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Equity Group’s purchase of BCDC shows DRC’s banking potential

By David Whitehouse
Posted on Tuesday, 3 December 2019 15:14

Democratic Republic of Congo's Felix Tshisekedi needs to act fast on banking regulation. REUTERS/ Olivia Acland

The agreement by Equity Group of Kenya to buy out the rest of Banque commercial du Congo (BCDC) is an opportunity to kick-start the banking sector in the Democratic Republic of Congo (DRC).

For that opportunity to be exploited, urgent adoption of President Félix Tshisekedi’s digitisation programme is essential.

Equity in November agreed to purchase the remainder of 66% of the bank owned by the Belgian George Arthur Forrest for $105 million. The Kenyan bank had reached the limits of its expansion in its domestic market due to an interest rate cap on commercial lending (now repealed).

Kenya’s second largest bank has operations in:

  • Uganda,
  • Rwanda,
  • Tanzania,
  • South Sudan,
  • DRC

The fact that such a proven operation is increasing its presence in the DRC is an encouraging sign, argues Olivier Lumenganeso, an economist and banker in Kinshasa. Equity Bank has a “dynamic management model,” he says.

Equity Bank is already proven in digital banking and this could be honed into a comparative advantage, says Lumenganeso, who sees no potential problems with the required regulatory approvals for the deal.

  • President Tshisekedi “can’t afford to be inactive” given the weight of expectations and the fact that he only has a five-year term, Lumenganeso says. “He needs very quick results.” Continued strong international airport arrivals in the DRC point to strong potential investor interest in the country, Lumenganeso says.

But in the banking sector, infrastructure and regulation are still at a “nascent” stage. “Structural issues must be addressed.”

  • Internet access remains too expensive, meaning that many people still consume small packets in Internet access for very specific purposes, he says.

Low starting point

Tshisekedi launched his national digitisation programme in September.

The plan includes the teaching of digital skills at all levels of education, and creating digital identities and a biometric identity card for the whole population.

The big strategic question that the DRC needs to address, Lumenganeso says, is whether to pursue the digitisation of banks, or the creation of new digital banks.

  • Due to the weakness of infrastructure and regulation, he believes that traditional bricks-and-mortar banks still have a shelf-life. For the moment at least, people will keep going into branches for want of a better option.

In the longer term, he points to the DRC’s young demographics, with about six out ten of the population aged under 40.

  • Increased mobile phone competition, he argues, will drive increased competition in financial services and will prove “very dangerous for the banks.”

Lumenganeso stresses the need for improved banking sector regulation. According to an International Monetary Fund (IMF) country report in September, the DRC’s financial sector is “shallow, underdeveloped, and dominated by banks.”

  • Non-bank financial institutions represent only 5% of the banking system’s assets, the report says.
  • Most financial soundness indicators have deteriorated “dramatically” since 2014, meaning the financial sector is vulnerable to external shocks, the IMF says.
  • “The authorities should continue to strengthen the preventive supervisory function and introduce a general framework for crisis prevention and management,” the IMF says.

Bottom Line: Equity Bank’s entry highlights the potential of the DRC’s banking sector if regulatory issues can be addressed and access to financial services widened.

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