brd 2012 1 - rwanda development bank · floor in 2012. in 2013, the bank’s head office and...
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BRD ANNUAL REPORT 2012 1
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Celebrating
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ContentsACRONYMS & ABBREVIATIONS
AADFI African Development Finance InstitutionsAFD Agence Franҫaise de Développment ALCO Assets and Liabilities Committee BDF Business Development FundBHR Housing Bank of RwandaBNR National Bank of RwandaBRD Development Bank of RwandaCSR Corporate Social ResponsibilityEIB European Investment BankEXCO Executive Committee GoR Government of RwandaMFI Micro Financing Institutions SME Small and Medium Enterprises
4 Vision Mission & Core Values6 Chairman’s Report8 Board of Directors Profile10 Strategic Priorities11 Organizational Structure12 CEO’s Report14 Departmental Reports16 Department of investment Report20 Department of Operations Report23 Department of Credit Administration Report24 Department of Risk Report28 Department of Finance Report34 Department of Corporate Affairs Report38 Corporate Governance Report42 Auditors Financial Reports44 Directors, Officers and Administration45 Report of the Directors46 Statement of Directors’ Responsibilities48 Report of the Independent Auditors50 Consolidated and Company Statements of Comprehensive Income50 Consolidated and Company Statements of Financial Position51 Company Statement of Cash Flows51 Consolidated Statement of Cash Flows52 Notes to the Financial Statements53 Company Statement of Changes in Equity 53 Consolidated statement of Changes in Equity
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Vision & MissionVision
Mission
Core Values
To be the leader of productive investment as well as the most profitable bank at the centre of poverty reduction in Rwanda.
The Government of Rwanda’s (GoR) investment arm, that finances the nation’s development objectives with a focus on the priority sectors of the economy.
Professionalism BRD staff has to be highly qualified, motivated with respect for professional ethics.Quality of Services The quality of services provided by BRD has to go beyond the customers’ expectations.Efficiency and Effectiveness The Bank has to set up clear and measurable objectives in terms of the portfolio quality and growth as well as profitability of all its operations.Innovation
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Vision & Mission
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Itis a great pleasure to share with you the 2012 Performance Report, of the Development Bank
of Rwanda Limited (BRD), an institution that cele-brated its 45th anniversary this year and continues to empower the people, the nation and businesses.
During the year under review the Bank has once again committed itself to being an institution at the centre of infrastructure development in Rwanda. We have significantly increased our investment in de-velopment activities by Rwf 21,271,829 in the year under review our spending was at Rwf 91,751,933 compared to 2011 where we invested only Rwf 70,480,104. The emphasis of development for 2012 has been on the sectors that have shown great promise for growth in the previous year. These are amongst others SMEs, Export, Agriculture, Women and Youth projects that have the potential to improve the livelihoods of the Rwandan people.
The Bank has been complying with the National Bank of Rwanda (BNR) regulations especially the Corporate Governance Act, which aimed at ensur-ing the safety and interests of Shareholders and Stakeholders. To the benefit of our Shareholders and Stakeholders, we have maintained a 3% return on assets. The Banks capital and reserves have also increased by Rwf 9,985,837. In 2012 it stood at Rwf 23,323,971 from Rwf 13,338,134 in 2011 and Rwf 7,985,086 in 2010.
Chairman’s Report
Together I am certain we will continue to build the legacy of the Bank...
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BRD ANNUAL REPORT 2012 7
the necessary technological installments and equip-ments are available at the branches and that they are adequately staffed.
In the same line, the Bank will recruit 14 new staff members in order to achieve the strategic goals set by the Board of Directors for the year 2013 and af-ter. With the assistance of the AfDB TA fund and the Bank’s training and development budget, the Board members, Senior Management and existing and new staff will be trained in corporate strategic orien-tation, and all other work related technical aspects as well as customer care, team efficiency
I wish to express my heartfelt thanks to my fellow board members for the time they dedicate to the Bank’s business, to the Chief Executive Officer Jack Nkusi Kayonga and his dedicated management and staff for the hard work and dedication over the past year. Together I am certain we will continue to build the legacy of the Bank, one that will not only make those involved in BRD proud, but one that will instill pride in a nation as we continue to push the bound-aries and increase on what is achievable in the country through infrastructure development.
Fabien MAJOROChairman of the Board of Directors
There are sufficient checks and balances to pro-mote a healthy balance between risk and return for investors. To ensure a healthy relationship be-tween the Bank and investors the Board of Direc-tors created and operationalized sub-committees namely, a sub-committee dealing with credit and a sub-committee on audits, a sub-committee on risks, a sub-committee on assets and liability and a sub-committee that deals with administrative is-sues. The creation of these sub-committees allows us better control over the various facets of the Bank, along with ensuring that we adhere to the princi-ples of Corporate Governance in the country. These sub-committees have also allowed us improved per-formance when it comes to non-performing loans which have dropped to 5.7% from 8% in 2011 and 13.4% in 2010. To enhance the presence of the Bank and to be able to better serve Rwandans beyond the capital of the country BRD maintained its branches, in the North-ern Province (Musanze) and in the Eastern Province (Kayonza), the branch in the Southern Province was moved from Huye to Nyanza and theKarongi branch has been closed. The Bank put in place mechanisms to serve clients in Karongi, Nya-masheke, Rusizi and the Rutsiro District. In doing so BRDs presence is now more apparent to its clients outside Kigali, as staff members in these branches can now better monitor the needs of the clients and provide improved services. This Board decision has reduced company cost while at the same time in-creased service delivery.
We have achieved a great deal this year, however, there is still room for improvement. It is in this re-spect that we shall continue to motivate the staff and management of the Bank to deliver services that ad-vance the vision and mission of the Bank. This drives
the Bank in constantly looking for ways and means to improve service delivery, along with pushing the boundaries on providing quality loan facilities to our clients.
As it is always a priority of the Bank to improve on our image and services, in the year 2012, the Bank’s focus was to improve the Bank’s customer care through repetitive trainings of the staff but also by improving on the premises of the Bank and the Bank branches. The year 2013’s focus will be mainly to improve on the corporate image of the Bank and branches by creating a distinct identity of the Bank’s premises and more priority will be given to CSR ac-tivities in order to give back to the community.
In the same line of thought, the Bank will refurbish the remaining floors, as it was done for the ground floor in 2012. In 2013, the Bank’s Head Office and branches will be improved on, new office furniture and equipments acquired, all that with the idea to make our customers and visitors feel welcome and more comfortable in our premises.
Furthermore, in 2013, BRD will launch the elec-tronic banking component in order to facilitate our customers in their transactions by giving them ac-cess to ATM services, SMS and Mobile Banking and E-Tax payment. These big projects started in 2012 with the upgrade of the IBank that has integrated all software used in the Bank, and the setting up of a Disaster Recovery Site. These services will increase the Bank’s non interest income.
The Bank is contemplating opening fully operational branches that will offer deposit taking services. Af-ter the strategic assessment, the Bank will ensure
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Richard TusabeBoard member since 2010
EmploymentRwanda Revenue Authority,• Deputy Commissioner General •Commissioner for Customs Services
Antoon D. DelieBoard Member Since 2012
Academic Qualifications • Poelkapelle (Belgium) 22nd July 1952Masters Degree in Civil Engineering(Vrije Universiteit Brussel, 1978)
Employment• Development Counsellor and Deputy Head of Mission, Embassy of the Kingdom of Belgium, Kigali
Board ofDirectors
MR. FABIEN MAJOROChairman of the Board of Directors from June 2009
Academic Qualifications• LLM in International Human Rights Law with specialization in the Law of Armed Conflicts, Notre Dame Law School, IN, USA (2008)• LLB in General Law, National University of Rwanda (2003)
Employment• Currently Governance Advisor to the Prime Minister of Rwanda• Director General of Coordination in the Office of the Prime Minister from August 2008 to June 2012
Other Directorships• EWSA board member and chairman of the Fi-nance board committee as from March 2011• Board member of the public Sector Capacity Building Secretariat as from February 2009• Member of Gicumbi District Council and Chairman of legal and Political Committee.
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Hadija Murangwais a Legal Consultant with 12 years experience in tax law. She holds a Masters in International Business Law from McGILL University in Montreal, Canada.
She worked for the Rwanda Revenue Authority as the Director of Legal and served as the Board Secretary from 2007 to 2011. Hadija has also lec-tured at the National University of Rwanda from 1999 to 2004. Presently, she is a consultant with the World Bank in the Investment Climate Program. Hadija has been on the BRD board since 2006 and also sits on the Military Medical Insurance Board.
MR. FRANCIS MUGISHAFCMA | CGMA | CPA (R): Francis is a Chartered Management Accountant. He is a Fellow of the Chartered Institute of Management Accountant (CIMA)and a Chartered Global Management Accountant (CGMA).
He is the current president of the Institute of Certified Public Accountants of Rwanda (iCPAR), having previously served as the vice president on the institute’s first governing council. He chaired the 1st “Curriculum, Professional Education and Examination Commission” of ICPAR that recently released the first institute’s exam. He was a council member of the “East, Central and Southern Africa Federation of Accountants (ECSAFA)” that gave way to the formation of the Pan-African Federation of Accountants (PAFA). Francis has served as a Council Member for the SUPERBRANDS East Africa since 2009. He has more than 16 years of post qualification experience. He is the managing director for MCA, a management consultancy firm – from where he consults across sectors and industry; across the public and private sector space; within Rwanda, the
region and into global assignments – including as a consultant on the PEFA methodology. Francis serves on a number of boards, including BRD where, as a non-executive director, he chairs the Audit Committee of the Bank.
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Strategic Priorities
Strategic PrioritiesMobilizing financing to enable Rwanda’s development
Develop special financing programs for financing key export sectors
Contribute to the development of Microfinance services
Expand our product portfolio in order to respond to customer needs
Engage and support key partners and clients
Increase our effectiveness through reconfiguration and training
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The Bank is headed by a General Assembly which represents the universality of the
Shareholders and which is the supreme organ of the Bank. The Board of Directors are composed of members appointed by the General Assembly on proposition of Shareholders and is the organ that manages the Bank. The daily functioning and the management of the Bank are within the competence of the CEO He/she is responsible for all the Banks’ vital actions.
The Board of Directors delegates him/her the nec-essary powers of management for this. The CEO is helped in these tasks by a Management Committee which includes the Deputy Managing Director and the Directors of Departments.
The Bank has six main departments, namely: • Department of Investment • Department of Finance • Department of Corporate Affairs • Department of Risk Management • Department of Credit Administration • Department of Operations
Organizational Structure
GENERAL MEETING
BOARD OF DIRECTORS
EXTERNAL
AUDITORS
INTERNAL
AUDITORS
COMPANY
SECRETARY
FINANCE
DEPARTMENT
ACCOUNTING&
FINANCIAL REPORTING
TREASURY AND
LINE OF CREDIT
STRATEGY, INCUBATION AND
SPECIAL PROJECTS
BOARD
COMMITTEES
RISK AND
COMPLIANCE
BRANCHES
PERSONAL ASSISTANT
CREDIT
ADMINISTRATION
INVESTMENT
DEPARTMENT
AGRICULTURE
AGRICULTURE
LEASING
REAL ESTATE
RE-FINANCING
TECHNICAL
ASSISTANCE
IDENTIFICATION
EQUITY
NON
MONITORING
RECOVERY
DISBURSEMENT
OPERATIONSDEPARTMENT
LEGAL TEAM
PUBLIC RELATIONS
CORPORATEAFFAIRS
ADMINISTRATIONHUMAN RESOURCES
MARKETINGINFORMATIONTECHNOLOGYCENTRAL SECRETARIAT
AND DOCUMENTATION
CORPORATEREPORTING
TRADEFINANCERETAILBANKING
FRONT OFFICE& PAYMENT
SYSTEMS
CHIEF EXECUTIVE
OFFICER
CHIEF
OPERATIONS
OFFICER
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CEO’s Report Innovation is at the core
of our ability to grow economically in
Rwanda,
I n a year that was dominated, once again, by concerns about the course of the world
economy, Rwanda continued to consolidate its position as a country of comparative stability and growth.
12 BRD ANNUAL REPORT 2012
BRD ANNUAL REPORT 2012 13
The efforts by certain development partner countries to trim their public debt were the main area of at-tention in 2012. Although the United States showed signs of recovery, there continued to be long-term issues that will require difficult political solutions. And China proceeded in its efforts to rebalance its economy and shift towards domestic consumption.In this global environment, Rwanda has shown considerable economic strength. The per-formance is encouraging, but we still have a very long way to go. Rwanda must contin-ue to work to close on economic development and make recent economic gains sustainable.
To that end, Rwanda needs to remain vigi-lant and maintain prudent macroeconom-ic policies to rebuild fiscal, monetary and ex-ternal buffers in order to fend off global risks.
It is also essential for our region to keep pace with global advances in innovation and technology to en-sure the sustainability of our agriculture, for example, since abundant water and fertile land are not enough.
We need to invest more in infrastructure, and we must develop rules of the game that promote in-vestment. We must also work to break down finan-cial, bureaucratic, and information-related barri-ers, paving the way for private initiative to flourish.
In all these objectives, the Development Bank of Rwanda has a key role to play, strengthened by the government support. In 2012, the Bank contin-ued to be a leading source of long term credit for the Rwanda private sector. We approved a total of 50.2 billion. These results solidified the rising trend in the Bank’s average annual approvals in both
amount and number of projects and included a growing share of approvals in the Rwandan market. Housing merits special mention. It is a sector where we remain committed to making substantial long-term progress. Yet strategic challenges remain.
In addition, the Bank is building best practices into its operations and management. In 2012, we con-tinued to consolidate key reforms, to improve our strategic focus, effectiveness, and efficiency. The fact that we have accomplished so much in so short a time is testament to the joint effort and commit-ment of Management and the Board of Directors.
The development agenda of our country Rwan-da requires us to look for innovative solutions to complex, crosscutting issues—our initiatives on emerging sustainable projects and citizen security, for example, and efforts to promote medium-sized enterprises and job creation. More broadly, deep-er integration with the various partner’s synergies will contribute to maximizing the development im-pact of the Bank’s work through the private sector.
Throughout 2013, we will continue to renew our com-mitment to being the government’s vehicle for pro-moting and growing the private sector and spread the benefits of prosperity, locking in the gains that have already been achieved, and overcoming the in-equalities that persist.
Jack Nkusi KayongaChief Executive Officer
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Departmental Report
Departmental ReportDepartment of Investment Department of Operations Department of Credit AdministrationRisk Management Department Department of FinanceDepartment of Corporate Affairs
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Department of Investment
The Department of Investment has to perform the major commercial role of the Bank
through project identification, loan analysis and ap-proval and performance of technical assistance to our clients.
BRD is a policy lending institution; our financing is aligned to financing priority sectors that are of eco-nomic importance to the development of Rwanda. These sectors have a high level of value addition to the economy they are: Agriculture; Housing; Water and Energy; Health; Industry and Service; Tourism; Social Infrastructure to name a few.
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Departmentof Investment
Josephine Umurerwa,Interrim Director of Investment
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tries, commercial buildings, and social infrastruc-ture like markets as well as boosting the tourism sector by building hotels. The Bank invested Rwf30 billion in this sector, which is more than what we estimated; however the industry and service sector has such a striking impact on the country’s econo-my. It successfully stimulates value addition and has had a visible impact on the development of the infor-mal sector of the economy.
HousingThe acquisition of BHR by BRD was a strategic deci-sion to acquire a portfolio as well as assets to build on and strategically fulfil our development mandate by financing the housing sector. According to the One Stop Centre and the United Nations Habitat Survey of 2011, the housing gap in Kigali alone is 306,474 housing units, currently the supply is 37,594 hous-ing units with the market of 344,068 housing units. Since the acquisition of BHR, BRD has boosted the housing sector significantly through real estate and individual mortgage financing. However more needs to be done as we are still not meeting the demands
Our department is organized in such a way to ensure that it delivers services needed by investors in those sectors within different units. Broadly, these units include; agriculture, non agriculture, real estate and Micro Financing Institutions (MFI) refinancing. Our financing is based on short, medium and long-term financing however more than 80% of our financing is long-term and predominantly with start-up proj-ects. Our products are traditional loans, leasing, r efinancing, equity participation and capacity build-ing to existing and potential clients. Currently 85% of BRDs financing is through traditional loans however efforts to boost equity investments are underway. 2012 Annual Performance
AgricultureFighting poverty at the grass root level is easily done by financing agricultural projects because most of Rwandans are employed in this sector. A majority of the projects approved in 2012 were in the agri-cultural sector and they totalled 141 projects out of 216 for the year worth Rwf 17 billion. BRD financed the agricultural sector targeting primary agriculture (livestock and crop farming) and seed multiplication. Greater emphasis was this year placed on financ-ing in areas of processing industries like coffee, tea, cassava, rice, poultry and SMEs for food processing plants to mention but a few to increase our exports and sustainability in the country’s food consumption.
Industry and ServiceThe Industry and Service sector employs more tech-nically skilled and tertiary educated Rwandans. In-vestment in this sector has the capacity to greatly boost the Rwandan economy. For this reason BRD focused attention on investments aimed at indus-
of our clientele.
Our mid -year achievements were Rwf3.5 billion but at the end of the year we had approval totalling to Rwf7.7 billion in the housing sector. Due to high de-mand in the housing sector the Bank is strategically working with partners to develop estates in selected areas like Kimisange and Akamuningo to enhance modern housing in Kigali.
Equity InvestmentsBRD has made equity investments worth Rwf12 bil-lion within 16 different companies in Rwanda. These companies are involved in the development of the country in different sectors like agriculture, forestry, industry and service.
We currently own two subsidiary companies that are fully owned by the bank. These are Business Development Fund (BDF) that provides guarantees and advisory services to SMEs. This service was to be performed by BRD in its daily activities. But to improve service delivery the Bank decided to set up
Rwandan Francs ‘000’
SECTORS
Agriculture
Industry Service
Housing
Social Infrastructure
Microfinance
TOTALS
2012 Targets Mid 2012 Achievements
2012 Achievements
14, 614, 992
9,415,337
7,677,458
5,317,806
2,506,515
39,532,109
11,575,236
8,013,625
3,498,756
890,403
1,335,604
25,313,624
17, 427,324
27,675,219
7,390,102
2,369,586
1,344,000
56,206,230
27,601
43,831
11,704
3,753
2,129
89,017
Perfomance
vs Targets
119%
294%
96%
45%
54%
142%
USD ‘000’
Note: Exchange Rate Rwf 632.42 per 1$
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a separate company dedicated to fulfil the mandate with full autonomy in its activities.
The Bank launched Kinazi Cassava Plant in April 2012 to boost cassava production through the trans-formation of cassava roots into flour in Kinazi South-ern Province. We have invested a start-up capital worth Rwf5 billion and investment is still ongoing as the project will be expanded to include the produc-tion of starch. The challenge in equity investment is getting the right shareholders to work with; this will ensure that the company has a competent, vibrant management able to take the company to greater heights. This is essential for BRD as it is not our wish to stay at the helm of the company for a long time during the eq-uity investment stage.
Our aim is to exit a company’s management. We invest in and then attract a different strate-gic project that will guarantee the progress of the country. BRD is planning to invest Rwf4.4 billion in the 2013 business year in strategic, developmental sectors such as agriculture (animal feeds) and con-struction (materials).
Finally it is important to note that the Department of Investment’s performance was 142% as per the targets, the sectors with extraordinary performance was that of agriculture as well as industry and ser-vice. We attribute this achievement to our clients who we honour and respect along with our dedicat-ed staff at BRD. We look forward to maintaining and improving on the result of this year.
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Department of Operations
Department of Operations
Our vision is to be the Leader of productive in-vestments and the most profitable bank
at the service of poverty reduction. BRD’s mission is to become the Government’s investment arm fi-nancing the nation’s development objectives with a focus on the priority sectors of the economy.
