The Rwandan economy has not yet recovered from a slump, starting from April and June growing at 1.5 %. The most hit are economic actors such as banks. Bankers say that they cannot grow bigger than the economy..”when the economy is growing at 1.5%,” says Managing Director of Equity Bank Rwanda, Hunnington Namara.
In an exclusive interview, Namara told Taarifa’s Chief Editor Magnus Mazimpaka that the economy has slowed down and affected everyone’s bottomline. However, he said, “and you are talking of individual lines growing by above that line then you can understand the effort that is put in.”
In the interview below, he explains what the economy looks like from a banker’s perspective and whether in the following quarter of the year it will pick up to the right levels. “The industry is at a time when we need to reflect and think properly. You heard the governor mentioning NP ratio has gone up to 12.1%. That says a lot about banking…….
Give us a global picture of Equity Bank Rwanda and an update on what is happening?
Every day that passes is a unit of measurement for whether we are advancing or maintaining status quo. For Equity as we mentioned when we last met in May, and at that time there were other things that were going on as you may recall the country was busy in electioneering. Equity is also supportive of that exercise. As a bank that indulges. But nonetheless it has been the end of quarter three, which ends as of September, I have seen a bit of growth in many ways: Customer numbers have grown by about 5%, and we are seeing growth in our deposits base by about 16%. We are seeing growth in our loan book, very modest, what we call earning assets, very modest, but good ones. We are also seeing a bit of improvement on the bottom line of the end of quarter three, about 12 -13%. That is in context of the country because if you may have listened to the governor that is was more interesting. He actually mentioned that the quarter two starting from April and June growing at 1.5 %. So we cannot grow bigger than the economy. When the economy is growing at 1.5 and you are talking of individual lines growing by above that line then you can understand the effort that is put in. However, we expect (already saw signs of) the remaining quarter of the year to pick up to the right levels. The industry is at a time when we need to reflect and think properly. You heard the governor mentioning NP ratio has gone up to 12.1%. That says a lot about banking. The way banking is done 90% of the earning assets are loans of the entire banking industry. So if you have anything happening to that stock of investments it checks everybody equally. We are not immune from the system but I am glad to say that the numbers of NPA ratio remain well below 5% when the industry is doing 10%. So that is also a good measure of, I will put it to the team and say you are doing a good job in managing credits but also in making sure that we have the quality systems and quality customers and doing things cautiously in a situation where you have to many head wins. You know what is going on in the region and we are not immune from that. So there are some different things that we need to take into account. But I am happy to say that Equity is very healthy.
Are you still maintaining the same position on the market?
Probably yes. I think I have not seen the numbers from the competition so that I can compute and see but I think we are.
Do you intend to take over as the leader of the market?
I guess that is where we want to go. We are licensed number 14 but we are now at 5th position in five years, so probably given more time we could easily escalate to top three or top two.
Mention some of your top strengths
We have done very disruptive things in this market. The way we do business is very different despite being new and at some point dubbed foreign bank, we are embedded in the society here. And in many ways you will see our approach to banking and there are banking agency platform that is everywhere in the corner of this country. Wherever you go you will find an agent of Equity. Not to say that others have not tried. They have tried but they have not been able to achieve the levels of success that much. We have also done a lot of SME micro lending. We are now in the top three SME banks. We have also done very fundamental things we financed large transformational products. I would mention Marriot, RwandAir. We have done big things in the hospitality industry we are probably the dominant player including logistics. We have done a couple of things which probably give us the position where we are now but we are here to do more. So if you asked me what we have done line by line I would tell you that we empowered Rwandans to transact, the ones who are in the villages, we launched out our Eazzy24/7. It is a mobile telephone technology that enables you to transact wherever you are. We have created a catalytic role in the economy by the way we compete. When people look at our ability to turn around things, to deliver services quickly, to digitize… they feel that this is the brand to be reckoned on with.
Are there areas you cannot touch?
Quite many areas that I will not touch for now. We have not been in agriculture for obvious reasons, but in trade we are probably amongst the dominant players, energy we are amongst the dominant players, export sector, real estate, consumer loans to staff to salary employees, the problem amongst players we have done a bit of work that I would say that is an impetus in the recognition of society.
Where do you get your largest portion of your liquidity? Retail or corporate?
A large chunk of our deposits come from small depositors (micro depositors). We have 60% of those who have between Rwf100 to Rwf20 billion. 15 % of it comes from micro. So we talk of people who are operating from the agency platform, we talk of you and me who bank a thousand, those are the guys, and that is where we want to create impact.
What about the ratio? Who takes the largest?
Retail is the largest. About 40 to 50 % of our loan book is in that sector. While an SME bank, we are an inclusive Bank. We do not boost ourselves and say that we are a big bank. We want to focus on changing lives of people.
The system that was based on, have you moved to the new system?
We are actually in the migration phase, we started off updating our entire system about four months ago when we completed doing the versions that give us better capability.
Which technology are you using?
