian bank, which recently acquired Fina Bank, also registered a loss of up Rwf821 million this year.
“Most banks are considering or have already added more capital into their operations as profits are being weighed down by non-performing loans and high operation costs,” said Maurice Toroitich, managing director of Kenya Commercial Bank Rwanda.
Bankers put the cost to income ratio in Rwanda’s banking industry to over 70 per cent.
“The NPL appears low but in actual sense, its covered by the high level of loan loss provisions, which banks draw from their profits thus disguising the fact that NPL is not too high,” added MrToroitich.
Cogebanque is one of the banks with a small loan loss provision at Rwf22 million coming down from Rwf1.1 billion last year. For instance, more than 100 businesses and home buyers in Rwanda are facing huge losses if KCB Rwanda succeeds in auctioning property belonging to DN International (DNI), a real estate construction firm that is currently facing liquidation.
DNI registered in Rwanda but run by Kenyan investor Nathan Ndung’u Lloyd, defaulted on a loan acquired in 2010 to construct a housing estate, prompting KCB to auction the property.
DNI had taken out the loan to construct Green Park Villas, a development with 50 housing units in Rusororo on the outskirts of Kigali. Each unit was to be sold at Rwf75 million ($125,000) for those who secured 15-year mortgages with KCB Rwanda. This year, however, banks have seen their assets grow amidst poor profitability due to increased investments by some banks.
From January to September 2014, KCB grew its balance sheet by 41 per cent compared with the same period last year while GTbank has grown its balance sheet by 16 per cent.