Evode Nshimimana,Director of Operations
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The department of operations is in line with the vision and bank’s mission. It contributes to the Government initiative of promoting internation-al trade and domestic transactions among other things. It provides various facilities to the bank’s customers engaged in the country’s develop-ment. Apart from these facilities, it constitutes the source of the Bank’s non interest revenue.
Our deposits base at the end of the year 2012 has in-creased from 14B to 16B, and our accounts have in-creased from 7,546 to 8299 hence 753 new accounts were opened and our target was to open 500 accounts.
In addition to our existing customer deposit base we had a strategy of increasing deposits by 2B and to also increase trade finance income through in-troducing new products i.e. bid guarantee, advance payment guarantee and performance guarantee.During the course of year these facilities were in-troduced in Trade Finance: guarantees (bid guar-antee, advance payment guarantee and per-formance guarantee) and invoice discounting.
Future / TargetWe want to increase our non interest income to the tune of 15 % of the net total income of the bank. The department also seeks to at least gen-erate income of at least Rwf 300Million in trade fi-nance operations and to invest 9.5 B in retail prod-ucts such as car, house and advances on salaries.
The department of operations has to be the BRD’s non-interest income centre.
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Gorilla Golf Hotel - NyarutaramaFinanced by BRD it has 89 Rooms 3 ConferenceHall 2 Restaurants and a Cocktail Bar
BRD ANNUAL REPORT 2012 23
Department of Credit
Administration
Department of Credit Administration
The Credit Administration Department has the mission to maintain a portfolio of good
quality by ensuring that loans approved are ade-quately disbursed, projects financed are successful-ly implemented and performing. It also should en-sure loan repayments are regular, accurate and that complete information is made available.
In 2012, the targets set for the department consist-ed of disbursing Rwf33 billion, keeping a high level of performing projects and ensuring that non-per-forming loans are less that 7% of the total portfolio. The department has achieved those targets thanks to the efforts of the department team and their col-leagues at the Bank.
In 2012 the Credit Administration Department dis-bursed Rwf35.3 billion for the implementation of projects, which exceeded the discussed 2012 target, which was Rwf33 billion. The quality of the port-folio has also improved considerably, whereby the non-performing loan (NPL) rate has decreased to 5.6% as of 31st December 2012 from 8% in 2011.
This achievement is attributed to the efforts which have been put in project monitoring and in loan re-covery. The Recovery Committee comprising of all professional staff of the Bank was put in place and regular meetings to monitor progress.
The achievements of 2012 in terms of loans approved and disbursed led to an improvement of the Bank’s portfolio. The performing portfolio of the Bank has increased from Rwf61 billion in 2011 to Rwf85 billion in 2012. In 2013, the Credit Adminis-tration Department plans to build that success and double its efforts, to ensure that the projects are be-ing successfully implemented and that the existing loans portfolio is closely monitored.
In that context and in compliance with the budget and strategic plan approved by the Board of Direc-tors, the plan is to disburse Rwf49.2 billion in 2013 for different projects. The focus will be on providing better project monitoring, technical advice and ca-pacity building to assist our clients. This will reduce and maintain the Bank’s rate of NPL at less than 5%.
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Emmanuel Karuranga,Director of Credit Administration
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Risk Management Department The Bank has updated and approved its inte-
grated enterprise wide risk management since the acquisition of the Housing Bank of Rwan-da (BHR). We have applied a practical, systematic methodology to identify, analyse, assess, mitigate and monitor all risks that affect it.
Our risk management philosophy allows us to be resilient through economic cycles. The em-bedded enterprise risk management culture of BRD has contributed significantly to improve-ments in risk management. However we ac-knowledge that there is always room for improve-ment and we remain focused to ensure that we stay ahead of the best practice in the industry.
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Risk ManagementDepartment
Vedaste Avemariya,Director of Risk Management
BRD ANNUAL REPORT 2012 25
Risk GovernanceThe enterprise-wide risk management framework ensures that there is a well-structured approach to risk management within the Bank. There are three distinct lines of defence in the framework:• Line management applies comprehensive and ap-propriate internal controls along with utilizing risk management and governance structures which in-cludes policies, procedures and processes. All of these are implemented in conjunction with strate-gies provided by the Executive Committee (EXCO) as well as the Board.• Risk monitoring is performed by the Executive Management Committees of BRD.• The Department of Risk Management provides in-dependent assurance of risk management; we are assisted by internal and external auditors. Added support is given by the Board Committees – EXCO, Audit, Risk, Asset and Liabilities (ALCO) as well as the Credit Committee. The Board has complete oversight and monitoring responsibility over risk management.
Risk Management Mechanisms In the Bank’s Corporate Plan we emphasize our commitment to implementing risk mitigation strat-egies, and we have made considerable progress with it. BRD aims to ensure proactive identification, understanding and assessment of risks. Our risk management strategy and philosophy is executed through risk management and governance mech-anisms. We have incorporated risk management oversight bodies which include:• Board Committees (Audit, Risk, ALCO, EXCO and Credit Risk)• Management Committees (Credit Risk, Operation-
al Risk, ALCO and EXCO)• The Department of Risk Management and Compli-ance also works in conjunction with different busi-ness units which help us coordinate and monitor effective risk management.• Assurance from internal audit on the control en-vironment
2012 Focus AreasThe Bank has focused on six distinct categories of risk identified as most pertinent to achieving its strategy, these are: Operational risk, Credit risk, Market and Liquidity risk, Human Capital risk, Sys-tems risk and lastly New Business risk.
Operational riskOperational risk is defined as the failure of people, processes, systems and the internal and external environments. The Operational Risk Committee
monitors operational risk governance and manage-ment. The committee directs, governs and coordi-nates operational risk management processes in accordance with an approved framework and policy that sets out expectations and responsibilities relat-
ing to operational risk management.The management of operational risk is inherent in management’s daily duties and is a central element of the management process. In 2012, the operation-al risk unit entrenched its risk processes and ap-proach to risk management as follows:• Risk analysis / assessment – was conducted through the departmental risk champions (contact persons in the various departments who interact with the Risk Department regarding risk matters), by establishing the Bank’s risk register. Assess-ments were reported on quarterly. • Risk treatment has been improved with the inclu-sion of a risk appetite exercise. This will be contin-ued in the next financial year.• Risk monitoring has been enhanced through im-proving interactions with the risk champions along with improving the risk management tool.• Quarterly the Board of Directors are given a risk report to maintain updates on risk analysis and as-sessments.
Credit riskCredit risk is the risk that the Bank will incur finan-cial losses as a result of its customers, clients or counter-parties failing to fulfil contractual obliga-tions to the Bank. In 2012 BRD reviewed its credit policy. This was done to accommodate the Bank’s new products along with the new credit governance structure which includes Retail banking activities from the Department of Operations and the credit administration processes of the Credit Administra-tion Department. The bank reviewed the delegation of powers in the approval processes as follows:
The credit evaluation process has been intensified and now includes an internal credit risk rating mod-
26 BRD ANNUAL REPORT 2012
el to help the Bank classify its credit portfolio based on the customer’s probability to default and give an indi-cation of the pricing by considering the risk premium. Portfolio management takes into consideration a credit portfolio, collections, legal collections, impairments, write-offs and reporting of credit risk. The Credit Risk Unit monitors and reports on risk concentration on a quarterly basis. The concentration is done by large exposure, NPLs and PLs, sectors, region and by gender.
Market and Liquidity Risk
Liquidity is the bank’s ability to generate cash at reasonable cost. Liquidity risk is the risk that the bank will not be able to source enough funds to meet its short-term commitments without incurring large costs. The Asset and Liability Committee monitors liquidity risk on a regular basis. The Bank manages liquidity conservatively. BRDs treasury unit located in the Finance Department manages the bank’s assets and liabilities to balance its liquidity and market risk exposure and helps achieve its operating objectives. The Asset and Liability Committee assesses the probability that these risks might materialize and positions the Bank to deal with these scenarios with minimum deterioration in performance and profitability.
In 2012, the Bank introduced the Treasury Committee to assist the Finance Department in the management of treasury. The committee has met on a regular basis to discuss liquidity issues.
Human Capital RiskThese risks are managed through the Department of Corporate Affairs. A restructured Human Resource service delivery mechanism implemented in 2012 has enabled a more focused and holistic approach to addressing human capital risk. This has result-ed in targeted interventions at BRD along with an intensified focus on risk issues such as critical skill retention and development, succession planning, performance appraisal, and different incentives.
Systems RiskAnnually BRD receives onsite as well as offsite in-spections from BNR; we also receive reports from our external auditors as well as our internal audi-tors. We are very cognizant of suggestions made within the confines of reports received, and in 2012 we have made some significant changes to address recommendations given.
BRD updated the IBank system to accommodate the changes in the data management system and con-solidated the IBank data with the data from delta. The process is still undergoing and will be complet-ed in the coming year. These changes have positively affected our service delivery abilities and have led to the Bank updating its Service Charter to include quarterly monitoring processes.
New Business RiskBRD introduced new facilities in Retail Banking. We have introduced mortgage financing as well as short term lending (salary advances, invoice discounting and performance bonds) to its existing clients. At each stage the Credit Risk Unit has been involved especially with those clients involved in commercial farming. The increase of new business in the Bank
X X XX>Rwf 600M - < 5% (*)
X XX>Rwf 600M - < 5% (*)
X X X>= Rwf 40M-< = 600M
X XX< Rwf 40M
CHIEF EXECUTIVEOFFICER
BOARD CREDITCOMMITTEE
BOARD OFDIRECTORS
CREDIT RISKCOMMITTEEDirector of Investment
PROJECTS
Director of Operations
PERSONAL LOANS
Approval AuthorityAmount
BRD ANNUAL REPORT 2012 27
has developed a pricing framework which incentiv-izes the financing of projects that will have a high development impact.
Risk MaturityThe Bank has made significant progress in instill-ing a risk management culture in its organization, and more emphasis will be placed on ensuring risk management becomes an intrinsic part of business planning and decision-making at BRD.Risk Management has been institutionalized at a strategic level at BRD as follows: • The Board’s Risk Management Committees in-clude a senior management officer• Risk management processes are overseen by the Risk Management Committee• Risk management functions and compliance to it is coordinated by the Department of Risk• The Bank’s risk register is reviewed and made rel-evant to our risk appetite• Board decision-making incorporates risk man-agement• Risk management is one of the key performance indicators for all EXCO members •Internal and external audits review the risk man-agement strategy
Plan for the coming year In the new financial year, the bank will continue to review risk management processes in order to:• Enhance alignment of risk management to the bank’s business strategy
• Cover all important areas of business risks, in-cluding assessments of key performance areas and compiling a risk register for each business unit
• Finalize and implement the revised bank policy and procedures manual
• Develop the internal control mechanisms by put-ting in place the internal control framework
• Put in place adequate tools for the assets and lia-bilities risk management tools
• Develop the risk management framework, which will be reviewed to incorporate an improved meth-odology, guidelines as well as risk governance structures
• Monitor and evaluate performance continuously
• Monitor and report on the noncompliance issues with regards to laws and regulations
• Testing the Business Continuity Plan and ensuring that the disaster recovery site is put in an adequate location
BRD ANNUAL REPORT 2013 27
Water recycling project COPED
28 BRD ANNUAL REPORT 2012
Department of Finance
Once again, BRD overall performance in the fi-nancial year 2012 was impressive in both
numbers and quality. The figures for this year show a fascinating climbing trend in both both profitability and growth while the Bank continues to strengthen its balance sheet in term of its capital structure and the quality of its loan portfolio.
The financial health of the Bank is reflected in its financial performance, its financial position and its treasury. The first two provide key financial indica-tors made of specific numbers that help in deter-mining the evolution of the Bank during the year ending December 2012, whereas the treasury over-view provides how the Bank reinforces its ability of planning, organizing, implementing everything re-lated to the Bank’s capacity to meet its financing and operational obligations
28 BRD ANNUAL REPORT 2012
Departmentof Finance
Emmanuel Murangayisa,Director of Finance
BRD ANNUAL REPORT 2012 29
Financial performance
0.0
2,000
4,000
6,000
8,000
11,000
12,000
RWF MillionsActual
12/31/2010
RWF MillionsActual
12/31/2011
RWF MillionsActual
12/31/2012
39%
33%
6,011
8,387
11,158
INTEREST INCOME
Interest income in year 2012 shows a continuous and quite impressive 33% growth of Bank, from the Rwf 8.3 Bn achieved in the previous year 2011 to the Rwf 11.1 Bn achieved as at end 2012.
We should also note that the 39% growth achieved from year 2010 to year 2011 included the interest in-come of former BHR, among other factors.
Alongside interest income, interest expense in-creased by 48% from Rwf 1.7 in year 2011 to Rwf 2.4 in year 2012, whereby it had only increased by 5% from year 2010 to year 2011. However, the 48% increase in year 2012 was mainly due to the fact that the Bank had recently included highly remunerated customers’ deposits to its usual funds mobilization strategy, as an occasional solution to bridge the gap between the increasing loan portfolio and the dis-bursement of the funds normally mobilized from less costly lines of credit that would sometimes come in later than expected.
As for The impairment charges, there was a huge increase of 140% from the Rwf 1.6 Bn of year 2011 to Rwf 3.8 Bn in year 2012.
But, this increase only came as a result of the Man-agement & Board decision of writing off some bad loans in the bank’s portfolio to reduce the NPL ratio from 10.22% in September 2012 to 5.7% as at end
0.0
500
1,000
1,500
2,000
2,500
3,000
RWF MillionsActual
12/31/2010
RWF MillionsActual
12/31/2011
RWF MillionsActual
12/31/2012
5%
48%
1,683
1,762
2,419
INTEREST EXPENSE
December 2012. We should also mention that these written off loans are expected to be recovered at the tune of 50% by 2013.
But, this increase only came as a result of theMa-nagement & Board decision of writingoff some bad loans in the bank’s portfolio to reduce the NPL ratio from 10.22% in September 2012 to 5.7% as at end December 2012.
We should also mention that these written off loan-sare expected to be recovered at the tune of 50% by 2013.
Identically to the overall performance of the Bank, the net profit of year 2012hit Rwf 3.84 Bnfrom Rwf2.8
0.0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
RWF MillionsActual
12/31/2010
RWF MillionsActual
12/31/2011
RWF MillionsActual
12/31/2012
178%
41%
1,005
2,796
3,812
NET PROFIT
30 BRD ANNUAL REPORT 2012
Bn in 2011, marking an impressive growth of 41%. This great achievement is attributed to the increase of thenet interest income and the increase of the operating income. Another major source of income during year 2012 is the gain on disposal from MAG-ERWA and CIMERWA shares that totalizedaround Rwf 3.1 Bn. The two lines of income absorbed the shock caused by the Rwf 3.2 written off loans that-would have seriously affected the profitability of the Bank.
Key performance indicators
As illustrated in the table above, one can see that the interest income reduced due to the increase in inter-est expenseas a result of mobilizing fundsfrom local institutionsand through customers’ term deposits.
The other operating expenses consumed the in-come to the tune of 28% in year 2012 from 18% in 2011; and this was mainly due to the loans write off decision that hada net effect of Rwf 2.7 Bn.
Financial Position
As illustrated in the graph beside, the loans at amortized cost are at Rwf 86 Bn as at end December 2012 and up by 32%. This increase was backed up by a much more improved pace in loans disburse-ment& the introduction of new products offered by the Bank’s department of operations to customers (e.g.Lines of Credit, Overdraft facilities). Also, the takeover of former BHR had a considerable impact on the loans outstanding balance in 2011, as it led to a 48% growth of the net loan book, fromRwf 44 Bn in 2010 to Rwf65 Bn end 2011.
At the end of year 2012, the Bank’s total assets stands at a level of Rwf 115 Bn from Rwf 86 Bn as at end December 2011, with almost the same rate of increase like the loans above. The explanation here is that the loans contribute 75% of the total assets.
The deposits increased from Rwf 5.78 Bn as at end year 2011 to Rwf 17.3 Bn as at end year 2012,as a result of convincing corporate companies such as RSSB and REIC to bank with BRD and this soundly improved the bank’s liquidity.
0.0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
100,000
RWF MillionsActual
12/31/2010
RWF MillionsActual
12/31/2011
RWF MillionsActual
12/31/2012
FINANCIAL POSITION
44,227
65,515
87,704
48%
32%
BRD Consolidated
2012 2011 2012 2011
%of income
%of income
%of income
%of income
68% 69% Interest income 63% 50%
16% 14% Interest expense 15% 10%
2% 1% Fee and commission income 4% 0%
1% 0% Net gain/ (loss) on foreign exchange 1% 0%
29% 31% Other operating income 33% 22%
4% 13% Impairment charge for credit losses 3% 9%
18% 19% Staff costs and other benefits 20% 14%
2% 3% Depreciation and amortization 4% 2%
28% 18% Other operating expenses 30% 14%
Key performance indicators
0.0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
RWF MillionsActual
12/31/2010
RWF MillionsActual
12/31/2011
RWF MillionsActual
12/31/2012
TOTAL ASSETS
58,511
86,119
115,330
48%
33%
BRD ANNUAL REPORT 2012 31
Key financial position ratios
BRD assets in year 2012 are 75% loans based, as opposed to the 76% of year 2011. The variation was so tiny also due to the Rwf 3.1 Bn write off.
Other assets receivable constitute 11% of total as-sets, from the 7% ofyear 2011. This change appeared as a result of reclassifying houses and plots for sale, which did not fulfill the 5 IFRS requirements. Equity investment only constitutes 5% of the total assets, just like in the previous year 2011.
BRD’s loans at 75% of assets yield 68%, indicating therefore around 6% of loans that are not yielding.Also equity investment though a small fraction (5%) of the Bank’s totalassetsyields 29% of total reve-nues.
In the near future, the Bank will need to reduce more the asset receivables that earn nil return and invest much more in earning assets (i.e. equity and Loans).
Other Key financial indicatorsLooking at all the above key financial indicators, one can clearly notice that there were very slight changes from year 2011 to 2012, apart from the NPL rate that considerably reduced to 5.7%.BRD is has a good position that can allow to absorb a dramatic increase in loan losses by Rwf 16.7 giving the CAR as at 31st December 2012. We have a CAR of 35% much higher than required 15%.
changes from year 2011 to 2012, apart from the NPL rate that considerably reduced to 5.7%.As a result of the NPL rate reduction decision, key numbers such as the profit margin, the return on equity and the return on assets were automatically affected because the profit of the Bank was highly reduced by the Rwf 3.1 Bn of the written off loans.
Treasury OverviewBrd Treasury FunctionBRD treasury management deals with planning, organizing and implementing treasury and budget operations and ensure that all issues related to the bank treasury and budget management, functions and programs are performed within established budgetary parameters, including performing cost control activities, monitoring revenues and expendi-tures, and ensuring minimising treasury risks, that include market risk, interest rate risk and currency risk, at an acceptable level.
To enable BRD achieving its financing targets, the Treasury function has the task of raising the re-quired funds and to manage them. This manage-ment includes:i. Efficient allocation of cash resources to meet daily
BRD Consolidated
2012 2011 2012 2011
ASSETS
4% 3% Cash and bank balances 4% 3%
1% 4% Deposits due from banks 5% 10%
0% 0% Investment security held to maturity 0% 0%
75% 76% Loans and advances at amortized costs 66% 69%
0% 0% Investments - Available for sale 0% 0%
0% 0% Investments in subsidiaries 0% 0%
5% 5% Equity investments at cost 5% 5%
0% 1% Asset Held for sale 0% 1%
11% 7% Other assets receivable 14% 10%
0% 0% Intangible assets 0% 0%
3% 3% Property and equipment 6% 3%
100% 100% TOTAL ASSETS 100% 100%
funding requirements.
ii. Maintaining a low level of non-earning assets
iii. Improving efficiency in the allocation of funds to increase profitability
iv. Maintaining an optimal buffer in the bank’s cur-rent account with the central bank for day to day op-erations.
