DRC: Will Rawbank’s Rawji be dethroned by Equity’s Mwangi?

“We believe that Equity Congo can become the DRC’s largest bank by the end of the year,” said James Mwangi in November 2020. This shows how the CEO of Equity Group Holding hoped that its subsidiary in the DRC (Equity Congo) – recently merged with the Banque Commerciale du Congo (BCDC) – would take the sector’s top spot by the end of 2021.

The head of East Africa’s largest banking group did not make this prediction by accident. By merging with the DRC’s number two bank in mid-2020, the “new” Equity – since renamed Equity BCDC – became the Kenyan group’s second-largest subsidiary in terms of assets, bringing its total balance sheet to $2.6bn (€1.7bn) in 2020, a 230% jump from the 2019 balance sheet of Equity’s Congolese subsidiary alone.

At the same time, as Moody’s analysts point out, Rawbank is the largest bank in the DRC in terms of assets as of 31 December 2020. The Congolese banking group, founded in 2002 and chaired by Mazhar Rawji, has a total balance sheet of $2.9bn.

But with just a few weeks to go before the two groups’ annual results for the past year are published, it appears that the game between the local Rawbank and Equity BCDC is not yet over. However, the match’s outcome will depend on a number of factors.

Confidence index: Rawji advantage

One of the main reasons why Rawbank “should not be knocked out of first place by the end of 2021”, says Bob-David Nzoimbengene, university professor, Deloitte DRC’s managing partner and banking sector specialist, is that Equity BCDC must first reassure customers about the services that it is offering in the country.

Indeed, after the merger between Equity Congo and BCDC – which the local authorities validated in December 2020 – governance difficulties demonstrated that the Nairobi group was not arriving in Kinshasa on conquered ground. In most pan-African and international banks, the board of directors has full powers, particularly when it comes to granting loans. But in practice, their holding company often has the final say.

However, after the Equity Group’s CEO addressed Congolese employees directly in several internal communications, including one concerning the appointment of the merged entity’s future managers, the Congolese Central Bank expressed concern. It also reminded Mwangi of the need to respect “financial institutions in the DRC’s legal and regulatory provisions on corporate governance.”

This event led the Kenyan banker to carry out a “seduction operation” to reassure clients, investors and the authorities about his group’s intentions during Equity BCDC’s inauguration in February 2021.

Customers and services: equality

Rawbank has a strong presence on the ground. “The bank can be found in all the provinces, in all the airports,” say market observers. With over 400,000 customers served in 80 branches across the country, and $2.2bn in deposits, Rawbank is still the “brand” ahead of its competitor.

In terms of products, Rawji’s bank’s strength lies in the services it offers to public customers. In addition to having a large retail customer base, Rawbank offers corporate services by hosting, among others, the accounts of mining companies active in the DRC.

For its part, BCDC – historically known as a corporate bank – has joined forces with a bank that is better known as a retail bank. And the “challenge for Equity BCDC will be to marry the two, and more specifically to manage corporate clients in the country,” adds Nzoimbengene.

Equity’s local subsidiary had 74 branches and 800,000 clients last year, according to Mwangi. But regarding this last figure, Al Kitenge, a Congolese economic analyst, says that we will have to wait until Equity’s 2021 annual report has been published, or even another year, to see the effects of Equity Congo and BCDC’s merger.

Equity, credit: short lead

In a challenging environment, as industry experts point out, the ability to innovate and generate more credit will be a key differentiator for both players. “Banks are facing difficult credit conditions – given the high concentration of credit – and difficult funding conditions – due to depositors’ fragile confidence and the intensive use of the dollar,” says Mik Kabeya, vice-president of Emerging Markets at Moody’s.

Pending the release of the two banks’ 2021 performance, local analysts believe that even though Equity BCDC’s capital adequacy has improved and is approaching Rawbank’s, the gap remains wide. According to Nzoimbengene’s calculations, their prudential lending capacity to a single client, which depends on them, was around $40m for Equity BCDC and $50m for Rawbank, between 2020 and early 2021.

It is worth noting that Rawbank has recovered from a negative result of $46m for the first time in 10 years, due to an exceptional loss of $60m. This loss is linked to Travelex, its dollar supplier, which went into receivership following an undelivered banknote order.

To cope and preserve the bank’s equity, Rawbank’s shareholders – essentially the Rawji family – carried out a capital increase in the same year with a cash contribution of $70m.

The family-owned bank’s resilience will have to be weighed up in the future against the support provided by the Kenyan holding company Equity to its subsidiary in the DRC. “A solid advantage worth taking into account,” says Kitenge.