We use a system called Finaco. We have moved from 1.3 to 1.8. It is very transformational. In the region we have between 15 and 20 million customers using this system even if they all logged in instatntly, it can still run. We are in seven countries, with10 million customers in Kenya. We have heavily invested in our infrastructure (over 80 million dollars of our investment) to make sure that we have the capability to serve these customers. And as I said we are here to stay. We are not fly-by investors. We are now going in the self service mode. So that the new version of our system will allow customers wherever they are to plug in and serve themselves. In other words, we are taking the entire bank to their hands so that if a customer wants to pay for any service they will be able to. Or if a customer wants to transfer money to another bank. A customer may also like to pay employees in the USA, they will be able to do so. Everything you want to do, even borrowing. Farmers who are in the countryside and are looking for how to pay school fees and have cash they do not have to walk to the bank., They can take money to the nearest agency and withdraw cash. If you want to pay school fees you can do it online. The reason why we are migrating towards the higher version is that we may be able to serve our customers in their comfort, homes, offices, wherever they are.
What would you wish to happen to the Rwandan economy and in what areas?
That is a big wish! I would wish the economy to continue growing. You see when you look at the structure of our economy, we still have a large number of the population living on the farm (maybe 80% of the 12 million). They taking their livelihoods from the farms. If we could make all those to double, let us say ten times, their incomes, then you would see what that could create for Rwanda. I wish they could do a hundred times, but we can only grow in the normal progression cup. So I would wish Rwanda to be the best country in the world but there are a couple of things that need to be done. So, economic empowerment is one of those, together with the leadership and all the economic actors, we will see a lot more efforts, whether it is in policies, investments, technology and everything pointing to that direction. The wish I have is that we continue harnessing that will take us under full times.
Where do you think the banking sector and the economy fall short?
Well, it is a continuous process to improve, the sector again in the context of the progression of the country, the sector is doing ok. But it does not mean that there are no challenges. There are challenges, we are short on long term funds. If you look at where Rwanda is, it is in the developing stage. We now require investors that come to us for funding, the country’s economic ability to generate returns now require a little bit of patient capital, long term funding. We suffer a lot from a mismatch that we loan, I think every bank will tell you they face the same, that we are suffering from very short-term funds, and your customers are asking that you give them long-term funding. That creates a huge challenge for us who manage this credit exposure because the way it works, the moment you lend out money for ten years, it is gone but the owner may come tomorrow and say I want it, saying, I gave you my money, I did not ask you to lend it out, why did you lend it out? So running that liquidity risk requires that we continue to manage and manoeuver. We do have portions of loans that are long term. We have shareholders’ capital that is long-term. We have lines of credit that are long time in nature.
Where do you get it from?
We are a large group. We can take money from Tanzania, DRC. I am not like one standalone, so if I have funding needs I can call on my friend to channel here. But also that is in context because we cannot do things that will expose the bank completely. Whenever we borrow from out we borrow it in foreign currency. And yet, Rwandans require francs because if I give them foreign currency, tomorrow, for them when they are selling for francs, when the dollar becomes Rwf1500, whereas when they borrowed it was Rwf850, they will have to reduce as much to get the dollar.
Have you let your customers down?
I do not think so. It is the journey of understanding each other. There are dynamic changes in the market every day. Within the flexibility, we deal with customers on a more flexible platform, because if you try to be rigid, because exchange rates change every day, we wake up in the morning and see that it has changed, rain does not come, agriculture is hit.
What makes the Rwandan market unique?
One, very sensible policy makers. They are dependable policymakers, whom we go to and say this is not working for us, agriculture has become a challenge. How do we deal with it? And they listen and say “Fine we will not paralyse you for having Non Performing Loans above the normal threshold. In other places they will not listen. You will see what Kenyans have done, they have cut interest rates. If here, they did the same what would happen? So you have very sensible policies, but also those who made them are sensible and very dependable. The market also is different in a sense that we are enjoying a very good and stable growth rate. Rwanda has been growing for the last many years. That advantage of growth is not available everywhere. We have surrounding countries growing at the maximum of 3%. The banking sector performance is a net result of economic performance. That is how you measure whether the economy is doing well. If the banks are not making money, the economy is finished. Because when they make money, it is given to banks; to the economic actors. If you do not make money, then you stop lending. And if you stop lending money, economic growth is not there. So, if you want to measure the potential of economic growth, look at the credit growth in the private sector because that is how it works.
In this economic slowdown, competion must be tight?