Market ConditionsDuring the year 2012, our country operated in a challenging international and regional economic environ¬ment. Since 2011 the world economy was marked by high oil and food prices, a sovereign debt crisis in the Euro zone and a debt ceiling crisis in the USA, while in the East Africa sub-region, inflationary pres¬sures have been increasing at a very high pace, never recorded in the last decade.
In December 2011, on annual basis, inflation rose to 27% in Uganda, 18.9% in Kenya, 19.8% in Tanza-nia and 14.9% in Burundi from respectively 3.1%; 4.5%; 5.6% and 4.9% in December 2010. Similarly, inflation in Rwanda has been increasing as well but maintained at moderate levels. The annual head-line inflation reached 8.3 percent in December 2011 from 0.23 percent in December 2010.
However in 2012 it has been declining from 8.3% in December 2011 to 5.3% in March 2012, 3.6% in June and 2.5% in October 2012 so that an annual headline inflation has decreased to a rate of 5.4% thanks to efficient monetary, exchange rate and fiscal policies.The exchange rate remained market driven, while the Central Bank continued to intervene on Foreign
32 BRD ANNUAL REPORT 2012
Exchange market only to smoothen the exchange rate volatility.
The ministry of Finance and Economic Planning reports that the Rwandan economy recorded GDP growth of 9.4% in the 2011/12 fiscal year, driven by strong growth in all sectors. Performance sur-passed the growth rate of 7.4% in the previous year and demonstrates that Rwandan economy is resil-ient to the challenging international economic cli-mate.
Fund Mobilization The approved borrowing program for the finan-cial year 2012 planned to mobilize funds totalizing around Rwf 28 billion from different lines of credit providers (international and local) and from the Gov-ernment of Rwanda.
The target has been achieved at 98% as during 2012 RWF 27.5 Billion was mobilized detailed as follows:• Drawdowns totaling USD 10 million equivalents to RWF 7.2 Billion have been done from lines of credit negotiated in 2011;
• Drawdowns from lines of credit negotiated in 2012, only USD 6.2 Million (RWF 3.8 Billion) and RWF 2.5 Billion have been drawn down for a total of RWF 6.3 Billion;
• RWF 3 Billion received from the Government of Rwanda only has been and
• RWF 11 Billion mobilized through term deposits from clients. Total outstanding debt as at 31 December 2012 is amounted to Rwf27.8 billion, resulting in a debt to
equity ratio of 89.4% far below the policy limit of 200%, which implies that BRD still has a large bor-rowing capacity.
Asset and liability ManagementThe balance sheet risk management function is accomplished by the Board, through theAsset and Liability Committee (ALCO), the Risk Management Department and the Finance Department.ALCO is the first responsible for balance sheet risks, notably capital, interest rate, exchange rate and li-quidity risks management.
a) Interest rate risk managementBRD’s assets are essentially composed of earning assets mainly the loan bookat fixed interest rate while its borrowings are majorly(62%) taken at a floating interest rate. However, the borrowings at floating interest rate occupy only 20% of earning as-sets and interest rates vary on semi-annual basis.
In order to manage the inheriting interest risk, BRD reviews on a regularly its base rate used to deter-mine the interest rate applicable to each loan grant-ed to clients. The structure above is also favorable in management of interest rate risk exposure because semi-annuals repayments from clients are enough to pay back borrowings at floating rate and repaid loans are replaced by new ones with adjusted inter-est rates.
b) Foreign currency risk managementExchange rate risk arises when BRD borrows in for-eign currency and lends in local currency. This risk is important to BRD as it has entered into funding agreements with international development banks in USDand EUR.
BRD foreign currency exposure measurement also uses value at risk (VaR) analysis, scenario analysis and stress testing.
VaR defines the maximum loss on the currency exposure at a given confidence level, over a given period. The confidence level used is 95% (or 2.5% one-sided), and the holding period (VaR horizon), which is the period needed to unwind the risky cur-rency position, is supposed to be one year. VaR is computed through a historical analysis of currency movements (60-months rolling average).
BRD supplements its analysis with scenario anal-ysis, where the impact of various exchange rate movements is investigated. Stress testing is the simulation of scenarios that are extremely unlikely.
c) Liquidity risk ManagementBRD regularly evaluates its liquidity risk. This es-sentially consists of a comparison of financial com-mitments over the next three months and liquid assets available (gap analysis). BRD also applies scenario analysis, including simulation of reduced reimbursement of existing loans (less liquidity) or the need for expedited loan disbursement.
The regulatory requirement of liquidity ratio is 20%. As at 31 December 2012 the liquidity ratio (at 1 year maturity) was 94%.
BRD ANNUAL REPORT 2012 33 BRD ANNUAL REPORT 2013 33 BRD ANNUAL REPORT 2012 33
34 BRD ANNUAL REPORT 2012
Department of Corporate Affairs
The Department of Corporate Affairs is a support de-partment composed of five units namely:
• The Human Resource Unit• The Administration Unit• The IT Unit• The Marketing Unit• Central Secretariat and Documentation Unit
All these units work in accordance with each other to support all the services provided by BRD. During 2012 the various units experienced great challenges as it strove to meet the challenge of an ever changing environment.
34 BRD ANNUAL REPORT 2012
Department of Corporate
Affairs
Hector Mutijima,Director of Corporate Affairs
BRD ANNUAL REPORT 2012 35
To meet the demand and to have the correct unit size the HR unit recruited and employed two new staff members. The Bank experienced a 0% turn-over, this was due to competitive remuneration as well as other staff welfare programs which includ-ed group insurance; social loans; health and sports programs and the newly introduces Provident Fund. To contribute to the health benefit of both staff and clients the Bank introduced and acquired ergonomic seating.
It is always a priority of the Bank to improve on our image and services in this vain 2012 has been a busy year at our headquarters as the ground floor has been refurbished. The front offices have been equipped with state of the art equipment along with new furnisher to make our customers visit to our of-fices more enjoyable. For this reason we have also invested in newer more powerful generators to en-sure that our customers never experience a lack in service delivery on account of power failure.
We have also upgraded our IT core banking system this was done so as to merge the two IT systems that existed in the Bank as a result of the acquisition of the Rwanda Housing Bank by BRD. The upgrade also served to accommodate all other modules nec-essary for optimal use of the system. The Disaster Recovery Site was set up to comply with the Busi-ness Continuity Plan and an SMS/Email alert in-stalled for all transactions on customers’ accounts.
The Marketing Unit worked on improving the Bank’s image and market share by increasing appearanc-es in trade fairs and signage at the Bank’s offices, introducing a customer retention program and in-creasing the Bank’s awareness through advertise-
ments and promotional products. The Bank partic-ipated in CSR activities such as community works, visited genocide orphans and supported youth and women initiatives.
The Central Secretariat and Documentation Unit came up with a documentation retention policy to deal with the archiving space that was becoming scarce. Since the Bank’s creation all documents were kept, and it was worsened by the acquisition of BHR.
The Unit also started an important program of com-bining project files into mother files and at the same time archiving all documents in the Bank. It is envi-sioned that the process of archiving will be complet-ed by 2013, at which time BRD will recruit and em-ploy the staff needed (giving them suitable training) to meet the needs of the Bank’s growing activities as well as to assist in achieving the targets set by the Board of Directors.
Plans for the year 2013 are to continue improving on the processes in the Bank through upgraded IT core systems, to introduce customer oriented services, such as mobile banking, agency banking and ATMs. A brand audit will be done to assess the Bank’s visi-bility and market share in relation to BRDs strategic orientation, more CSR activities will be carried out and the customer retention program enhanced.
The Bank will continue improving on the premises to comply with the city of Kigali’s safety requirements along with refurbishing the Bank in line with current standards.
BRD ANNUAL REPORT 2012 35
36 BRD ANNUAL REPORT 2012
Corporate Governance Report
Corporate Governance ReportGovernance PrincipleShare Holder/OwnershipGovernance Structures
BRD ANNUAL REPORT 2012 37 BRD ANNUAL REPORT 2012 37
38 BRD ANNUAL REPORT 2012
Corporate Governance
Report
Governance and Management Overview Governance PrincipleThe Corporate governance environment with specif-ic reference to banks in Rwanda is overseen mainly by two regulatory bodies - the Central Bank and the Registrar of Companies..The Company Act of Rwanda not so long ago, was introduced to govern the running of businesses in Rwanda. The Companies Act, in greater measure highlights what corporate governance in Rwanda will entail.
38 BRD ANNUAL REPORT 2012
BRD ANNUAL REPORT 2012 39
BNR within its mandate also advocates for corpo-rate governance through the aforementioned Act; This Acthas a specific banking focus highlighting the operations of banks. It is different from the Company act but still espouses best practice with regards to the standards of corporate governance globally.
It is these two segments of legislature the first passed by the Rwandan parliament and the latter by the Central Bank that guide the Board in dispensing of its mandate. The Board of Directors upon review-ing the operations of BRD in the year 2012 reports with great pleasure that great strides have been made in ensuring compliance with this significant Rwandan legislation.
Share Holder/Ownership The Development Bank of Rwanda is a public limit-ed liability company registered with the Registrar of Companies in Rwanda. Its shareholding of more that 70% is held by the government and the rest is held by other public and private development partners.
Strategic Objectives & performance Man-agement In line with our strategic plan which was approved by the Board in the year under review, BRD has un-dertaken a broader view of effectiveness. One that is not limited to mere compliance, but rather one that focuses on progressive development of the Bank in setting the pace of corporate governance effective-ness in Rwanda through overall compliance with the regulatory framework in place.
Governance Structures (i) Board of DirectorsAlong with the Corporate Governance Act of the Central Bank and the current Companies Act of Rwanda, The business of the Board at BRD is gov-erned by a Board Charter which stipulates their ob-ligations and highlights the framework within which they execute their fiduciary duties.Currently, the Board is composed of five members of whom three are independent and the rest are shareholder representatives. It is however import-ant to note that with regards to the Board Charter, no distinction is made with respect to the fiduciary responsibilities of shareholder representatives and independents.
During the year under review, the Board took leave of Madam Gaetane Scavee who served as a share-holder representative (we remain ever grateful for her dutiful service to BRD) in her mandate she was replaced by Mr. Antoon Delie.
Given their diverse back grounds, the Directors of BRD bring to the Board a wide range of develop-mental experience, finance and administration, cor-porate governance structures to name but a few.
Please refer to page 8-9 for current board members and their respective brief resume.
(ii) Board CharterThe BRD Board is governed by a Charter which out-lines the principle provision of the BNR Corporate Governance Act, the fiduciary responsibilities of Di-rectors, the relationship between Senior Manage-
ment and matters of policy that the Shareholders and the Board should adhere to in order to ensure good corporate governance.During the year under review, the Board Charter was drafted, reviewed and approved by the Board of Directors. It is important to note that the Board recognizes that the Charter cannot be cast in stone, but that it is rather a document that can be reviewed habitually at which time the framework within which the Directors execute their fiduciary duties can be improved on.
(iii) Board Committee The Development Bank of Rwanda consists of five sub-committees of the Board these are:• Audit• Risk• ALCO• EXCO and• Credit
The Corporate Governance Act of the Central Bank mandates the Bank to establish these committees. It should however be noted that establishing and delegating the technical work of the committee does not absolve the Board of its legal responsibilities. Therefore these sub-committees table any resolu-tion or decision taken at their meeting to the subse-quent board meeting.
In line with the principles of the Corporate Gover-nance Act of the BNR, all Committees of the Board have formal terms of reference to ensure effective decision-making, monitoring and reporting. How the Committees work is reviewed and discussed below:
40 BRD ANNUAL REPORT 2012
1. Board Audit Sub-Committee The Audit Committee of the Development Bank of Rwanda is appointed by the Board of Directors to assist the Board in discharging its oversight respon-sibilities. This Committee has an advisory role that they play, one that oversees the financial reporting process to ensure the appropriate balance, trans-parency and integrity of published financial infor-mation.
The function of the Committee is regulated by the terms of reference articulated in a Charter approved by the Board. The Committee mainly oversees the following:• The nomination as well as the work of the external auditors employed by the Bank to conduct the annu-al audit of the financial statements• Resolve any disagreements between management and the external auditors regarding financial report-ing• Pre-approve all auditing and permitted non-audit services performed by the Bank’s external auditor and retain independent counsel, accountants, or others to advise the Audit Committee or assist in the conduct of an investigation among other duties. The Chairman of this Committee is Mr. Francis Mugisha. With regards to the year under review, the Committee was comprised of 3 members namely: Francis MugishaRichard TusabeAntoon Delie
The Charter of this Committee makes it a require-ment for members of the Committee to be indepen-dent non-executive Directors, which is in line with BRDs statutes and best practice. The Chairman of the Board shall not be a member of the Committee.
2. Board Credit sub- CommitteeThis committee is chaired by Madam Hadija Mu-rangwa. The committee is comprised of 3 non-ex-ecutive members. Hadija MurangwaFabien MajoroRichard Tusabe
The Chairman of the Board of Directors is not per-mitted to chair the committee.As stipulated in our Charter, this Committee is man-dated to do the following:• Review and oversee the overall lending policy of the banking institution • Deliberate and consider loan applications beyond the discretionary limits of the Credit Risk Manage-ment Committee• Review lending by the Credit Risk Management Committee• Ensure that there are effective procedures and re-sources to identify and manage irregular problem credits• Minimize credit loss and maximize recoveries• Direct, monitor, review and consider all issues that may materially impact on the present and future quality of the institution’s credit risk management • Delegate and review lending limits to the sanction-ing arms of the institution.
3. Board Assets & Liabilities Committee sub-committee (ALCO)This Committee is mandated to derive the most ap-propriate strategy for the Bank in terms of the mix of assets and liabilities given its expectations of the fu-ture and the potential consequences of interest-rate movements, liquidity constraints, and foreign ex-change exposure and capital adequacy.
This Committee is chaired by Mr. Antoon Delie and is comprised of 2 non-executive members and one executive member.Antoon DelieFrancis MugishaHector - DCA
The members of this committee ensure that all strategies conform to the Bank’s risk appetite and level of exposure as determined by the Risk Man-agement Committee.
4. Board Risk Sub-committee This is the Board sub-committee mandated with en-suring quality, integrity and reliability of the Bank’s risk management. It assists the Board of Directors with the following: • Discharging of its duties relating to corporate ac-countability and associated risks in terms of man-agement, assurance and reporting
• Reviews and assesses the integrity of the risk con-trol systems and ensures that the risk policies and strategies are effectively managed • Monitors external developments relating to the practice of corporate accountability and the report-ing of specifically associated risk, which includes emerging and prospective impact. The committee is chaired by Mr. Richards Tusabe and is comprised of three non executive members. Richard TusabeAntoon DelieFrancis Mugisha
BRD ANNUAL REPORT 2012 41
Full BoardMEETING
AuditCommitteeMEETING
RiskCommitteeMEETING
CreditCommitteeMEETING
ALCOCommitteeMEETING
EXCOCommitteeMEETING
15/15
12/15
12/15
03/15
14/15
--/--
04/04
--/--
00/04
04/04
--/--
01/01
--/--
01/01
01/01
05/06
06/06
06/06
--/--
--/--
--/--
--/--
--/--
01/01
01/01
02/02
--/--
02/02
--/--
--/--
1 6 1 215
Mr. R. Tusabe
Mrs. H. Murangwa
Mr. A. Delie*
Mr. F. Mugisha
Mr. F. Majoro
4
NOTE: * Creation of Board sub committes(AUDIT, RISK & CREDIT) - May 23rd 2012 * Creation of more sub committees(ALCO&EXCO) - Sep 13th 2012 * Antoon replaced Madam Gaetane Scavee mid year which explains low turn up in the year under review
5. Board Executive sub-committee The Executive Committee is the link between the Board and Management and is mandated with the responsibility of:• Implementing operational plans• Annual budgeting and periodic reviews of group operations• Strategic plans• ALCO strategies• Credit proposals review• Identification and management of key risks and opportunities.
The Executive Committee Chaired by Mr. Fabien Ma-joro comprises of at least two members. This Com-mittee assists the Chief Executive Officer in manag-ing BRD.
The Executive Committee assists the CEO in guiding and controlling the overall direction of the business of the Development Bank of Rwanda and acts as a medium of communication and co-ordination be-tween business units and the Board.
The Executive Committee also ensures that the Risk Management Committee has access to any informa-tion it requires to fulfill its responsibilities.
The Executive Committee also ensures that the Risk Management Committee has access to any informa-tion it requires to fulfill its responsibilities. BRD Board and committee composition and record of attendance
It is important to note that in keeping with the Corporate Governance and Com-pany Act, all Directors have access to the services of the Company Secretary and
Board Attendance List
that such return as required by statute and legislation in place at the time are accurate and up to date.
42 BRD ANNUAL REPORT 2012
Auditors Financial Report
Auditors Financial Report
BRD ANNUAL REPORT 2012 43
Financial statements for the year ended 31 December 2012Table of Contents Directors, Officers and Administration 44
Report of the Directors 45
Statement of Directors’ Responsibilities 46
Report of the Independent Auditors 48
Consolidated and Company Statements of Comprehensive Income 50
Consolidated and Company Statements of Financial Position 50
Company Statement of Cash Flows 51
Consolidated Statement of Cash Flows 51
Company Statement of Changes in Equity 53
Consolidated statement of Changes in Equity 53
Notes to the Financial Statements 52
44 BRD ANNUAL REPORT 2012
Board of DirectorsThe Directors that served during the year and
to the date of this report are indicated below:
Non Executive MembersMr. Fabien Majoro Board Chairman Mrs. Hadija Murangwa Board Member Mr. Antoon Delie Board Member Mr. Francis Mugisha Board Member Mr. Richard Tusabe Board Member
Mr. Jack Kayonga Chief Executive Officer
Company SecretaryMr. Ronald MusoniDevelopment Bank of Rwanda154, Boulevard de la Revolution,P. O. Box 1341, Kigali,Rwanda.
Development Bank of Rwanda154, Boulevard de la Revolution, P. O. Box 1341, Kigali, Rwanda.
AuditorsKPMG Rwanda Limited,Certified Public Accountants,Boulevard de l’OUA, P O Box 6755, Kigali, Rwanda.
Lawyers1. Biseruka FranckKigali,Rwanda.
2. Umubyeyi Beatrice,P. O. Box 3814, Kigali, Rwanda.
3. Nsegiyumva VianneyGikondo, Kigali, Rwanda.
4. Mugeni AnitaNyarugenge, Kigali, Rwanda.
5. Barezi. M. Aimee, Kigali,Rwanda.
Registered Office & Principal Place of BusinessDevelopment Bank of Rwanda,154, Boulevard de la Revolution, P. O. Box 1341, Kigali, Rwanda.
Bankers1.Bank of Kigali (B.K.) Kigali, Rwanda
2.Banque Commerciale du Rwanda (B.C.R.) Kigali, Rwanda
3.ECOBANK Kigali, Rwanda
4.COGEBANQUE Kigali, Rwanda
5.ACCESS BankKigali, Rwanda
6.Kenya Commercial Bank (K.C.B.) Kigali, Rwanda
7.Banque Populaire du Rwanda (B.P.R.) Kigali, Rwanda
8.Zigama CSS Kigali, Rwanda
9.COMMERZBANK German
Directors, officers and administration
BRD ANNUAL REPORT 2012 45
The Directors submit their report together with the audited financial statements for the
year ended 31 December 2012.
1. IncorporationDevelopment Bank of Rwanda (BRD) is a Public Lim-ited Liability Company created by the law of August 5, 1967. However, pursuant to the Law No 14/2011 of 30/05/2011, BRD ceased to be governed by an Act of Parliament and changed into a Public Company Limited by shares in accordance with the Company Act No 07/2007 of 27/04/2009. BRD is a development financial institution dedicated to becoming “the fi-nancier of Rwanda’s development”.
