The Bank of Kigali is expected to inject $22.6 million new capital into its subsidiaries as it seeks alternative revenue streams to boost falling shareholders returns.
The bank’s 2017 full-year report to December 2017, showed returns on assets down to averaging 3.4 per cent, from 3.5 per cent the same period in 2018.
This was lower than return on average assets, the bank reported in the 12 months to December 2014 and the 12 months to December 2013.
The bank’s return on average Equity has remained almost flat at 20.2 per cent during the 12 months to December 2017 from 20 per cent reported during the same period in 2016, a drop from the 22.9 per cent reported in the whole year to December, 2014 and the 22.2 per cent reported in 2013.
The money is part of Rwf60 billion ($68 million) the Bank of Kigali is mobilising in a rights issue at the end of this month as it seeks to raise capital to finance mega projects and boost its capital buffers.
According to the bank’s chief executive, Diane Karusisi, the bank’s insurance business — BK General Insurance — will be allocated Rwf15 billon ($17 million).
The bank also plans to venture into the life insurance business, a segment that has not attracted many players, but has the potential to generate high returns as demand for insurance cover increases with a growing middle class.
Rwanda has only four life insurers, but they lack the resources to underwrite a bigger population, which gives new investors an opportunity to tap into this market.
The National Bank of Rwanda suspended licensing of new insurance companies in 2017, to protect existing insurers from the losses they were reporting, attributed to a mall market with a low penetration rate of less than 2 per cent.
According to the bank, part of the Rwf5 billion ($5.6 million) balance will be invested in other subsidiaries including BK Capital, an investment bank to offer brokerage services; BK Nominees, which holds assets in custody for clients and BK Registrars, which is involved in registration administration and fund management services.
BK General insurance’s new capital will go into supporting the rollout of new products, increased in electronic delivery of the products and a marketing drive to retain and recruit new customers.
Analysts say the large allocation of funds to the insurance business signals the sector has potential to generate more revenues for the bank.
According to bank officials, BK General Insurance reported net premiums of Rwf2 billion ($2.2 million) and underwriting net profit of over Rwf300 million ($340,607) in the 12 months to December, 2017, with a 23 per cent return on assets.
“There is a lot of potential for growth in both general insurance and life insurance business given the low penetration rate and young population,” said Nathalie Mpaka, chief finance officer at Bank of Kigali.
“Our target is to control 30 per cent insurance market share by injecting more capital into BK General Insurance to underwrite bigger and more businesses and acquiring an existing life insurance licence.”