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Analysis: What Does The Flopped Equity Bank, Atlas Mara Deal Mean?

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The planned merger of Equity Bank Rwanda and Atlas Mara BPR that has been in works since April 2019 has been put on hold. 

The announcement putting on hold the seemingly complex cross border banking transaction was announced by the CEO, Dr. James Mwangi.

The frozen transaction estimated at US$109 million was meant to significantly affect operations in four African countries namely Rwanda, Zambia, Mozambique and Tanzania.

The halting of the deal that was eagerly being waited with bated breath by main actors in Rwanda’s commercial banking sector was meant to intensify competition in the sector in a number of ways.

For starters, the deal was structured to enable Equity Bank Rwanda to emerge as a very stronger contender and challenger to market leader Bank of Kigali (BK) among other forms of realignments.

The deal was also meant by sheer implication of its financial magnitude to shake to the core, Rwanda’s commercial banking sector, in line with new policies being championed by sector regulator the National Bank of Rwanda, BNR.

“Equity Group Holdings hereby confirms that, as of date of this announcement, the parties have yet to sign detailed transaction agreements and the binding term sheet has expired”, Dr. James Mwangi is quoted in the statement.Dr. Mwangi added in his statement that, “Equity and Atlas Mara expect to continue further discussion in early 2020 to try to reach mutually acceptable commercial terms with respect to the proposed transaction or a variant of it.”

In the envisaged transaction, Equity Group was to acquire a majority 62% stake in Atlas Mara BPR and thereafter merge its Rwandan acquisition with Equity Bank Rwanda subject to regulatory approvals from BNR.

In addition, Equity Group was meant to acquire 100% stakes in Atlas Mara portfolios in rest of the other three countries.

In return, Atlas Mara Group was to acquire shares in Equity Group worth US$109 million equivalent to 6.27% of Equity Group shares that are listed at the Nairobi Securities Exchange (NSE).

The announcement of the stalemate comes at the back of significant realignments happening within Rwanda’s commercial banking sector.

Equity Bank Rwanda created in 2011 with assets estimated at US$133 million was or for that matter is on course to merge with Atlas Mara BPR created in 1975 with assets worth US$320 million.

However, a major rider in this particular merger deal is that BPR is Rwanda’s largest bank in terms of its 200 bank network with over 100 ATMs and employing over 1000 staff giving it the most significant footprint in the local commercial banking sector.

Despite its strategic advantages and brand legacy in the market, BPR was overtaken by BK in the repositioning in sector, a precedent that happened in the last 10 years, following BK’s listings at the Rwanda Stock Exchange in mid-2011.

The realignments saw BK emerge as the undisputed leader in Rwanda’s commercial banking sector, commanding 30% market share todate.

In the second half of 2018, BK cross listed its shares at the NSE after carrying out a rights issue at a ratio of three shares for every one held that raised US$70 million in a land mark transaction within local commercial banking sector.

BK used the NSE cross listing and rights issue transaction to widen its muscle against its competitors in the market.

BK’ presence in the market now stands at more than 79 branches,100 ATMs, more than 1,400 agents, six mobile vans and over 1,200 staff.  

A very significant realignment happening right now is meeting the new capitalization policy by BNR for all licensed banks.

Meanwhile, all licensed commercial banks are required to increase their core capitalisations, something that informs the Atlas Mara BPR-Equity Bank Rwanda merger deal.

Technically known as Basel III capital requirements, licensed commercial banks are required in the next five years to increase core capital to US$21 million from US$5 million.

If the planned Equity Group-Atlas Mara Group deal goes through as anticipated before end of 2020, several things are likely to happen.

The first major implication is that the combined merger of Atlas Mara BPR and Equity Bank Rwanda would create a new unit which would still be Equity Bank Rwanda in terms of branding outlook.

This means that Atlas Mara BPR as a brand in the market, would disappear over time from the market in the same way that BCR,  then a leading banking brand in Rwanda, vanished after its takeover by Kenyan I&M Bank in 2012.

However, the new Equity Bank Rwanda brand would emerge as a big time player, armed with assets in excess of US$450 million.

The second implication is that the refitted Equity Bank Rwanda, if the transaction goes through, would be the second largest commercial bank in terms of assets.

It thus means that the new outfit would overtake I&M Bank Rwanda that currently has US$233 million in assets with shareholder equity of US$30 million along with 20 branch network employing over 300 staff.

The third major implication is that the refitted Equity Bank Rwanda would have assets slightly less than half of BK’s net worth of US$1 billion in assets.

But Equity Bank Rwanda would get into play rebooted with a branch network that is second to none, armed with speed, agility, history and ambition to give BK serious run for its money and clout in the market.

In a nutshell, if this transaction succeeds, one can say, the timing is thus very right for what is most likely going to be a two-horse race in the coming days between BK and Equity Bank Rwanda within the local commercial banking sector.

The local banking sector, without a doubt, is one of the most vibrant in the Rwandan economy.

A Finscope survey states that opportunities in the local banking sector are still vast.

Out of approximately four million adult Rwandans, less than 1.5 million use banking services with less than 100,000 Rwandans exclusively relying on commercial banks to do business.

In the wake of issuing its financial stability and monetary statements in October 2019, BNR Governor, John Rwangombwa, in an interview with a local media outlet summed up the tone of under currents shaping up  Rwanda’s commercial banking sector.

Governor Rwangombwa alluded to fact that Kenyan giant banking brands with a regional perspective such as Equity Group, currently having appetite for carrying out big time acquisitions, armed with their aggressive approach and muscle, will continue shaping up dynamics in the local banking sector in the days to come.

Governor Rwangombwa stated: “We take Kenya as the lead within mobile financial services. Rwanda has been learning from the Kenyan experience. The Kenyan financial institutions operating in Rwanda borrow their experience from their home country thereby making it more beneficial for our local banking sector”.

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