BRD being the investment arm of the Government of Rwanda, confirms its triple role of being “Finan-cier, Advisor and Partner), by setting up two wholly owned subsidiary companies which are BDF Limited and KINAZI Cassava Plant Limited which were in-corporated in 2011 and 2012 respectively. Whereas BRD continues to develop the country through direct investments, BDF and KINAZI offer fund manage-ment services and improve famine respectively and creating market for raw cassava for farmers for a sustained momentum of SME development and the citizens of the country. Creation of these two compa-nies also reduces unemployment.
The Bank’s vision is, “To be the leader of productive investment and be the most profitable Bank at the service of poverty reduction”. For 45 years the bank has been at the forefront of economic development
Report of the Directors for the year ended 31 December 2012in Rwanda through investment financing in different sectors of the economy.
2. Principal activitiesThe principal activity of the Bank is development finance lending through direct and indirect equity holdings, or other stocks and granting of short, me-dium and long term loans.
3. ResultsThe results for the year are set out on page 7.
4. DividendThe Directors did recommend payment of dividends in their meeting that took place on 22 March 2013 and the proposal was approved by the shareholders on 22 March 2012 in their meetings.
5. DirectorateThe Directors who served during the year are set out on page 1.
6. AuditorsIn accordance with regulatory requirements, KPMG Rwanda Limited is not eligible for reappointment as auditors of the Bank and have indicated their will-ingness to step aside.
7. Approval of the financial statementsThe financial statements were approved at a meet-ing of the Directors held on 22nd March 2013.
BY ORDER OF THE BOARD
------------------------
Date: 22nd March 2013
Jack Nkusi KayongaSecretary
46 BRD ANNUAL REPORT 2012
Statement of Directors’ Responsibilities
Statement of Directors’ Responsibilities
BRD ANNUAL REPORT 2012 47
The Bank’s directors are responsible for the preparation and fair presentation of the
financial statements. Comprising the statement of financial position at 31 December 2012, statement of total comprehensive income, the statement of changes in equity and statement of cash flows for the year then ended, and the notes to the financial statements. These include a summary of significant accounting policies and other explanatory notes. In accordance with International Financial Reporting Standards and the National Bank of Rwanda guide-lines, and for such internal controls as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.
The directors’ responsibility includes: designing, implementing and maintaining internal control rele-vant to the preparation and fair presentation of these financial statements that are free from material mis-statement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. They are also responsible for safeguarding the assets of the Bank.
The directors accept responsibility for the financial statements set out on pages 7 to 54 which have been prepared using appropriate accounting policies sup-ported by reasonable and prudent judgments and estimates, in conformity with International Finan-cial Reporting Standards and the National Bank of Rwanda guidelines. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs and of the profit
Statement of Directors’ Responsibilitiesfor the year ended 31 December 2012. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of financial statements, as well as ade-quate systems of internal financial control.
The directors have made an assessment of the Bank’s ability to continue as a going concern and have no reason to believe the business will not be a going concern for the next twelve months from the date of this statement.
Approval of the financial statementsThe financial statements, as indicated above, were approved by the board of directors on 22nd March 2013 and were signed on its behalf by:
Chairman:...............................................
Chief Executive Officer:...............................................
Date: 22nd March 2013
48 BRD ANNUAL REPORT 2012
Report on the Financial StatementsWe have audited the financial statements of the De-velopment Bank of Rwanda (BRD) which comprise the statement of financial position at 31 December 2012, the statement of comprehensive income, the statement of changes in equity and statement of cash flows for the year then ended and the notes to the financial statements, which include a summary of significant accounting policies and other explana-tory notes as set out on pages 7 to 55.
Directors’ Responsibility for the Financial StatementsAs stated on page 4, Development Bank of Rwan-da’s directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Report-ing Standards, provisions of the Law No. 07/2009 of 27/4/2009 relating to companies in Rwanda and National Bank of Rwanda (BNR) Guidelines and Regulations. This responsibility includes: designing, implementing and maintaining internal control rel-evant to the preparation and fair presentation of fi-nancial statements that are free from material mis-statement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Auditors’ responsibilityOur responsibility is to express an opinion on these financial statements based on our audit. We con-ducted our audit in accordance with Internation-al Standards on Auditing. Those standards re-quire that we comply with ethical requirements and plan and perform the audit to obtain rea-sonable assurance whether the financial state-
ments are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures select-ed depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the audi-tor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting poli-cies used and the reasonableness of accounting es-timates made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Audit OpinionIn our opinion, the financial statements give a true and fair view of the state of affairs of Development Bank of Rwanda (BRD) as at 31 December 2012 and of its financial performance and cash flows for the year then ended in accordance with International Fi-nancial Reporting Standards, provisions of the Law No. 07/2009 of 27/4/2009 relating to companies in Rwanda and the National Bank of Rwanda (BNR)
Guidelines and Regulations.
Report on Other Legal and Regulatory RequirementsAs required by the provisions of Article 247 of Law No. 07/2009 of 27/04/2009 relating to companies in Rwanda, we report to you, based on our audit, that:
(i) We have obtained all the information and explanations, which to the best of our knowledge and belief were necessary for the purpose of our au-dit;
(ii) In our opinion, proper books of account have been kept by the company, so far as appears from our examination;
(iii) The statement of comprehensive income and statement of financial position are in agreement with the books of account;
(iv) We have no relationship, interest or debt with Development Bank of Rwanda (BRD). As indi-cated in our report on the financial statements, we comply with ethical requirements. These are the International Federation of Accountants’ Code of Ethics for Professional Accountants, which includes comprehensive independence and other require-ments. As described under the heading “Auditor’s Respon-sibility” in our report on the Financial Statements, the auditor considers internal controls relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit proce-dures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal controls. In the
BRD ANNUAL REPORT 2012 49
course of our audit while performing such proce-dures, we became aware of certain internal control weaknesses. We have reported these weaknesses, together with our recommendations, to manage-ment in the separate management letter. These weaknesses do not affect our audit opinion on the financial statements.
John Ndunyu,KPMG Rwanda Limited,Certified Public Accountants,P O Box 6755,Kigali,Rwanda.
Date 15th April 2013
BRD ANNUAL REPORT 2012 49
50 BRD ANNUAL REPORT 2012
Development Bank of Rwanda (BRD) Statement of Comprehensive Income for the year ended 31 December 2012
The notes set out on pages 32 to 54 form an integral part of these financial statements.
Company Consolidated2012 2011 Notes Notes 2012 2011
RWF'000 RWF'000 RWF'000 RWF'000
11,158,603 8,387,360 3 Interest income 3 11,789,034 8,752,563
(2,418,950) (1,762,019) 4 Interest expense 4 (2,182,091) (1,762,019)
8,739,653 6,625,341 Net interest income 9,606,943 6,990,544
390,623 (121,916) 5 Fee and commission income/(expense) 5 390,813 (77,090)
(153,523) (4,868) 6 Net gain/ (loss) on foreign exchange
6 (153,523) (4,743)
4,853,446 3,838,877 7 Other operating income 7 5,252,452 3,881,541
13,830,199 10,337,433 Total operating income 15,096,685 10,790,251
(616,097) (1,568,174) 16(b) Impairment charge for credit losses 16(b) (616,097) (1,568,174)
13,214,102 8,769,259 Operating income after impairment charges
14,480,588 9,222,077
(3,633,208) (2,262,180) 8 Staff costs and other benefits 8 (4,202,602) (2,496,954)
(237,292) (364,500) 22(b) Depreciation and amortization 22(b) (637,697) (376,095)
(4,604,467) (2,236,974) 9 Other operating expenses 9 (5,333,583) (2,413,437
(8,474,967) (4,863,654) (10,173,882) (5,286,486)
4,739,135 3,905,605 Profit before Taxation 4,306,706 3,935,591
- - 10(a) Taxation 10 (a) (96,175) -
4,739,135 3,905,605 Profit before transfer to SME Guarantee Fund 4,210,531 3,935,591
(1,421,741) (1,171,682) 11 Transfer to SME Guarantee Fund 11 (1,421,741) (1,171,682)
3,317,395 2,733,923 Profit for the year 2,788,790 2,763,910
- 61,760 Other comprehensive income - 61,760
3,317,395 2,795,683 2,788,790 2,825,670
Attributable to:
- - Equity holders 2,788,790 2,825,670
- - Non – Controlling interest - -
3,317,395 2,795,683 Total comprehensive income 2,788,790 2,825,670
BRD ANNUAL REPORT 2012 51
State
ment
Of Fi
nanc
ial Po
sition
as at
31 D
ecem
ber 2
012
Company Consolidated2012 2011 Notes Notes 2012 2011
RWF'000 RWF'000 RWF'000 RWF'000
ASSETS
4,482,711 2,585,853 13 Cash and bank balances 13 4,632,862 2,667,218
1,522,045 3,617,171 14 Deposits due from banks 14 6,867,305 9,597,345
25,241 23,501 15 Investment security held to maturity 15 25,241 23,501
86,704,287 65,515,344 16 Loans and advances at amortized cost 16 86,658,661 65,515,344
1,297,843 297,843 17 Investments in subsidiaries 17 - -
4,964,305 4,666,917 18 Equity investments at cost 18 4,964,305 4,666,917
12,883,167 6,277,016 19 Other assets receivables 19 9,021,856 6,202,887
310,045 880,926 20 Assets held for sale 20 310,045 880,926
99,933 97,554 21 Intangible assets 21 143,742 97,554
3,040,293 2,486,760 22(a) Property, plant and equipment 22(a) 8,438,278 2,512,854
115,329,870 86,448,885 TOTAL ASSETS 121,062,295 92,164,546
SHAREHOLDERS’ FUNDS AND LIABILITIES
LIABILITIES
17,278,376 5,781,563 23 Customer deposits 23 17,156,965 5,781,563
- - 10 (b) Tax payable 10(b) 8,650 -
62,976 62,976 24 Dividends payable 24 62,976 62,976
9,784,960 7,187,210 25 Other accounts payable 25 6,279,405 3,936,809
27,431,300 19,094,395 26 Long term medium and borrowings 26 28,388,445 19,094,395
54,557,612 32,126,144 51,896,441 28,875,743
17,878,149 14,311,318 27 Special funds 27 26,737,708 23,247,391
338,442 432,190 28 Grants 28 338,442 432,190
13,372 106,500 Provision for operational risk 13,372 106,500
11,510,321 11,510,321 29 Subordinated debts 29 11,510,321 11,510,321
- 7,782,733 BHR accounts provision - 7,782,733
29,740,284 34,143,062 38,599,843 43,079,135
84,297,896 66,269,206 TOTAL LIABILITIES 90,496,284 71,954,878
CAPITAL & RESERVES
7,808,931 6,841,545 30(a&b) Share capital 30(a&b) 7,808,931 6,841,545
11,665,570 4,952,472 30(c) Share Premium 30(c) 11,665,569 4,952,472
1,994,869 1,939,147 31 Other reserves 31 1,994,870 1,939,146
9,562,604 6,446,515 Accumulated profit 9,096,641 6,476,505
31,031,974 20,179,678 TOTAL SHAREHOLDERS EQUITY 30,566,011 20,209,668
115,329,870 86,448,884 TOTAL SHAREHOLDERS EQUITY AND LIABILITIES 121,062,295 92,164,546
The financial statements were approved by the Board of Directors on .............................2013 and were signed on its behalf by: Chairman:............................. Chief Executive Officer:.............................The notes set out on pages 13 to 54 form an integral part of these financial statements.
52 BRD ANNUAL REPORT 2012
Development Bank of Rwanda (BRD) Statement of Cash flows for the year ended 31 December 2012
Company 2012 2011
RWF’000 RWF’000
Profit for the year 3,317,395 2,733,924
Depreciation 237,292 298,967
Amortization - 65,533
Loss on write off of Property, Plant and Equipment 257,872 (15,420)
Loss on disposal of intangibles assets 2,378 -
Gain on disposal of investment (3,096,219) (2,893,398)
Dividends received - (305,831)
Foreign exchange losses - 53,435
Provisions - 82,272
Net interest income (8,739,653) (6,625,341)
Foreign exchange losses 153,523 4,868
Cash flows before changes in operating assets and liabilities
(7,867,412) (6,600,991)
Changes in working capital
Increase in deposits from other banks 2,093,386 -
Increase in customer deposits 11,496,813 -
Decrease in loans and advances (21,188,944) (21,288,064)
Decrease in other assets receivable (6,606,151) (4,644,295)
Increase in other assets held for sale 570,881 -
Increase in other accounts payable 2,073,221 11,519,113
Decrease/(decrease) in medium and long term bor-rowing
8,336,905 (2,196,729)
Interest paid (2,418,950) (1,923,325)
Increase in general liabilities (93,128) -
Interest received 11,716,010 8,387,359
Transfer to SME guarantee fund - (427,399)
Net cash flows used in operating activities (1,887,368) (17,174,331)
Investing activities
Proceeds from sale of Property, Plant and Equipment - 19,415
Purchase of Property, Plant and Equipment (94,060) (517,225)
Purchase of intangibles assets (4,756) (157,592)
Proceeds from sale of investments (297,388) 3,215,908
Purchase of investments in subsidiaries (1,000,000) -
Dividends received - 305,831
Net cash outflow from investing activities (1,396,204) 2,866,337
Net cash in/(out)flow before financing activities (3,283,571) (14,307,994)
Financing activities
Increase in share capital 967,386 -
Share premium 6,713,097 -
Increase in term deposits - (694,048)
Decrease in government securities - 21,861
Increase in special funds 3,566,829 7,275,711
Increase in grant (93,748) 107,545
Decrease in equity investment 102,250 53,435
Increase in other capital BHR (7,782,733) 7,782,733
Increase in equity investments - (767,193)
Dividends paid - (22,070)
Net cash inflow from financing activities 3,473,081 13,757,974
Net change in cash and cash equivalents at 31 December
189,508 (550,020)
Cash and cash equivalents at 01 January 5,508,976 6,058,996
Cash and cash equivalents at 31 December, note 32 5,698,485 5,508,976
BRD ANNUAL REPORT 2012 53
Development Bank of Rwanda (BRD) Statement of Cash flows for the year ended 31 December 2012
Consolidated 2012 2011
RWF’000 RWF’000
Profit for the year 2,788,790 2,763,910
Depreciation 630,129 310,084
Amortization 7,567 66,011
Loss on write off of PPE (97,254) (15,055)
Loss on disposal of intangibles 2,378 (2,893,398)
Gain on disposal of investment (3,096,219) -
FX losses - 82,272
Net interest income (9,606,943) (6,990,544)
FX losses 153,523 4,743
Cash flows before changes in operating assets and liabilities
(9,218,029) (6,671,977)
Changes in working capital
Increase in deposits from other banks 2,728,300 -
Increase in customer deposits 11,375,402 -
Increase in loans and other receivables (21,143,317) (21,288,064)
Increase in other assets receivable (2,906,493) -
Decrease in other assets held for sale 570,881 (4,526,529)
Increase in other accounts payable 1,803,131 8,252,036
Increase in medium and long term borrowing 9,294,050 (2,196,729)
Increase in liabilities on held for sale assets -
Interest paid (2,968,802) (6,080,637)
Increase in general liabilities (93,128) -
Interest received 10,048,948 8,752,562
Transfer to SME guarantee fund - 427,399
Net cash flows in/(outflows) from operating activities 1,857,389 (23,331,939)
Investing activities
Proceeds from sale of PPE - 19,415
Purchase of PPE (5,858,016) (712,836)
Purchase of intangibles (56,133) -
Proceeds from sale of investments held for sale - -
Proceeds from sale of investments (297,388) 3,215,908
Dividends received - 305,831
Net cash (outflows)/inflows from investing activities (6,211,537) 2,828,318
Net cash outflows before financing activities (4,679,682) (20,503,621)
Financing activities
Increase in share cap 967,386 -
Share premium 6,713,097 -
Increase in term deposits - (6,674,222)
Decrease in government securities - 21,861
Increase in special funds 3,490,317 16,211,783
Increase in grant (93,748) 1,437,738
Decrease in equity investment 102,250 -
Increase in other capital BHR (7,782,733) 7,782,733
Increase in equity investments - (1,179,628)
Dividends paid - (22,070)
Net cash inflow from financing activities 3,396,569 17,578,195
Net change in Cash and cash Equivalents (957,579) (2,925,426)
Cash and Cash equivalents at 01 January 5,590,341 8,515,767
Cash and Cash equivalents at 31 December, note 32 3,882,992 5,590,341
54 BRD ANNUAL REPORT 2012
Development Bank of Rwanda (BRD) Statement of changes in Equity for the year ended 31 December 2012
Company Share capital Share premium Other reserves Retained earnings Total equity
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
At 1 January 2011 6,841,545 4,952,472 1,118,965 3,699,430 16,612,412
Net profit for the year - - - 2,733,927 2,733,927
Legal reserve - - 48,601 (48,601) -
Revaluation surplus - - 771,580 61,760 833,340
Balance at 01 January 2012 6,841,545 4,952,472 1,939,146 6,446,516 20,179,679
Allocation of previous net profit - - - (201,307) (201,307)
Restated as at 31 December 2012 6,841,545 4,952,472 1,939,146 6,245,209 19,978,372
Net profit for the year - - - 3,317,395 3,317,395
BHR share swap 967,386 6,713,097 - - 7,680,483
Legal reserve - - 64,858 - 64,858
Statutory Reserve - - (145,601) - (145,601)
Revaluation surplus - - 136,466 - 136,466
At 31 December 2012 7,808,931 11,665,569 1,994,869 9,562,604 31,031,973
The total of the former Housing Finance Bank share swap summarized in the SOCE above worth RWF. 7,680,483 is less than the prior provision of RWF. 7,782,733 as at 31 December 2012 that was meant to compensate/ settle its former shareholders. This was due to the un willingness of MAGERWA to swap its stake in the former BHR worth RWF. 102 million into the current BRD’s shares and therefore was compensated on a cash basis.
The notes set out on pages 13 to 55 form an integral part of these financial statements.
BRD ANNUAL REPORT 2012 55
Development Bank of Rwanda (BRD) Statement of changes in Equity for the year ended 31 December 2012
Company Share capital Share premium Other reserves Retained earnings Total equity
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
At 1 January 2011 6,841,545 4,952,472 1,118,965 3,699,430 16,612,412
Consolidated net profit for the year - - - 2,763,913 2,763,913
Legal reserve - - 48,601 (48,601) -
Revaluation surplus - - 771,580 61,760 833,340
At 31 December 2011 6,841,545 4,952,472 1,939,146 6,476,502 20,209,665
Allocation of previous net profit - - - (168,651) (168,651)
Restated as at 31 December 2011 6,841,545 4,952,472 1,939,146 6,307,851 20,041,014
Consolidated net profit for the year - - - 2,788,790 2,788,790
BHR share swap 967,386 6,713,097 - - 7,680,483
Legal reserve - - 64,858 - 64,858
Statuary reserve - - (145,601) - (145,601)
Revaluation reserve - - 136,466 - 136,466
At 31 December 2012 7,808,931 11,665,569 1,994,869 9,096,641 30,566,010
The total of the former Housing Finance Bank share swap summarized in the SOCE above worth RWF. 7,680,483 is less than the prior provision of RWF. 7,782,733 as at 31 December 2012 that was meant to compensate/ settle its former shareholders. This was due to the un willingness of MAGERWA to swap its stake in the former BHR worth RWF. 102 million into the current BRD’s shares and therefore was compensated on a cash basis.
The notes set out on pages 13 to 55 form an integral part of these financial statements.
