Regional Banking - An Overview
The overall objective of the EAC Financial Sector Development and Regionalization Project (FSDRP) is the establishment of a single market in financial services. In this regard, the main objective of the EAC policies regarding the banking sector is to attain a single market in banking services as a means to promote sustainable economic growth in the Partner States and higher levels of financial inclusion.
The banking sector is playing a major role in propelling regional financial integration in the EAC region by adopting a regional business model motivated by a range of factors including client-demand and opportunities perceived along the regional trade corridors.
The commercial banking industry in Kenya is the fourth largest in Sub Saharan Africa after South Africa, Nigeria and Mauritius with 43 commercial banks and 2 mortgage finance institutions. The Tanzania Banking system has 26 commercial banks whereas there are 21 commercial banks in Uganda. The Rwanda banking system has 8 commercial banks, 1 development bank and 1 mortgage bank. The Burundi banking industry is comprised of 7 commercial banks, 1 development bank and 1 housing fund.
Cross-border expansion of banking in the region started in the 2000’s with Kenyan banks setting up in other EAC Partner States. As at the end of 2012, Kenyan banks had set up a substantial branch network with 251 branches in the EAC (and also 31 branches in South Sudan). A total of 11 multinational and Kenyan owned banks are performing with cross-border banking business in the EAC.
Five (5) Kenyan banks with branches within the region include Kenya Commercial Bank (KCB), Equity Bank, Fina Bank, Commercial Bank of Africa. Interest from banks domiciled in other EAC Partner States in cross border expansion is increasing with CRDB Tanzania setting up a branch in Burundi in 2012.
In all EAC countries, the commercial banks established national umbrella bodies, known as Bankers’ Associations to promote member banks’ interests and endeavour a reputable and professional banking sector.
From the perspective of EAC regionalization, an efficient and stable banking sector is a prerequisite for achieving sustainable growth in EAC countries where the majority of financial intermediation takes place through commercial banks.
With this regard, moving towards legal and regulatory harmonisation against the international standards known as the Basel Core Principles (BCPs) is critical to achieve an effective functioning of a single market in banking services.