Competition is tough, but I would say that it is also better. I can tell you why you wanted to take me back to your question of where the sector falls short. We are all inherently small banks. Both in size, balance sheet, muscle, financial with a result that if you have Makuza’s project of $10m, these commercial banks cannot afford financing those projects. Not at all. They will have to go out. And then the issue of exchange rate comes in. We are about 16 commercial banks, and all of us remain small. To become the boldest of this world you need to be of that muscle. We need to upscale this sector to that level of financing Bugesera airport, nationally. Start talking about the entire manufacturing sector, nationally. Start talking infrastructure development: roads and funding them nationally without necessarily relying on the external sector. We will call for a lot of things. We call for banks recapitalising, passing policies that require that the ones that have invested so far do not make losses or do not cry tears. Maybe it will be to say that five guys come together and form one bank, I do not know. But they are all options. It will take a bit of time. The sector has also shortcomings, and that is one of them. Secondly, we are challenged by technology. We do not know if this madness is what we call technology. You have telecoms coming in, wanting to play financial role, now we have what we call Fintech based in different parts of the world. They are lending money here in Rwanda but I do not know how they pay. The regulatory environment has become so harsh.
In fact, to banks. There is something called IFRS 9 which should dig up and see. That guideline is an international accounting guideline which I think was put together by people who do not understand Africa. For example, one of the things that it says is that for every loan I lend out today, on day one, I must keep aside 2% of it in form of a report called general provisions. I book it today and I must reserve 2% the value of that loan. They call it the event of a loss. Secondly, it is saying that in case a loan goes beyond 31 days in a liaise. Whether I have collateral or not, I have to make full provision. So if a loan of one billion goes bad or delays to pay, I have to get from the bank profit 1 billion put it aside. Putting it aside means not available to the shareholders. They are provisions. So if my entire loan book of 85 billion provision goes to class 3, I must get capital of assets of 3 billion to be on that side. Which really means that it does not create any business sense.
You find yourself with some large amounts of cash sitting somewhere?
It is not even accessible to me. Provisions are provisions. They are reserved. It also says that investments I have made in treasury deals which we normally used to call risk free that now I must say that there is a model they are touching risk profile that I must make provisions of 30 % of that investment I have made in the entire year on day one. So as for the guideline, you probably need to speak to the regulators how they have used this. We have room until December 2018 to build what they call ‘customised for Rwanda’, so that we will agree on what needs to be done. But all those things what they do is sending investors a signal that banking is not the right way to go. If you have invested in a building, you would have a much better loss because you do not have to call the city council which is your regulator to say the building should be facing this one not the other. As a sector we are under threat if that regulatory environment continues, it is tough.
Have you expressed your feelings about it?
We have. But the choice we took as Equity is to start early. Compliance generally. So we started early, from building our business model called safeguards that are necessary including piling up provisions. They may say this is international standard, we cannot do it in Rwanda. There are international protocols.
Are these applicable even abroad?
Yes. For stable markets where systems are set in such a way that when a financial crisis happens they are hit most, because those are regulatory provisions. But for stable markets, it works. The reason was that they are not considering sovereign risk anymore to be risk free. So when risk is counter risk and they began that, because of Greece defaulting on its growth. So you can imagine the mentality of those guys who set up these things which then became a Bible here. It becomes difficult for a sector to deal with. So for Equity, they are exciting times besides all these things. I think you might have seen it. Equity is the only bank that is standing within waters in the region. And in Rwanda specifically, we are very healthy. We have a very good book compared to other Equity footprints. We want to believe that we are amongst the top players maybe second or third.
Let us talk about customer appreciation week
Two things basically. Number one it is a week to reflect and say six years ago we had zero customers. There was a belief that one day we will have some customers. We actually brought to central bank the proposal of what we intend to do on the ground by when shall we have a number of customers and for example, so that you understand how much important the week is for us, where do we make money from? It is from a customer. The fewer customers you have, the smaller money you make. The more they are, the bigger the money. Because per customer, if I have a chance of making a coin, I will be better off. In the region, we now have 600,000 customers. I will tell you what we do to grow that number. So for us it is a reflection time, but also look back and say who are those individuals, companies, businesses, farmers, that have actually contributed to the success we have today as a bank and say thank you. That is the only thing we can do. We have also delivered services to them. We have testimonies who come and say thank you to Equity but so that they know that we value them, there are partners in our business growth, they are rocks which we then start trembling or when we get a few bonies. To our customers, it is a great time to appreciate them. We know it is a worldwide event, but it means a lot for us to say thank you for trusting us despite challenges that we have gone through together. We have always recognised them, but it is a special way this time. We join the world in recognising that without them we could not have created this value.
What activities were involved in during the celebration?
We did things that we wanted to do. But to crown it, we had a sharing moment. We shared cups of tea, small things. If you went in our branches you would see that the whole event had a jovial mood. We actually thought that we would have been able to make our migration systems faster because we hope to have by this time given the gift of saying now here we are, we have given you your freedom. And I mentioned that we have finished putting together what needs to be done to communicate to customers. We aim to finish this integration that we are talking about I the next two weeks. Once we are done with it, we will tell our customers, because then we will roll out our digital platform which is limitless. With it, you can easily tell us. We are very transformational stars I can tell you. The things that people would have feared to do. We are rolling out many of our diet products all of which are self-service. We are putting the bank in your hands. We want to embed the bank in the lifestyle of everybody who is our customer. If you want to go to a disco in the midnight, you will still be able to pay your bills are even borrowing money to pay.