56 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 20121. GENERAL INFORMATION ABOUT THE REPORTING ENTITY
Development Bank of Rwanda (the “Bank”) is a corporation domiciled in Rwanda with its head of-fice in Kigali, Rwanda. The consolidated financial statements of the Bank as at and for the year ended 31 December 2012 comprise the Bank and its sub-sidiaries, BDF Limited and KINAZI Cassava Plant Limited (together referred to as Consolidates and Company as Consolidated entities). The Bank is pri-marily involved in development finance lending and the provision of related services as stipulated under the law of August 5, 1967. However, subsequently pursuant to the Law No.14/2011 of 30/05/2011, BRD ceased to be governed by an Act of Parliament and changed into a Public Company Limited by shares in accordance with the Company Act of 07/2007 of 27/04/2009. The address of its registered office is;
Development Bank of Rwanda (BRD),154, Boulevard de la Revolution,P O Box 134, Kigali – Rwanda.
BRD Partners BRD partners with local and international institu-tions. The local partners include Government of Rwanda, Central Bank of Rwanda (BNR), Ministry of Finance, Ministry of Commerce, Ministry of Ag-riculture among others. The International insti-tutions BRD partners with among others include; Afrexim Bank, African Development Bank (ADB), East African Development Bank (EADB), European Investment Bank (EIB), World Bank/IDA and Belgian Co-operation (BC/AGCD).
2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements have been consistently applied to all years presented, unless otherwise stated and are set out below:
a) Basis of preparationThe financial statements are prepared in accor-dance with and comply with International Financial Reporting Standards. The financial statements are prepared under the historical cost convention as modified by the carrying of the available-for-sale in-vestments at fair values and impaired assets at their recoverable amounts. The preparation of financial statements in conformi-ty with the International Financial Reporting Stan-dards requires the use of judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of financial statements and reported amounts
of revenues and expenses during the reported pe-riod.
The estimates and associated assumptions are based on historical experiences and the Directors’ best knowledge of current events and actions, the results of which form the basis of making judgments about the carrying value of liabilities and assets that are not readily apparent from other sources. Actual results ultimately may differ from these estimates.
Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting esti-mates are recognised in the period in which the es-timate is revised and in any future periods affected. Management identifies all principal accounting pol-icies and those that involve high judgment as docu-mented in note 32.
Functional and presentation currencyThese financial statements are presented in Rwan-dan Francs (RWF), which is the Bank’s functional currency, except as indicated the financial informa-tion has been rounded off to the nearest thousand (Rwf ‘000). Assets and liabilities expressed in vari-ous currencies are translated into RWF at rates of exchange ruling at the balance sheet date. Trans-actions during the year are converted at exchange rates ruling at the transaction date. The balance sheet date the translation rates between one unit of the respective currency and equivalents units of the Rwandan Franc were as follows:-
BRD ANNUAL REPORT 2012 57
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED) 2.SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
a) Basis of preparation (continued)Functional and presentation currency (continued)
The resulting differences from the conversion and translation of all transactions and balances are dealt with in the profit and loss account in the period in which they arise.
b)Revenue recognition
Income is recognized on the accrual basis.
(i) Interest income and expense Interest income and interest expense are recognized on the accrual basis taking into account the effective interest rate of the interest earning asset or the in-terest bearing liability.
Interest income and expense include the amortiza-tion of any discount or premium or other differences between the initial carrying amount of an interest bearing instrument and its amount of maturity cal-culated on the effective interest rate basis. The ef-fective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liabili-ty. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently.
The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Transaction costs are incremental costs that are directly attributable to the acquisition, issue or dis-posal of a financial asset or liability.
Interest income and expense presented in the in-come statement include: • Interest on financial assets and liabilities at am-
ortised cost on an effective interest rate basis; and• Interest on available-for-sale investment securi-ties on an effective interest basis.
When the collectability of loans and advances be-comes doubtful, the loans and advances are written down to their recoverable amounts and interest in-come is thereafter recognised based on the rate of interest that was used to discount the future cash flows for the pur-pose of measuring the recoverable amount.
(ii) Fees and commission incomeFees and commission income that are integral to the effective interest rate on a financial asset or lia-bility are included in the measurement of ef-fective interest rate. Fees and commissions are gen-erally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised over the life of the loan. Other fees and commission income including account servicing fees are recognized as the service is performed
(iii) Dividend incomeDivided income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. Dividends are reflected as a component of other operating income based on the underlying classification of the equity investment.
2012 2011
Currency used by the In-stitutions of the European Union
EUR 837.25 780.10
United States of America Dollars
USD 631.41 594.45
British Pound GBP 1021.30 928.63
Swiss Franc CHF 692.45 637.17
58 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
2.SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(b) Revenue recognition (continued)
(iv) Other incomeOther income comprises gains less loss related to trading assets and liabilities, and includes all real-ised and unrealized fair value changes.
(v) Net income from other financial instruments at fair value through profit and loss Net income from other financial instruments at fair value through profit and loss relates to non trading derivatives held for risk management purposes that do not form part of a qualifying hedge relationship and financial assets and liabilities designated at fair value through profit and loss, and include all real-ised and unrealised fair value changes, interest and foreign exchange differences.
c) Property, plant and equipment
Recognition and measurement Items of property, plant and equipment are stated at cost less accumulated depreciation and impairment
losses. Cost includes expenditures that are direct-ly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the asset to a working con-dition for its intended use, and the costs of disman-tling and removing the items and restoring the site on which they are located. Purchased software that is integral to the functionality of the related equip-ment is capitalised as part of that equipment.
Management and directors review the residual value and useful life of an asset at the year end and any change considered to be appropriate in accounting estimate is recorded through the income statement.
When parts of an item of property, plant and equip-ment have different useful lives, they are accounted for as separate items (major components) of prop-erty, plant and equipment.
The gain or loss on disposal of an item of property, plant and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property, plant and equipment, and are presented on a net within other income in profit or loss.
Depreciation Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equip-ment since this most closely reflects the expected pattern of consumption of the future economic ben-efits embodied in the asset. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. Land is not de-
preciated.
The estimated useful lives for the current and com-parative periods are as follows:
Buildings 5%Plant 5%IT equipment 25%Motor vehicles 25%Furniture and fittings 25%
Depreciation methods, useful lives and residual val-ues are reassessed at each financial year-end and adjusted if appropriate.
Subsequent costs Subsequent expenditure is recognized in the carrying amount of property, plant and equip-ment if it is probable that the future economic ben-efits embodied within the asset will flow to the Bank and its costs can be measured reliably. The cost of day-to-day running of the asset is recognized in profit or loss as incurred.
d) Impairment of non-financial assetsAn impairment loss in respect of goodwill is not re-versed. In respect of other assets, impairment loss-es recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or
BRD ANNUAL REPORT 2012 59
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(d) Impairment of non-financial assets (contin-ued)No longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amounts.
An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
e) Intangible assetsComputer software costs which are clearly identi-fiable and controlled by the Bank and have proba-ble benefitsexceeding the costs beyond one year are recognised as an intangible asset. Intangible assets are stated at cost net of accumulated amortization and impairment losses.
Subsequent expenditure on software is capitalized only when it increases the future economic benefits, embodied in specific assets to which it relates. All
other expenditure is expensed as incurred.
Amortization is recognized in profit and loss on a straight line basis over an estimated useful life of software from the date that it is available for us-ers. The estimated useful life of the software is four years.
Goodwill Internally generated goodwill shall not be rec-ognised as an asset. No intangible asset arising from research (or from the research phase of an in-ternal project) shall be recognised. Expenditure on research (or on the research phase of an internal project) shall be recognised as an expense when it is incurred.
Goodwill represents the excess of the cost of an ac-quisition over the fair value of the Bank’s share of the net assets of the acquired company at the date of acquisition. Goodwill is tested annually for im-pairment and carried at cost less accumulated im-pairment losses.
Goodwill on acquisitions is reported in the statement of financial position as an intangible asset.
At each statement of financial position date the Bank assesses whether there is any indication of impairment. If such indications exisst, an analysis is performed to assess whether the carrying amount of goodwill is fully recoverable.
A write down is made if the carrying amount exceeds the recoverable amount.
Computer software development costs Costs associated with maintaining computer soft-ware programmes are recognised as an expense as incurred. Expenditure which enhances or extends the perfor-mance of computer software programmes beyond their original specifications is recognised as a capital improvement and added to the original cost of the software
Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, not exceeding a pe-riod of 2 years. The estimated useful lives for the current and comparative periods for intangible as-set are estimated at 2 years and amortisation is es-timated 50% per annum.
f) Operating leasesLeases, where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made un-der operating leases are charged to the profit and loss account on a straight line basis over the period of the lease.
g) Capital work-in-progressAssets in the course of construction (capital work-in-progress) are not depreciated. Upon completion of the project the accumulated cost is transferred to an appropriate asset category where it is depreciat-ed according to the Bank’s policy.
60 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)2.SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
h) Leased assets Leases in terms of which the Bank assumes substantially all the risks and rewards of ownership are classified as finance leases.Equipment(s) leased out under finance lease ar-rangements are recognized as investments at the date of the agreement at an amount equal to the net investment in the lease. The interest element of each installment is recognised as income to the profit and loss account at the time each installment falls due. Provision is made for lease payments re-ceivable considered to be uncollectible. Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classi-fied as operating leases. All other leases are classified as finance leases.
(i) With the Bank as lessee
To date, all leases entered into by the Bank are op-erating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease. Lease incentives received are recognised as an in-
tegral part of the total lease expense, over the term of the lease.
(ii) With the Bank as lessor When assets are leased out under a finance lease, the present value of the lease payments is rec-ognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance in-come. Lease income is recognised over the term of the lease using the net investment method (before income tax), which reflects a constant periodic rate of return
i) Recognition and measurement of financial and non financial instrumentsA financial instrument is a contract that gives rise to both a financial asset of one enterprise and a finan-cial liability of another. Management determines the appropriate classification of the financial instru-ment at the time of purchase and evaluates its port-folio on a regular basis to ensure that all financial instruments are appropriately classified.
RecognitionThe Bank recognises financial assets held for trad-ing and available for sale assets on the date it com-mits to purchase the assets. From this date, any gains and losses arising from changes in fair value of the assets are recognised.
Trading assets and liabilities are those assets and liabilities that the Bank acquires or incurs princi-pally for the purpose of selling or repurchasing in the near term, or holds as part of a portfolio that is managed together for short-term profit or posi-
tion taking. Trading assets and liabilities are initially recognised and subsequently measured at fair value in the balance ssheet with transaction costs taken directly to profit or loss.
All changes in fair value are recognised as part of net trading income in profit or loss. Held-to-maturity investments and loans and advances are recognised on the date they are transferred to the Bank.
MeasurementFinancial instruments are measured initially at cost, including transaction costs. Subsequent to initial recognition all trading instruments and all avail-able-for-sale assets are measured at fair value, ex-cept that any instrument that does not have a quot-ed market price in an active market and whose fair value cannot be reliably measured is stated at cost, including transaction costs, less impairment losses.
The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instru-ments traded in active markets. For all other finan-cial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models.
The Bank uses widely recognised valuation mod-els for determining the fair value of common and more simple financial instruments like options and interest rate and currency swaps. For these finan-cial instruments, inputs into models are market observable.
BRD ANNUAL REPORT 2012 61
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
i) Recognition and measurement of financial and non financial instruments (continued)
All non-trading financial liabilities, loans and ad-vances and held-to-maturity assets are measured at amortised cost less impairment losses. Amortised cost is calculated on the effective interest rate meth-od. Premiums and discounts, including initial trans-action costs, are included in the carrying amount of the related instrument and amortised based on the effective interest rate of the instrument.
Amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amor-tization using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. Gains and losses arising from a change in the fair value of available-for-sale assets and trading in-struments are recognised in the equity reserve and income statement respectively.
DerecognitionA financial asset is derecognized when the Bank los-es control over the contractual rights that comprise that asset. This occurs when the rights are real-ized, expire or are surrendered. A financial liability is derecognized when it is extinguished.
Available-for-sale assets and assets held for trading that are sold are derecognized and corresponding receivables from the buyer for the payment are rec-ognised as of the date the Bank commits to sell the asset.
The Bank uses the specific identification method to determine the gain or loss on de-recognition. All gains and losses previously recognized directly in equity are recognized in profit and loss account.
Held to maturity instruments and loans and receiv-ables are derecognized on the date they are trans-ferred by the Bank.
j) Impairment of non financial assets
The carrying amounts of the Bank’s assets are re-viewed at each balance sheet date to determine whether there is any indication of impairment. If such a condition exists, the assets’ recoverable amount is estimated and an impairment loss recognised in the income statement whenever the carrying amount of the asset exceeds the recoverable amount.
k)Impairment losses on loans and advancesLoans and advances are recognised when cash is advanced to borrowers. Loans originated by the Bank by providing money to borrowers,
other than those created with the intention of short term profit taking are classified as loans and receivables. These are carried at amortised cost, which is the present value of the expected future cash flows, discounted at the instruments’ original effective interest rate. Loan origination fees to-gether with related direct costs are treated as part of the cost of the transaction.
l) Investment securities Investment securities are initially measured at fair value plus incremental direct transaction costs and subsequently accounted for depending on their classification as either held-to-maturity, fair value through profit and loss, or available-for-sale.
Fair value through profit and loss For investment securities that are designated at fair value on initial recognition, their fair value changes are recognized immediately as a profit or loss.
Available-for-sale Available-for-sale investments are non-derivative investments that are not designated as another cat-egory of financial assets. Unquoted equity securi-ties whose fair value cannot be reliably measured are carried at cost.
All other available-for-sale investments are carried at fair value. Interest income from available for sale instruments is recognized in profit or loss using the effective interest method.
62 BRD ANNUAL REPORT 201262 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
2.SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
(c) Investment securities (continued)
Available for sale (continued)Dividend income is recognized in profit or loss when the Bank becomes entitled to the dividend. Foreign exchange gains or losses on available-for-sale debt security investments are recognized in profit or loss. Other fair value changes are recognized directly in equity until the investment is sold or impaired and the balance in equity is recognized in profit or loss.
m) Other assets receivableOther assets receivable are stated at cost less im-pairment losses for amounts considered to be irre-coverable.
n) Other accounts payableOther accounts payable are carried at cost, which is the fair value of the consideration to be paid in the future for goods and services received.
o) Fiduciary assetsAssets held in a fiduciary capacity are not treated as assets of the bank on the balance sheet.
p) OffsettingFinancial assets and liabilities are only offset and the net amount reported in the balance sheet where there is a legally enforceable right to set off the rec-ognised amounts and the bank intends to either settle on a net basis, or realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis when permitted by the accounting standard or for gains and losses arising from a group of similar transactions.
q) BorrowingsBorrowings are recognised initially at fair value, be-ing their issue proceeds (fair value of consideration received) net of transaction costs incurred. Bor-rowings are subsequently stated at amortised cost; any difference between proceeds net of transaction costs and the redemption value is recognised in the income statement over the period of the borrowings using the effective interest method Charges on borrowings are accrued when they are incurred.
LiquidityThe Bank maintains a minimum liquidity of 20% of all designated liabilities for the coming twelve months in liquid assets in accordance with the BNR regulation. Designated liabilities include repay-ments of principal and interest, budgeted adminis-trative and staff expenses.
r) ProvisionsA provision is recognised if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
Where the Bank expects a provision to be reim-bursed, for example under an insurance contract, the reimbursement is recognised as a separate asset but only when the reimbursement is virtually certain.
s) Employee benefits
Retirement benefit obligation The Bank operates a defined contribution retire-ment benefit scheme to which the Bank contributes 100% of the employees’ basic salary. The bank also makes contributions to a statutory pension scheme, the Rwanda Social Security Board (RSSB). RSSB is a public Institution established in 2011 to manage the Social Security regime and Medical insurance put in place by the Law 45 of 14/12/2010 concerning organization and functioning of Social Security and medical insurance.
BRD ANNUAL REPORT 2012 63
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)2.SUMMARY OF PRINCIPAL ACCOUNT-ING POLICIES (CONTINUED)
s) Employment obligation benefits (continued)
Retirement benefit obligation (continued)It is under the state guarantee and the tutelage is ensured by the Ministry of Finance and Economic Planning. RSSB is governed by the above Law.
The purpose of the Board is to provide social protec-tion to people living in Rwanda from effects based on lack or reduction of input due to the following reasons: old age, death, disability, occupational hazards, sick leave, maternity leave and medical in-surance. RSSB was created by the Government of Rwanda and is financed by employers and employ-ees contribution.
The Bank’s obligations under the scheme are limit-ed to specific contributions legislated from time to time and are currently at 5% of the employees’ gross salary excluding transport allowances and an em-ployee would be entitled to his pension pay when he/she attains the age of 55.
The Bank’s contributions to both schemes are charged to the profit and loss account in the year in which they are made. Costs relating to early re-tirement are charged to the profit and loss account in the year in which they are incurred. In addition all employees are obligated to be members of the RSSB, a state managed defined contribution pen-sion scheme. The Bank contributes to the scheme in line with the requirements of the Law 45 14/12/2010
The regular contributions by the Bank and em-ployees constitute net periodic costs for the year in which they are due and as such are included in em-ployee benefit expenses.
Short term benefits
Short term benefits consist of salaries, accumulat-ed leave payments, bonuses and any non-monetary benefits such as medical aid contributions.
A liability is recognised for the amount expected to be paid under short term cash bonus plans or ac-cumulated leave if the Bank has a present legal or constructive obligation to pay this amount as a re-sult of past service provided by the employee and the obligation can be estimated reliably.
Termination benefits Termination benefits are recognised as an expense when the Bank is committed without realistic possi-bility of withdrawal, to a formal detailed plan to ter-minate employment before the normal retirement date, or to provide termination benefits as a result of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies are
recognised if the Bank has made an offer encourag-ing voluntary redundancy, it is probable that the of-fer will be accepted, and the number of acceptances can be reliably estimated.
t) Cash and cash equivalentsFor the purposes of the cash flow statement, cash and cash equivalents comprise cash with Banks held on demand, time deposits and government securities with less than 90 days maturity from the balance sheet date.
u) Accounting for government grants Government grants are assistances offered by gov-ernment of Rwanda, government agencies and sim-ilar bodies whether local, national or international in the form of transfers of resources in return for past or future compliance with certain conditions relat-ing to the operating of the Bank. Grants related to assets are government grants whose primary con-dition is that the Bank should purchase long term assets.
Grants from government are recognised when there is reasonable assurance that the Bank will comply with the conditions attaching to it and that the grant will be received. Grants awarded towards the pur-chase of assets are netted off against the total pur-chase price in arriving at the carrying value of the
64 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
u) Accounting for government grants (contin-ued)
asset. The grant is then recognised as income over the life of the asset by way of a reduced depreciation charge.
Where grants are received in form of cash, the debit is recognized as an asset (cash) and the credit as aliability (deferred income) which is unwound subse-quent with the proportion of a debit to (reduction of) the deferred income an expense and an income in the statement of comprehensive income as a debit and credit respectively as long as the expenditure is made in accordance with the pre-determined do-nors terms and conditions.
v) Contingent liabilities Letters of credit acceptances and guarantees are accounted for as Off Balance Sheet transactions and described as contingent liabilities. Estimation of the outcome and financial effect of contingent liabilities is made by management based on the information
available up to the date the financial statements are approved for issue by the directors. Any expected loss is charged to the profit and loss account.
w) TaxationThe Bank is exempt from Corporate Income Tax in accordance with Article 39, “Exoneration from Cor-porate Income Tax Law No 16/2005 of 18th August 2005 Direct Taxes on income”.
x) DividendsDividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of eq-uity until declared.
y) ComparativesWhere necessary, comparative figures have been adjusted to conform to changes in presentation in the current year.
2.1 Standards and interpretations issued but not yet effectiveThe bank has chosen not to early adopt the following standards and interpretations that were issued but not yet effective for accounting periods beginning on 1 January 2012:
• IAS 1, “Presentation of financial statements” (applicable beginning on or after 1 July 2012) - The amendment changes the disclosure of items presented in other comprehensive income (OCI) in the statement of comprehensive income. The bank will be required to separate items presented in oth-er comprehensive income (“OCI”) into two groups,
based on whether or not they may be recycled to profit or loss in the future. Items that will not be re-cycled will be presented separately from items that may be recycled in the future. If the bank chooses to present OCI items before tax, it will be required to show the amount of tax related to the two groups separately. The title used by IAS 1 for the statement of comprehensive income has changed to “state-ment of profit or loss and other comprehensive income”, though IAS 1 still permits entities to use other titles. The Bank will adopt this in the financial year commencing 1 January 2013.
IAS 1 (Amendment) - Presentation of financial state-ments: the amendment will require entities to group items of other comprehensive income according to whether or not they will be subsequently reclassified to profit or loss. It is effective for accounting periods beginning on or after 1 July 2012.
- IFRS 7 (Amendment) - Financial Instruments - Disclosures: this amends the required disclosures to include information that will enable users of an entity’s financial statements to evaluate the effect or potential effect of netting arrangements, in-cluding rights of set-off associated with the entity’s recognised financial assets and recognised finan-cial liabilities on the entity’s financial position. The amendment is effective for accounting periods be-ginning on or after 1 January 2013.
BRD ANNUAL REPORT 2012 65
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED) 2.1 SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.1 Standards and interpretations issued but not yet effective (continued)
IAS 1, “Presentation of financial statements” (continued)•IFRS 9, “Financial instruments” part 1: Clas-sification and measurement and part 2: Finan-cial liabilities and De-recognition of financial instruments – (applicable beginning on or after 1 January 2015);
- The above standard becomes mandatory for an-nual periods beginning on or after 1 January 2015. The interpretation of this standard could change the classification and measurement of financial assets.
- The company does not intend to adopt this stan-dard early and the extent of the impact has not been determined.
- IFRS 9, part 1 was issued in November 2009 and replaces those parts of IAS 39 relating to the clas-sification and measurement of financial assets. Key
features are as follows:
- Financial assets are required to be classified into two measurement categories: those to be measured subsequently at fair value, and those to be measured subsequently at amortised cost. The decision is to be made at initial recognition. The classification de-pends on the entity’s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument.
- An instrument is subsequently measured at amor-tised cost only if it is a debt instrument and both the objective of the entity’s business model is to hold the asset to collect the contractual cash flows, and the asset’s contractual cash flows represent only pay-ments of principal and interest (that is, it has only ‘basic loan features’). All other debt instruments are to be measured at fair value through profit or loss.
- All equity instruments are to be measured sub-sequently at fair value. Equity instruments that are held for trading will be measured at fair value through profit or loss. For all other equity invest-ments, an irrevocable election can be made at initial recognition, to recognise unrealised and realised fair value gains and losses through other compre-hensive income rather than profit or loss. There is to be no recycling of fair value gains and losses to profit or loss. This election may be made on an in-strument-by-instrument basis. Dividends are to be presented in profit or loss, as long as they represent a return on investment.
- While adoption of IFRS 9 is mandatory from 1 Jan-uary 2015, earlier adoption is permitted. The Bank is considering the implications of the standard, the im-
pact on the Bank and the timing of its adoption. IFRS 9, part 2 was issued in October 2010 and includes guidance on financial liabilities and derecognition of financial instruments. The accounting and pre-sentation of financial liabilities and for derecognis-ing financial instruments has been relocated from IAS 39, “Financial instruments: Recognition and Measurement”, without change except for financial liabilities that are designated at fair value through profit or loss.
- Under the new standard, entities with financial li-abilities at fair value through profit or loss recognise changes in the liability’s credit risk directly in oth-er comprehensive income. There is no subsequent recycling of the amounts in other comprehensive income to profit or loss, but accumulated gains or losses may be transferred within equity.
- IFRS 9 - Financial Instruments will eventually re-place IAS 39 - Financial Instruments, Recognition and Measurement. The new standard will be ef-fective for annual periods beginning on or after 1 January 2015. The chapters published to date cover recognition, derecognition, classification and mea-surement of financial assets and financial liabilities. Most gains or losses on financial assets measured at fair value will then be recognised in profit or loss, but the Bank will be able to make an irrevocable election to present changes in fair value of invest-ments in equity instruments in other comprehensive income.
66 BRD ANNUAL REPORT 2012
• IAS 19, “Employee benefits” (applicable beginning on or after 1 January 2013) - The amendment to IAS 19, “Employee benefits” makes significant changes to the recognition and measurement of defined benefit pension expense and termination benefits and to the disclosures for all employee benefits. Key features are as follows:
DEVELOPMENT BANK OF RWANDA (BRD) NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)2. SUMMARY OF PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
2.1 Standards and interpretations issued but not yet effective (continued)
• IAS 19 employee benefit (continued)- Actuarial gains and losses are renamed “remea-surements” and can only be recognized in “oth-er comprehensive income” without any recycling through profit or loss in subsequent periods.
- Past service costs will be recognized in the period of a plan amendment and curtailment occurs only when an entity reduces significantly the number of employees.
- The amendment clarifies the definition of termi-nation benefits. Any benefit that has a future service obligation is not a termination benefit.
- Annual benefit expense for a funded benefit plan will include net interest expense or income, calcu-lated by applying the discount rate to the net defined benefit asset or liability. This amendment is not ex-pected to have any impact as the Bank does not op-erate a defined benefit fund.
IAS 19 (Amendment) - Employee Benefits: The key amendments include elimination of the ‘corridor ap-proach’, modification of accounting for termination payments, and changes to the disclosure require-ments for defined benefit plans. The amendments are effective for accounting periods beginning on or after 1 January 2013.
• IFRS 13, “Fair value measurement” (applicable beginning on or after 1 January 2013) - IFRS 13 ex-plains how to measure fair value and aims to en-hance fair value disclosures;
- It does not say when to measure fair value or re-quire additional fair value measurements. A fair val-ue measurement assumes that the transaction to sell the asset or transfer the liability takes place in the principal market for the asset or liability or, in the absence of a principal market, in the most ad-vantageous market for the asset or liability.
- The principal market is the market with the great-est volume and level of activity for the asset or liabil-ity that can be accessed by the entity. The guidance includes enhanced disclosure requirements that could result in significantly more work for the Bank.
The requirements are similar to IFRS 7, “Financial instruments: Disclosures” but apply to all assets and liabilities measured at fair value, not just finan-cial ones.
- IFRS 13 - Fair Value Measurement: the new stan-dard defines fair value, sets out a framework for measuring fair value, and requires disclosures about fair value measurements. IFRS 13 applies when oth-er standards require or permit fair value measure-ments: it does not introduce any new requirements to measure an asset or a liability at fair value. The new standard is effective for accounting periods be-ginning on or after 1 January 2013.
- IAS 24- Related Party Disclosures: In No-vember 2009, IASB revised IAS 24 with an effective date of 1 January 2011. This standard was adopted by the Bank however has no significant effect on the Bank’s financial statements.
BRD ANNUAL REPORT 2012 67
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
3. INTEREST INCOME
4. INTEREST EXPENSE
5. FEE AND COMMISSION INCOME
BRD ANNUAL REPORT 2012 67
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
9,706,636 7,130,902 Interest income on unimpaired loans 9,706,636 7,130,902
780,505 740,658 Interest income on impaired loans 780,505 740,658
97,478 121,809 Interest income from lease rentals 97,478 121,809
1,763 5,343 Interest income from government securities 1,763 5,343
572,221 388,648 Interest on deposits 1,202,652 753,851
11,158,603 8,387,360 11,789,034 8,752,563
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
316,352 (208,252) Net commission received/(refunded) 316,352 (163,426)
(21,695) 17,453 Other fees (21,695) 17,453
95,966 68,883 Commitment fees 96,156 68,883
390,623 (121,916) 390,813 (77,090)
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
(2,418,950) (1,762,019) Interest on medium and long term borrowings (2,182,091) (1,762,019)
Development Bank of Rwanda (BRD) Statement of Cash flows for the year ended 31 December 2012
68 BRD ANNUAL REPORT 2012
6. NET GAIN/ (LOSS) ON FOREIGN EXCHANGE
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
7. OTHER OPERATING INCOME
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
396,329 217,529 Exchange gains on currency translations 396,329 217,654
(549,852) (222,397) Exchange loss on currency translations (549,852) (222,397)
(153,523) (4,868) (153,523) (4,743)
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
3,096,219 2,893,398 Gain on sale of equity investments 3,096,219 2,893,398
609,669 239,339 Miscellaneous income 703,469 245,427
991,998 130,924 Recovery of previously written off loans 991,998 130,924
97,254 29,061 Proceeds from fixed assets disposals 97,254 29,061
58,306 68,540 Rent income 58,306 68,540
- 305,831 Dividend income - 305,831
- 51,424 Staff loans interest - 51,424
- 120,361 Other income on operation with client - 120,361
- - Subsidiaries advisory and guarantee fees 305,206 36,576
4,853,446 3,838,878 5,252,452 3,881,542
BRD ANNUAL REPORT 2012 69
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
3,247,934 1,755,822 Salaries and wages 3,725,801 1,960,744
290,444 94,152 Pension and gratuity 347,586 101,062
94,830 412,206 Other staff costs 129,215 435,148
3,633,208 2,262,180 4,202,602 2,496,954
The significant gain on sale of equity investments relates to income received from the disposal of BRD’s Rwf.1.8 million equity investment shares in CIMERWA where BRD had a share holding of 15%.The miscellaneous income relate to the other income from the deposit taking service with clients like bank charges, charges on issue of cheque books, penalties for early repayment of loans etc.
In 2012 the loans advanced to staff were taken as part of the core business of the bank and added to the portfolio like other loans advanced to customers and therefore the staff loan interest is included in interest income.
8. STAFF COSTS AND OTHER BENEFITS
70 BRD ANNUAL REPORT 201270 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
9. OTHER OPERATING EXPENSES
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
3,200,709 3,200,709 Loss on irrecoverable loans 3,200,709 1,076,286
237,568 237,568 Advertising and publicity 337,046 60,011
141,823s 141,823s Repairs and maintenance 152,325 27,675
282,737 282,737 Other administrative expenses 693,839 346,214
125,721 125,721 Premises expenses 170,883 112,763
115,524 115,524 Staff duty travel 155,897 148,852
114,394 114,394 Donation and grants 121,366 71,308
93,983 93,983 Consultancy fees 132,048 160,369
68,746 68,746 Office stationery and utilities 110,239 105,871
49,635 49,635 Audit fees 60,664 50,738
45,731 45,731 Communication 53,618 79,233
37,424 37,424 Legal fees 48,104 63,408
31,258 31,258 Subscription to professional bodies 33,196 28,553
25,355 25,355 Directors expenses 25,355 25,523
18,153 18,153 Other IT related expenses 18,153 42,203
15,706 15,706 Insurance 20,141 14,430
4,604,467 4,604,467 5,333,583 2,413,437
The significant movement in the losses on irrecoverable loans was as a result of Board of directors decision to write off non performing loans of about RWF 2.5 billion in the month of December 2012.
BRD ANNUAL REPORT 2012 71
10. INCOME TAX (a) Income Tax Expense
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
10. INCOME TAX (CONTINUED)
The income tax charge on the bank’s profit for the year differs from the theoretical amount that would arise using the basic tax rate as follows
Consolidated 2012 2011
RWF ‘000 RWF ‘000
Corporation tax expense 96,175 -
Prior year under provision - -
Deferred tax charge/(credit) - -
96,175 -
Consolidated 2012 2011
RWF ‘000 RWF ‘000
Accounting profit before tax 5,061,691 -
Tax applicable rate, 30% 1,518,507 -
Tax effect of:
Prior year under provision - -
Expenses not deductible for tax purposes and non taxable income (1,509,857) -
Income tax expense/(credit) 8,650 -
72 BRD ANNUAL REPORT 2012
(b) Tax payable
Consolidated 2012 2011
RWF ‘000 RWF ‘000
At 1 January 96,175 -
Charge for the year (86,249) -
Corporation tax paid during the year (1,276) -
Prior year under provision - -
At 31 December 8,650 -
The above tax expense relates to BDF Limited for the year ended 31 December 2012. BDF Limited was in a tax loss position of RWF. 221.2 million as at 31 December 2011.
KINAZI Cassava Plant Limited has carried forward tax losses of RWF. 3.5 billion at 31 December 2012.
BRD , the parent company is a tax exempt as per Article 39 of Law Nº 16/2005 of 18/08/2005 on Direct Taxes on Income.
11. TRANSFER TO SMALL AND MEDIUM ENTERPRISE GUARANTEEE FUND (SME)The Bank, although exempt fsrom tax, calculates the amount of tax that would have been payable to Rwanda Revenue Authority as 30% of the profits before transfer to SME Guarantee Fund and transfers the result to the SME Fund. This fund comprises the SME guarantee fund managed by BDF Ltd and SME Technical Assistance Fund managed by BRD. The allocation is split equally between these two funds. The transfer is required to be made from profits for the year as per a Cabinet decision dated 15 December 2010. The above 50% allocated to technical assistance, fund managed by the Bank is recorded in the special funds to be utilized by the Bank to assist SMEs to boost SME capacity building
12. BASIC EARNINGS PER SHAREBasic earnings / (loss) per share is calculated by dividing the net profit for the year attributable to ordinary shareholders by the weighted average number of ordinary shares outstanding during the year.
BRD ANNUAL REPORT 2012 73
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
12. BASIC EARNINGS PER SHARE (CONTINUED)
13. CASH AND BANK BALANCES
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
3,841,925 2,733,929 Net profit attributable to ordinary shareholders-continuing operations 3,415,150 2,763,910
7,808,931 6,841,545 Weighted average number of ordinary shares in issue during the year 7,808,931 6,841,545
0.49 0.40 Basic earnings per share 0.44 0.40
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
4,270,434 3,130,467 Other Banks 4,536,993 3,211,776
302,067 279,853 Cash at hand 307,071 279,909
(89,790) (824,468) Cash held with the Central Bank (211,202) (824,468)
4,482,711 2,585,852 4,632,862 2,667,218
There were no potentially dilutive shares/instruments outstanding as at 31 December 2012 and 2011.
74 BRD ANNUAL REPORT 2012
14. DEPOSITS DUE FROM BANKS
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
15. INVESTMENT SECURITY HELD TO MATURITY
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
1,100,000 3,475,000 Deposits with local banks 6,445,260 9,170,174
306,271 - Deposits with overseas banks 306,271 -
1,406,271 3,475,000 6,751,531 9,170,174
115,774 142,171 Interest receivable on term deposits 115,774 427,171
1,522,045 3,617,171 6,867,305 9,597,345
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
25,241 23,501 Development bond (Note i) 25,241 23,501
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
1,215,774 2,923,123 Amounts due within 3 months 1,215,774 2,923,123
306,271 694,048 Amounts due after 3 months 5,651,531 6,674,222
1,522,045 3,617,171 6,867,305 9,597,345
The above amount is analysed as follows
i): The security investment relates to purchase of development bond the National Bank of Rwanda (BNR) at a fixed interest rate of 7.5% per annum with maturity period of 15 years ending 31 December 2012.
BRD ANNUAL REPORT 2012 75
16. (a) LOANS AT AMORTISED COSTCompany Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
87,858,894 69,003,584 Loans to projects 87,813,268 69,003,584
1,262,598 903,709 Finance lease receivable 1,262,598 903,709
89,121,492 69,907,293 Gross loans 89,075,866 69,907,293
(2,417,205) (4,391,949) Impairment losses on loans and advances (2,417,205) (4,391,949)
86,704,287 65,515,344 Net carrying amounts 86,658,661 65,515,344
Company and consolidated
2012 2011
RWF ‘000 RWF’000
4,391,949 2,999,913 At 1 January
(39) (176,137) Adjustment: net write back of impairment
2,887,400 3,134,860 New provisions created during the year
2,401,560 218,846 Impairment on suspended interest
(4,672,863) (1,785,532) Recoveries and provisions no longer required
616,097 1,568,174 Net increase (decrease) in provisions for the period
- - Written off during the year
2,417,205 4,391,949 At 31 December 2012
Charge to Statement of comprehensive income
616,097 1,568,174 Net increase in provisions as above
616,097 1,568,174 Net charge to statement of comprehensive income
The principal outstanding on impaired loans and advances was Rwf. 6,029,505 (2011: 9,563,239)
(b) Impairment losses on loans The movement in the allowance for impairment in respect of loans and advances to customers during the year was as follows;
Note 16 related to only BRD. All the bank’s subsidiaries, BDF Limited and KINAZI Cassava Plant limited are not banks but rather a fund manager and manufacturing company respectively. So the impairment loss remains the same both at company and consolidated levels.
76 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
16. (a) LOANS AT AMORTISED COST (CONTINUED)
(c) Analysis of finance leases
17. INVESTMENTS IN SUBSIDIARIES
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
1,262,598 903,709 Lease rentals within five years 1,262,598 903,709
Equity Impairment Net carrying value
amount amount 2012 2011
RWF’000 RWF’000 RWF’000 RWF’000
BDF Limited 297,843 - 297,843 297,843
Kinazi Cassava Plant Limited (KCP) 1,000,000 - 1,000,000 -
Total 1,297,843 - 1,297,843 297,843
The weight average interest rates on the staff loans as at 31 December 2012 was 5% (2011: 5%). The average interest rate for all loans and advances as at 31 December 2012 was 12.14% (2011: 13
BRD ANNUAL REPORT 2012 77
18. EQUITY INVESTMENTS
Equity BRD Equity Impairment Commitments Net carrying value
Capital Share amount Amount amount 2012 2011
RWF’000 RWF’000 RWF’000 RWF’000 RWF’000 RWF’000
Rwanda Investment Group 13,410,000 4.47% 600,000 - - 600,000 600,000
Rwanda Distilleries Ltd 7,458,400 10.00% 745,840 - (729,152) 16,688 16,688
BDGL 3,428,973 0.18% 10,000 (6,279) (3,721) - -
EPIC 3,400,000 6% 200,000 - - 200,000 60,000
Hostel 2020 3,000,000 15.50% 465,000 - - 465,000 465,000
Kigali City Park 1,386,400 10.75% 149,037 - - 149,037 149,037
MINIMEX Ltd 1,100,000 25.00% 275,000 - - 275,000 275,000
REIC 1,097,300 48.12% 528,021 - - 528,021 528,022
MIG 1,000,000 10.00% 100,000 - - 100,000 100,000
MAGERWA 600,000 6.24% 37,425 - - 37,425 89925
Rwanda Free Zone 7,688,240 14.29% 1,098,320 - - 1,098,320 1,098,320
Rwanda Stock Exchange 100,000 2% 2,000 - - 2,000 2000
Bank of Kigali 502,925 - - 502,925 502,925
SOPYRWA 500,000 - 500,000 -
New Forest company 489,889 - - 489,889 -
Total 5,703,457 (6,279) (732,873) 4,964,305 4,666,917
78 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
19. OTHER ASSETS RECEIVABLECompany Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
464,497 87,674 Due from Government of Rwanda 464,497 87,674
5,384,553 3,320,304 Cassava Project - 3,320,304
1,326 108 Stock of stationery 1,326 108
102,048 101,668 Due from BDF 12,525 -
841,220 823,407 Due from MCC (note i) 841,220 823,407
26,404 211,532 Accrued revenue 26,404 211,532
5,105,084 350,976 Local debtors 6,805,373 383,964
741,131 55,782 Receivable in transit 741,131 55,782
243,571 94,687 Prepaid expense 243,571 94,687
5,487 4,684 Commissions & promissory notes 5,487 4,684
- 1,232,977 Staff advance and loans - 1,232,977
12,915,321 6,283,799 Sub- total 9,141,534 6,215,116
(32,154) (6,782) Provision on other assets receivable (32,154) (12,232)
12,883,167 6,277,017 Total 9,109,380 6,202,884
Local debtors amount comprises majorly about RWF. 3 billion due from CIMERWA as a result of disposing BRD’s shareholding in CEMERWA worth 1,800,000 shares that was not yet received as at 31 December 2012.
Receivable in transit is composed of internal transfers to our other bank accounts (RWF 401 M) and transit amount as a result of clearing house transactions.
The amount due from Milk Collection Centres (MCC) was disbursed according to the government strategic project plan to set up 70 MCC all over the country. The 1st phase per the plan required 21 MCC projects constructed by the end of 2011 and this was successfully achieved. The above amount shall be recovered from the company after both parties signing the contract. The cooperatives have individually agreed to sign contracts with the Bank so that working capital amount advanced to them will be recovered by the Bank through the normal loan repayments.
BRD ANNUAL REPORT 2012 79
20. ASSETS HELD FOR SALE
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED) 21. INTANGIBLE ASSETS
The intangible assets referred here above relate to the cost of the software acquired used by the parent company and its subsidiaries. The net book value of RWF. 99,933 relates to the Bank’s software iBank that is being upgraded to-date and therefore work in progress. For this reason the iBank software was not amortisized during the year . The write off relates to DELTA software that was once used by the former Housing Finance Bank (BHR), which is no longer in use as at 31 December 2012.
Houses and plots held for sale amount relates to repossessed securities from Uwamwezi Josephine and Cassava Company during the auction which gave BRD the right to repossess these securities.
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
- 642,229 Land held for sale - 642,229
310,045 238,697 House & plot held for sale 310,045 238,697
310,045 880,926 At 31 December 310,045 880,926
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF’000 RWF’000
Cost
362385 204,793 At 1 January 363,502 206,070
4,757 157,592 Additions 56,133 157,432
(267209) - Write offs (267,209) -
99,933 362,385 At 31 December 152,426 363,502
Amortization
264,831 199,298 At 1 January 265,948 199,937
- 65,533 Charge for the year 7,567 66,011
(264,831) - Eliminated on Write offs (264,831) -
- 264,831 At 31 December 8,684 265,948
99,933 97,554 Net book Value at 31 December 143,742 97,554
80 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED) 22. PROPERTY, PLANT AND EQUIPMENT
Company Consolidated
Land and buildings
IT equipment
Motor vehicles
Furniture & fittings
Total Land and buildings
Plant IT equipment
Motor vehicles
Furniture & fittings
Total
RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 Cost RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 RWF '000
1,850,412 261,904 187,171 375,659 2,675,146 At 1 January 2011 1,850,412 - 267,727 211,535 382,019 2,711,693
142,209 135,226 39,086 200,728 517,249 Additions 142,209 - 146,606 55,836 210,777 555,428
833,340 - - - 833,340 Revaluation surplus
833,340 - - - - 833,340
- - (51,309) (25) (51,334) Disposals - - (6,793) (75,673) (6,385) (88,851)
2,825,961 397,130 174,948 576,362 3,974,401 At 31 December 2011
2,825,961 - 407,540 191,698 586,411 4,011,610
6,106 38,857 - 49,097 94,060 Additions 3,924,537 1,446,917 45,918 346,144 94,501 5,858,017
325,300 - - - 325,300 Revaluation surplus
325,300 - - - - 325,300
(768,757) (306,144) (23,592) (277,713) (1,376,206) Write offs/ disposals
768,757) - (306,144) (23,592) (277,713) (1,376,206)
2,388,611 129,843 151,356 347,746 3,017,556 At 31 December 2012
6,307,041 1,446,917 147,314 514,250 403,199 8,818,721
Depreciation
646,372 226,716 101,901 261,000 1,235,989 At 1 January 2011 646,372 - 229,451 107,992 263,332 1,247,147
- - (47,314) - (47,314) Disposals - - (2,735) (53,405) (2,332) (58,472)
108,259 62,129 42,538 86,041 298,967 Charge for the year
108,259 - 66,969 47,106 87,750 310,084
754,631 288,845 97,125 347,041 1,487,642 At 31 December 2011
754,631 - 293,685 101,693 348,750 1,498,759
BRD ANNUAL REPORT 2012 81
Company Consolidated
Land and buildings
IT equipment
Motor vehicles
Furniture & fittings
Total Land and buildings
Plant IT equipment
Motor vehicles
Furniture & fittings
Total
RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 RWF '000 RWF '000
(627,994) (242,485) (24,094) (223,761) (1,118,334) Disposals/write off
(627,994) (242,485)
(24,094)
(223,761)
(1,118,334)
129,205 41,740 34,996 31,351 237,292 Charge for the year
238,241 210,957 47,157 91,407 42,368 630,130
255,842 88,100 108,027 154,631 606,600 At 31 December 2012
364,878 210,957 98,357 169,006 167,357 S1,010,554
2,132,768 41,743 43,329 193,115 2,410,956 Net book Value: At 31 December 2012
5,942,163 1,235,960 48,957 345,243 235,841 7,808,165
2,071,330 108,285 77,823 229,321 2,486,759 At 31 December 2011
2,071,330 - 113,855 90,005 237,661 2,512,851
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
22. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
(a) Movement schedule (Continued)
As of 31st December 2012, there were no assets pledged by the Bank to secure liabilities. The Bank and the group had RWF. 626.337 million as capital work in progress relating to the renovation of interior design works for the head office ground floor building as of 31st December 2012.
Buildings amount also comprises of RWF. 127 million net book value relating to the lift and is included in both Bank and group figures. The cost was RWF. 138 million and accumulated depreciation of RWF. 11 million as of 31st December 2012.
82 BRD ANNUAL REPORT 201282 BRD ANNUAL REPORT 2012
b) Depreciation and amortization charged to profit and loss
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
23. CUSTOMER DEPOSITS
24. DIVIDENDS PAYABLE
Company Consolidated
2012 2011 Note Depreciation 2012 2011
RWF ‘000 RWF’000 Depreciation of property, plant and equipment RWF ‘000 RWF ‘000
237,292 298,967 22(a) Amortisation of intangible assets 22(a) 630,129 310,084
- 65,533 21 Charge to statement of comprehensive income 21 7,567 66,011
237,292 364,500 637,696 376,095
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
5,769,746 4,360,043 Current accounts 5,648,334 4,360,043
1,549,760 1,421,520 Savings accounts 1,549,760 1,421,520
9,958,870 - Term deposits 9,958,870 -
17,278,376 5,781,563 17,156,964 5,781,563
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
62,976 62,976 Dividends payable 62,976 62,976
The shareholders in their meeting on 23 March 2012 decided that their dividends be retained for capital growth and therefore no dividends were declared for the year ended 31 December 2011. Shareholders in their meeting scheduled to take place on 22 March 2013 will decide on the payment of dividends for the year ended 31 December 2012.
BRD ANNUAL REPORT 2012 83
25. OTHER ACCOUNTS PAYABLE
(i) The payables in transit are the transit amount due as a result of the clearing house transactions which are Cleared for the maximum period of three (3) days.
(ii) Amount due to local creditors is significantly composed of RWF 4 Billion payable to BDF Limited as accumulated allocation to SME guarantee fund.
(iii) Advances from customers relate to pre-payments customers make when they are honoring their loan commitments. The amount is periodically allocated to the client’s respective loan installments due.
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF’000 RWF ‘000 RWF ‘000
1,272,065 191,671 Payables in transit (i) 1,272,065 191,671
84,618 149,284 Statutory deductions payable 95,999 149,284
1,625,607 237,049 Taxes payable 1,647,751 237,049
5,005,231 3,912,245 Amounts due to local creditors (ii) 382,744 457,541
1,190,110 709,865 Advances from customers (iii) 1,190,110 709,865
208,383 1,182,078 Provisions 418,190 1,182,078
386,794 152,712 Accrued expenses (iv) 1,141,777 152,712
- 5,330 Deferred income - 6,995
12,152 646,976 Other payables 130,769 849,614
9,784,960 7,187,210 6,279,405 3,936,809
84 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
25. OTHER ACCOUNTS PAYABLE (CONTINUED)
(iv) Retention amount relates to amount due to ROKO Construction, EBS and Quest Africa being the contractor for the construction of the KINAZI Cassava Plant Limited buildings (BRD’s wholly owned subsidiary company), the contractor for the plant and the supervising consultancy firm for the construction work respectively.
26. MEDIUM AND LONG-TERM BORROWINGS
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
9,487,060 3,035,730 AFREXIM Bank 9,487,060 3,035,730
4,920,188 804,027 SHELTER Africa 4,920,188 804,027
3,945,242 4,940,783 European Investment Bank (EIB) 3,945,242 4,940,783
3,215,758 1,868,877 Caisse Sociale du Rwanda (RSSB) 3,215,758 1,868,877
2,492,339 2,821,608 East African Development Bank I 2,492,339 2,821,608
1,500,000 1,500,000 MINECOFIN- Tea growing 1,500,000 1,500,000
1,124,995 1,387,713 Preferential Financing Fund 1,124,995 1,387,713
298,222 298,129 Kreditanstalt Fur Wiederaufbau (KFW) 298,222 298,129
273,313 2,241,284 Rwanda Medical Insurance (RAMA) 273,313 2,241,284
171,708 171,708 HEIFER Project 171,708 171,708
1,846 - Ministry of Finance and Economic Planning Funds 1,846 -
591 19,107 Fonds Suisses Gérés 591 19,107
38 38 IFAD-PPPMER 954,999 38
- 1,418 African Development Bank (AFDB) - 1,418
- 3,973 Appuis Micro-réalisation - 3,973
- - Overdraft 2,184 -
27,431,300 19,094,395 Total 28,388,445 19,094,395
BRD ANNUAL REPORT 2012 85
Maturity analysis of long and medium term loans
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
27. SPECIAL FUNDS
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
5,679,580 3,551,648 Public fund 7,194,360 3,551,648
3,100,000 1,600,000 Cassava project fund 3,100,000 1,600,000
1,500,000 1,500,000 Education promotion fund 1,500,000 1,500,000
1,477,220 1,477,220 MINAGRI-PDCRE fund 1,477,220 1,477,220
1,427,587 1,380,493 Microfinance Funds - Belgium Cooperation 1,427,587 1,380,493
671,206 691,952 Business plan competition fund/PSF 671,206 691,952
- - SME Guarantee fund 4,056,389 8,936,073
522,332 553,669 KFW line of credit investment fund 522,332 553,669
416,757 416,757 Rural Investment Facility 3,705,147 416,757
892,581 892,581 FIFAPI ROPARWA fund 892,581 892,581
201,572 201,572 MINAGRI Fetilizer fund 201,572 201,572
57,691 57,691 PADL GAKENKE fund 57,691 57,691
262,084 262,084 MINAGRI-Belgium cooperation fund 262,084 262,084
870,000 870,000 MINAGRI- Milk collection center fund 870,000 870,000
799,539 213,699 SME technical assistance fund 799,539 213,699
- 641,952 Mortgage refinancing fund - 641,952
17,878,149 14,311,318 26,737,708 23,247,391
2012 2011
RWF ‘000 RWF ‘000
Amounts payable within one year 4,915,531 4,126,788
Amounts payable after one year but within five years 19,124,388 3,871,184
Amounts payable after five years 3,391,381 11,096,423
27,431,300 19,094,395
The weighted average effective interest rate on medium and long term loans was 8.11% (2011: 8.18%).
86 BRD ANNUAL REPORT 2012
Public fund is granted by the government to facilitate the Bank for financing export, microfinance and mortgage related projects.
The Microfinance funds are granted by Belgium Cooperation for technical assistance and capacity building of microfinance institutions financed under Belgium line of credit.
The Business Plan Competition Fund is a fund from Private Sector Federation for technical assistance and forms part of the guarantee to startup projects selected by the Private Sector Federation and financed by the Bank.
The interests due on KFW lines of credit are allocated to KFW investment fund and this fund is used to promote the training, technical assistance, financing, and forms part of the guarantee to SMEs.
The SME guarantee fund was put into place by the Bank with the aim of guaranteeing SME projects whose owners do not have sufficient collateral but would have been willing and eligible to obtain a loan from a Bank. This fund is increased by the commission received from guaranteed clients, annual allocation of RWF 10 million from KFW line of credit fund, the half of the provision of 30% on profit of the Bank as a tax equivalent, in form of capital injection, as resolved by the Cabinet of the Government of Rwanda in 2010. The balance of the fund as at 31 March 2011 was been transferred to BDF Limited, the bank’s 100% owned subsidiary having in its mandate to issue guarantees and advisory services to small and medium enterprises. 50% of the tax equivalent is transferred to SME technical assistance fund.
The KINAZI Cassava Plant Limited is BRD’s wholly owned subsidiary company. The Bank has so far received RWF 3.1 billion capital injection into the company as money received from government. However, total amount invested is RWF 6 billion as at 31 December 2012.
MINAGRI-Belgium cooperation fund is a fund granted by the Belgium cooperation to MINAGRI and then retroceded to the Bank for financing microfinance sector.
MINAGRI-Milk collection center fund is a fund granted to the Bank by the Ministry of Agricultural for financing the construction of 70 milk collection centers across the country.Education promotion fund was received in 2010 for refinancing education related projects in the country.
BRD ANNUAL REPORT 2012 87
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
27. SPECIAL FUNDS (CONTINUED)
28. GRANTS
29. SUBORDINATED DEBT
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
230,897 324,645 Belgium Co operation microfinance 230,897 324,645
107,545 107,545 UNDP grant for MFIs 107,545 107,545
338,442 432,190 338,442 432,190
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
11,510,321 11,510,321 Subordinated debt (Note) 11,510,321 11,510,321
11,510,321 11,510,321 11,510,321 11,510,321
SME technical assistance fund is a fund put in place to provide the technical assistance to SMEs financed by the Bank in form of capital injection, as resolved by the Cabinet of the Government of Rwanda in 2010 which is half of the provision of 30% on profit of the Bank as a tax equivalent is allocated to this fund.
The Belgium cooperation grant is used for technical assistance and capacity building to microfinance institutions or for the Bank’s operating expenses related to microfinance support.
Note: This was a subordinated debt in 2010. However, Cabinet in its meeting of 15th December 2010 approved to convert Government of Rwanda debt funds due from the Bank into a supplementary capital with the ultimate goal to improve the Bank’s long-term debt to equity ratio, and thereby restructure its balance sheet in order to enhance its borrowing capacity. Therefore this balance in substance is not a debt.
88 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
30. SHARE CAPITAL ANALYSIS
a) Authorized share capital
b) Issued and fully paid share capital
Number of shares
Paid in shares Unsubscribed shares Total Value per share Total value
RWF RWF ‘000
At 1 January 2012
Class A shares 5,171,226 158,476 5,329,702 1,000 5,329,702
Class B shares 1,670,319 - 1,670,319 1,000 1,670,319
6,841,545 158,476 7,000,021 7,000,021
Increase/decrease in share capital:
Class A 951,783 (158,476) 793,307 1,000 793,307
Class B 15,603 - 15,603 1,000 15,603
At 31 December 2012 7,808,931 - 7,808,931 7,808,931
Analyzed as follows: -
Class A shares 6,123,009 - 6,123,009 1,000 6,123,009
Class B shares 1,685,922 - 1,685,922 1,000 1,685,922
7,808,931 - 7,808,931 7,808,931
Number of shares
Paid in shares Total Value per share Total value
RWF RWF ‘000
At 1 January 2012
Class A shares 5,171,226 - 5,171,226 1,000 5,171,226
Class B shares 1,670,319 - 1,670,319 1,000 1,670,319
6,841,545 - 6,841,545 6,841,545
Class A Share swap of BHR shares
939194 - - 1,000 939,194
BRD ANNUAL REPORT 2012 89
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
30. SHARE CAPITAL ANALYSIS (CONTINUED)
c) Share premium
Number of shares
Paid in shares Total Value per share Total value
RWF RWF ‘000
Class B Share Swap of BHR shares
28,192 - - 1,000 28,192
Class A: Rwandex shares 12,589 1,000 12,589
-
Class B: Rwandex shares (12,589) - 1,000 12,589
At 31 December 2012
Class A shares 6,123,009 6,123,009 1,000 6,123,009
Class B shares 1,685,922 1,685,922 1,000 1,685,922
7,808,931 7,808,931 7,808,931
Class A and class B shareholders have the same voting rights during annual and general meeting which is equal to the number of shares of the paid in - capital stock held by the member. Similarly, dividends are distributed using the same ratios.
2012 2011
RWF ‘000 RWF ‘000
Share premium-Class A shares 9,495,599 2,980,825
Share premium-Class B shares 2,169,971 1,971,647
11,665,570 4,952,472
90 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
31. OTHER RESERVES
Breakdown of reserves
(i) The increase in the revaluation surplus mainly resulted from the revaluation of former Housing Bank building.
(ii) Article 9 of law Nº 15/91 of April 20, 1991 related to modification of law of August 5, 1967 creating BRD., legal reserves are mandatory and computed by deducting 5% of net profit after off-setting of previous losses until reserves amount to 10% of share capital.
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
1,939,146 1,118,966 At 1 January 1,939,146 1,118,966
272,300 833,340 Revaluation reserve 272,300 833,340
(135,834) (61,760) Amortisation of revaluation reserve (135,834) (61,760)
(80,743) 48,601 Transfer to legal reserve (80,743) 48,601
1,994,869 1,939,147 At 31 December 1,994,869 1,939,147
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
1,286,671 1,150,205 Revaluation reserves (i) 1,286,671 1,150,205
330,036 338,942 Legal reserves (ii) 330,036 338,942
378,162 450,000 Ordinary reserves (iii) 378,162 450,000
- - Investment reserves (iv) - -
1,994,869 1,939,147 1,994,869 1,939,147
BRD ANNUAL REPORT 2012 91
(iii) Ordinary reserves are voluntary reserves made by the Bank’s shareholders. The percentage of transfer to be made is determined by the board of directors
(iv) Investment reserve is a reserve set aside to cater for any urgent investment opportunity that the company may decide to undertake. The percentage of transfer to be made is determined by the board of directors.
32. CASH AND CASH EQUIVALENTS
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
33. USE OF ESTIMATES AND JUDGEMENTS
Company Consolidated
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
4,482,711 2,585,853 Cash and bank balance 2,667,218 2,667,218
1,215,774 2,923,123 Deposits due from banks due within 3 months 1,215,774 2,923,123
5,698,485 5,508,976 3,882,992 5,590,341
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Bank regularly reviews its assets and makes judgments in determining whether an impairment loss should be recognized in respect of observable data that may impact on future estimated cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
Impairment losses on loans and advancesThe specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon IAS 39-Fi-nancial instruments measurement guidelines. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently reviewed by the Risk function.
92 BRD ANNUAL REPORT 2012
34. FINANCIAL RISK MANAGEMENT
(a) Introduction and overview
b) Risk management framework and Strategy in using financial instruments
Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.
The Bank has exposure to the following risks from its use of financial instruments:• Credit risk;• Operational risk;• Liquidity risk; and• Market risk
This note presents information about the Bank’s exposure to each of the above risks, the Bank’s objectives, policies and processes for measuring and managing risk and the Bank’s management of capital
The Bank’s board of directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The board has estab-lished the Asset and Liability Committee (ALCO), Credit Risk Committee and the Risk Management Department which are responsible for developing and moni-toring the risk management policies in their specified areas. The Board Audit Committee has both executive and non executive members and report regularly to the Board of Directors on their activities.
The Bank’s risk management policies are established to identify and analyze the risks faced by the Bank, to set appropriate risk limits and controls, and to mon-itor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank through its procedures aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations.
The Bank’s Audit Committee is responsible for monitoring compliance with the Bank’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Audit Committee is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and adhoc reviews of risk management controls and procedures, the results of which are reported to the Board Audit Committee.
BRD ANNUAL REPORT 2012 93
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Risk management framework and Strategy in using financial instruments (Continued)
c) Capital management
The Bank also seeks to raise its interest margins by obtaining above-average margins, net of allowances, through lending to commercial and retail borrowers with a range of credit standing. Such exposures involve not just on-Statement of financial position loans and advances; the Bank also enters into guarantees which apparently are commitments in the form of letters of credit that it discloses as off balance sheet items.
The Bank’s objectives when managing capital, which is a broader concept than the “equity” on the face of balance sheets, are: • To comply with the capital requirements set by the regulator, Central Bank of Rwanda (BNR). • To safeguard the Bank’s ability to continue as a going concern so that it can continue to provide returns for shareholders and benefits for other stakeholders; and • To maintain a strong capital base to support the development of its business.
The Bank monitors the adequacy of its capital using ratios established by BNR, which ratios are broadly in line with those for the Bank for International Settle-ments (BIS). These ratios measure capital adequacy by comparing the Bank’s eligible capital with its Statement of financial position assets, off-balance-sheet commitments and market and other risk positions at weighted amounts to reflect their relative risk.
The market risk approach covers the general market risk and the risk of open positions in currencies and debt and equity securities. Assets are weighted accord-ing to broad categories of notional credit risk, being assigned a risk weighting according to the amount of capital deemed to be necessary to support them. Four categories of risk weights (0%, 20%, 50%, and 100%) are applied. Certain asset categories have intermediate weightings.
The Bank is required at all times to maintain a core capital (Tier 1) of not less than 10% of total risk adjusted assets plus risk adjusted off Statement of financial position items (total weighted risk assets) and a total capital (Tier 1 + Tier 2) of not less than 15% of its total risk adjusted assets plus risk adjusted off Statement of financial position items.
Off-balance-sheet credit related commitments are taken into account by applying different categories of credit conversion factors, designed to convert these items into Statement of financial position equivalents. The resulting credit equivalent amounts are then weighted for credit risk using the same percentages as for Statement of financial position assets.
94 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(b) Risk management framework and Strategy in using financial instruments (Continued)
Tier 1 capital consists of shareholders’ equity comprising paid up share capital (issued and fully paid-up common share and irredeemable, non cumulative preference shares), share premium, prior year retained profits, net current after tax profit to-date (only 50%), general reserves less goodwill and other intangible assets, current years losses (if any), investments in unconsolidated financial subsidiaries, prohibited loans to insiders and deficiencies in provisions for losses. Tier 2 capital includes the Bank’s recognized revaluation reserve on fixed assets, and the subordinated debt not to exceed 50% of the Bank’s core capital subjected to discount factors. Tier 2 capital is limited to 100% of Tier 1 capital.
General reserve as part of the Tier Capital is comprised of 5% of the Bank’s current year profit. BNR requires that a transfer should be made to this reserve account until when the reserve balance is an equivalent of 10% of the bank’s share capital (paid up and not paid up share capital) of RWF 7 billion.
The table below summarizes the composition of the regulatory capital:
2012 2011
Core Capital (Tier 1) RWF ‘000 RWF ‘000
Share Premium 11,665,569 4,952,472
Shareholders’ equity 7,808,931 6,841,545
Prior years retained profits 6,446,516 3,650,828
Current year profits (50%) 1,920,963 1,366,963
General reserved (statutory legal reserve – 5% of current year profit) 1,920,096 788,941
Less: Deduction determined by the Central Bank of Rwanda - -
Total Core Capital 29,781,125 17,600,749
Supplementary Capital (Tier 2)
Revaluation reserve 1,286,671 1,150,205
Quasi Capital – Supplementary equity capital < or = 100% of core capital (2010: < or = 50% of core capital) 11,510,321 11,510,321
Total supplementary capital 12,796,992 12,660,526
Total capital (core and supplementary) 42,578,117 30,261,275
BRD ANNUAL REPORT 2012 95
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)CAPITAL ADEQUACY RATIO Nominal amounts Risk weighted % Weighted amount
2012 2011 2012 2011
Balance Sheet assets Rwf'000 Rwf'000 Rwf'000 Rwf'000
Cash 302,067 279,853 0% - -
Balances with bank balances 4,180,644 2,306,000 20% 836,129 461,200
Deposits due from banks 1,522,045 3,617,171 20% 304,409 723,434
Investment security held to maturity 25,241 23,501 100% 25,241 23,501
Loans and advances at amortized costs 85,441,690 64,611,635 100% 85,441,690 64,611,635
Finance lease receivables at amortized cost 1,262,598 903,709 100% 1,262,598 903,709
Equity investments at cost 6,262,149 4,964,760 100% 6,262,149 4,964,760
Other assets receivable 12,883,167 6,277,016 100% 12,883,167 6,277,016
Assets held for sale 310,045 880,926 100% 310,045 880,926
Intangible assets 99,932 97,554 100% 99,932 97,554
Property and equipment 3,040,293 2,486,760 100% 3,040,293 2,486,760
115,329,871 86,448,885 110,465,653 81,430,495
Off balance sheet commitments
Financing commitment given 25,965,247 11,976,357 100% 25,965,247 11,976,357
Total assets 141,295,118 98,425,242 136,430,900 93,406,852
Equity
Paid up share capital 7,808,931 6,841,545
Shares premium 11,665,569 4,952,472
Prior years retained earnings 6,446,516 3,650,828
Reserves 1,939,146 788,941
50% of net profit current year 1,920,963 1,366,963
Total core capital 29,781,125 17,600,749
Revaluation reserves 1,286,671 1,150,205
Subordinated debts 11,510,321 11,510,321
96 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(1) Credit risk
Nominal amounts Risk weighted % Weighted amount
2012 2011 2012 2011
Rwf'000 Rwf'000 Rwf'000 Rwf'000
Supplementary capital (<or = 50% of core capital) 12,796,992 12,660,526
Total capital 42,578,117 30,261,275
Capital adequacy requirement Capital Ratios
Total core capital 29,781,125 17,600,749 22% 25%
Total risk weighted assets 136,430,900 93,406,852 46%
Cash and balance with central bank
Total capital 42,578,117 30,261,275 31% 37%
Total risk weighted assets 136,430,900 93,406,852
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Bank’s loans and advances to customers, collaterals provided by clients, other Banks and investment securities. For risk management re-porting purposes, the Bank considers all elements of credit risk exposure such as individual obligator default risk and sector risk.
In the normal course of its business, the Bank incurs credit risk from financial institutions and advances to customers.
BRD ANNUAL REPORT 2012 97
The credit risk exposure is, however, managed through constant monitoring of the status of financial institutions where deposits are maintained. As a policy the Bank places its deposits with internationally well rated financial institutions. Credit risk is also minimized by the Bank’s policy of diversification.
The Bank does not invest more than 70% of any single project’s value and this value would not exceed 25% of the Bank’s net worth. The Bank also endeavors to maintain a well-balanced loan portfolio distributed prudently among the sectors of the economy falling within its target activities. The Bank’s total exposure to a single sector should not exceed 20% of the total investment portfolio.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees, but a significant portion is personal lending where no such facilities can be obtained.
(i) Credit risk measurement
Loans and advances In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Bank reflects three components as follows;
(i) the “probability of default” by the client or counterparty on its contractual obligations;
(ii) current exposures to the counterparty and its likely future development, from which the Bank derives the “exposure at default” and
(iii) the likely recovery ratio on the defaulted obligations (the “loss given default”).
The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They have been developed internally and combine statistical analysis with credit officer judgment and are validated, where appropriate, by comparison with externally avail-able data. Clients of the Bank are segmented into four rating classes. The bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating tools are kept under review and upgraded as necessary. The bank regularly validates the performance of the rating and their predictive power with regard to default events. These discussions are deliberated at bank’s credit risk committee where classifications of each customer are determined. The Bank’s internal ratings scale and as determined by the Central Bank in its Regulation No.02/2011on Credit Classification and Provisioning mapping to external ratings adopted by all banks in the industry is as below:
Observed defaults per rating category vary year on year, especially over an economic cycle.
Banking rating Description of the Grade
1 Standard monitoring
2 Special monitoring
3 Substandard
4 Doubtful
5 Loss
98 BRD ANNUAL REPORT 2012
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(1) Credit risk (continued)
Exposure at default is based on the amounts the bank expects to be owed at the time of default. For example, for a loan this is the face value. For a commitment, the Bank includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur.
Loss given default or loss severity represents the bank’s expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation.
(ii) CollateralThe Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is com-mon practice. The bank implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation and is mainly guided by BNR Regula-tion No02/2011 on Credit Classification and Provisioning Article 22. The principal collateral types for loans and advances are: • Mortgages over residential properties; • Charges over business assets such as premises, inventory and accounts receivable; • Charges over financial instruments such as debt securities and equities among others.
Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. In addition, in order to minimise the credit loss the bank will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances.
Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments.
(iii) Credit related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written undertakings by the bank on behalf of a customer authorising a third party to draw drafts on the bank up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing. The bank only issues letters of credit to customers with credit lines and with bank accounts with it. It further has stringent requirement that the customer must deposit with it cash worth the letter of credit he/she is applying for as cash cover. In this case the default risk is absolutely minimized.
BRD ANNUAL REPORT 2012 99
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(1) Credit risk (continued)
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. However since it has a 100% cash cover as security, this risk is very low, if not nonexistent.
(v) Impairment and provisioning policy The BNR guidelines on customer rating as described in (i) focuses more on credit-quality mapping from the inception of the lending and investment activities. In contrast, impairment provisions are recognised for financial reporting purposes only for losses that have been incurred at the balance sheet date based on objec-tive evidence of impairment (see Note 15(b)).
Due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements are usually lower than the amount determined from the expected loss model that is used for internal operational management and banking regulation purposes. However, this year, the bank does adopted impairment of its loans in accordance with IAS 39 and the results were higher than those determined per the regulation and there was no need to create non-distributable reserve account as where the difference between impairment amount determined per the regulation and that per IAS 39, if the one per the law is higher would be credited and the corresponding debit reducing retained earnings.
The internal rating tool (impairment model) assists management to determine whether objective and subjective evidence of impairment exist under IAS 39, based on the following criteria set out by the bank: • Delinquency in contractual payments of principal or interest; • Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales);• Breach of loan covenants or conditions; • Initiation of bankruptcy proceedings; • Deterioration of the borrower’s competitive position and • Deterioration in the value of collateral.
100 BRD ANNUAL REPORT 2012
The Bank’s policy requires the review of individual financial assets that are above materiality thresholds at least annually or more regularly when individual cir-cumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at balance-sheet date on a case-by-case basis, and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account.
Collectively assessed impairment allowances are provided for: • Portfolios of homogenous assets that are individually below materiality thresholds; and • Losses that have been incurred but have not yet been identified, by using the available historical experience, experienced judgment and statistical techniques.
Impaired loans and advancesImpaired loans and advances are those for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreement(s). These loans are internally classified as doubtful, litigious and contentious.
Past due but not impaired loans and advancesLoans where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of securi-ty/collateral available and/or the stage of collection of amounts owed to the Bank. These loans are internally classified as doubtful, when the account is 31 to 90 days in arrears, litigious if the account is between 91 and 180 days in arrears, contentious for loans between 181 and 360 days in arrears and loss for loans over 361 days in arrears.
Loans with renegotiated termsLoans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the Bank has made con-cessions that it would not otherwise consider. Once the loan is restructured, it remains in this class for monitoring purposes independent of satisfactory perfor-mance after restructuring, for at least three scheduled payments as a way of demonstrating positive performance. The loan is subsequently classified specifically under category 2.
Allowances for impairmentThe Bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio taking into account IAS 39-financial instruments measurement.
Write off policyThe Bank writes off a loan balance and any related allowances for impairment losses when the Bank’s Management determines that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such that the bor-rower can no longer pay the obligation, or that the proceeds from collateral will not be sufficient to pay back the entire exposure. All loans write off are approved by the Board of Directors.
The Bank holds collateral against loans and advances to customers in the form of mortgage interest over property. Estimates of fair value are based on the value of the collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired.
BRD ANNUAL REPORT 2012 101
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(I) Credit risk (continued)
Exposure to credit risks
Past due but not impaired comprises:
An estimate of fair value of collateral and other security enhancements held against financial assets is shown below:
2012 2011
RWF ‘000 RWF ‘000
Guarantees over performing loans 63,885,534 56,276,816
Guarantees over individually impaired assets 6,679,383 5,317,653
70,564,917 61,594,469
2012 2012
RWF ‘000 RWF ‘000
Individually impaired
Gross amount 6,029,505 6,029,505
Allowance for impairment (1,370,469) (1,370,469)
Carrying amount 4,659,036 4,659,036
Past due comprises:
(31 to 90 days) – Class 2 18,255,672 19,168,036
(91 to 180) days – Class 3 54,565 196,294
(181 to 360) days – Class 4 and 5 76,640 246,376
Neither past due nor impaired:
Normal - Class 1 61,959,390 40,133,370
Allowance for impairment (833,337) (1,179,966)
Total carrying amount 79,512,930 58,564,110
102 BRD ANNUAL REPORT 2012
Management of credit riskThe Board of Directors has delegated the responsibility for the management of credit risk in term of approving loans to be disbursed to the management Credit and Risk Committee for credit exposures below Rwf 400 million. The Board is involved directly for loan exposure above Rwf 400 million and any equity invest-ments amount. The Risk management Department is responsible for oversight of the Bank’s credit risk, including, formulating credit policies, covering collateral requirements and credit assessments, risk grading and reporting. Documentary, legal procedures and compliance with regulatory and statutory requirements is done in consultation with the Bank’s Department, establishing the authorization structure for the approval and renewal of credit facilities with concurrence of the board of directors, reviewing and assessing credit risk.
The Bank assesses all credit exposures, prior to facilities being committed to customers by the Investment Department and Risk Department. Renewals and re-views of facilities are subject to the same review process, limiting concentrations of exposure to counterparties, products and industries (for loans and advances). New loan project requests are subject to Bank’s risk grading in order to ensure that only viable projects are taken into the books.
The regular audits of Portfolio Department and the Bank’s credit processes are undertaken by Internal Audit.
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED) 34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(2) Operational risk
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed internal procedures and processes, systems, external events, infrastruc-ture, personnel, and other risks having an operational impact. As BRD does not handle cash and does not have cash tellers, at least one big source of operational risk normally found in banks is not applicable to BRD.
The Board is responsible for the management of operational risk and is assisted in that by the Operational Risk Committee and the Risk Management Depart-ment. An operational Risk Manager is in charge of consolidation of the data and information from departments for the reporting of risks
Settlement riskThe Bank’s activities may give rise to risk at the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of the counter-party to honour its obligations to deliver cash, securities or other assets as contractually agreed. Settlement limits form part of the credit approval/limit monitor-ing process described earlier.
BRD ANNUAL REPORT 2012 103
(3) Liquidity riskLiquidity risk is the risk that the Bank will encounter difficulty in meeting obligations on its financial liabilities. It includes both the risk of being unable to fund assets at appropriate maturities and rates and the risk of being unable to liquidate an asset at a reasonable price and in an appropriate time frame.
Management of liquidity riskThe Bank has access to a diverse funding base. Funds are raised mainly from borrowings and share capital. This enhances funding flexibility, limits dependence on any one source of funds and generally lowers the cost of funds. The Bank strives to maintain a balance between continuity of funding and flexibility through the use of liabilities with a range of maturities. The Bank continually assesses liquidity risk by identifying and monitoring changes in funding required in meeting business goals and targets set in terms of the overall Bank strategy. In addition, the Bank has an Asset and Liability Committee that meet on a regular basis to monitor liquidity risk, review and approve liquidity policies and procedures. Exposure to Liquidity riskThe Bank maintains a liquidity policy of a minimum of 20% of all its liabilities for the next twelve months as per the National Bank of Rwanda guidelines. Designat-ed liabilities consist of liabilities and budgeted commitments that are due in the twelve months: The Bank maintains its liquid assets at a minimum of 20% of the designated liabilities for the next twelve months. Designated liabilities consist of liabilities and budgeted commitments that are due in the next twelve months.
The liquidity ratio as at the end of the year is as follows:
The liquidity policy of the Bank defines cash and cash equivalents as operational and strategic liquidity pool. The table below analyses assets and liabilities into relevant maturity groupings based on the remaining period at 31 December 2012 to the contractual maturity date.
2012 2011
RW ‘000 RW ‘000
Cash and cash equivalents as per liquidity policy 4,482,711 5,508,976
Designated liabilities (22,229,552) (7,119,532)
Surplus (Deficit) per liquidity policy (17,746,841) (1,610,556)
Liquidity ratio 20% 77%
Designated liabilities
Repayment of term loans 4,916,142 99,011
80% of customer deposits 13,822,701 4,625,250
20% Disbursement of equity/loans 3,490,709 2,395,271
Total 22,229,552 7,119,532
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
3. Liquidity risk (Continued)Company Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 Years Over 5 Years Total
RWF'000 RWF'000 RWF'000 RWF'000 RWF'000 RWF'000
Assets
Cash and bank balances 4,482,711 - - - - 4,482,711
Deposits due from banks 1,100,000 115,774 - - 306,270 1,522,045
Investment security held to maturity 25,241 - - - - 25,241
Loans and advances at amortized costs 736,811 1,442,368 7,318,156 7,853,455 69,353,498 86,704,288
Equity investments at cost - - - 6,262,149 6,262,149
Other assets receivable 4,998,783 831,941 7,052,443 - - 12,883,167
Assets held for sale - - 310,045 - - 310,045
Intangible assets - - - - 99,932 99,932
Property and equipment - - - - 3,040,293 3,040,293
Total Assets 11,343,546 2,390,083 14,680,644 7,853,455 79,062,142 115,329,869
Liabilities and Shareholders funds
Customer deposits 5,760,385 870,000 10,647,991 - - 17,278,376
Dividends payable - - 62,976 - - 62,976
Other accounts payable 1,811,685 2,287,609 5,161,137 - - 9,260,431
Medium and long term borrowings 385,921 - 4,529,610 19,124,388 3,391,381 27,431,300
Special funds - - - - 17,878,147 17,878,147
Grants - - - 338,442 - 338,442
Provision for operational risk - 13,372 - - - 13,372
Supplementary capital - - - - 11,510,321 11,510,321
Shareholders’ funds - - - - 31,556,504 31,556,504
Total liabilities and shareholder funds 7,957,991 3,170,981 20,401,714 19,462,830 64,336,353 115,329,870
Net liquidity gap at 31 December 2012 3,385,555 (780,898) (5,721,070) (11,609,375) 14,725,789 -
Net liquidity gap at 31 December 2011 1,493,825 6,178,076 350,220 31,788,039 (39,810,160) -
BRD ANNUAL REPORT 2012 105
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
3. Liquidity risk (Continued)
(4) Market risk
Company Up to 1 month 1 to 3 months 3 to 12 months 1 to 5 Years Over 5 Years Total
RWF'000 RWF'000 RWF'000 RWF'000 RWF'000 RWF'000
Assets
Cash and bank balances 4,482,711 - - - - 4,482,711
Deposits due from banks 1,100,000 115,774 - - 306,270 1,522,045
Investment security held to maturity 25,241 - - - - 25,241
Loans and advances at amortized costs 736,811 1,442,368 7,318,156 7,853,455 69,353,498 86,704,288
Equity investments at cost - - - 6,262,149 6,262,149
Other assets receivable 4,998,783 831,941 7,052,443 - - 12,883,167
Assets held for sale - - 310,045 - - 310,045
Intangible assets - - - - 99,932 99,932
Property and equipment - - - - 3,040,293 3,040,293
Total Assets 11,343,546 2,390,083 14,680,644 7,853,455 79,062,142 115,329,869
Liabilities and Shareholders funds
Customer deposits 5,760,385 870,000 10,647,991 - - 17,278,376
Dividends payable - - 62,976 - - 62,976
Other accounts payable 1,811,685 2,287,609 5,161,137 - - 9,260,431
Medium and long term borrowings 385,921 - 4,529,610 19,124,388 3,391,381 27,431,300
Special funds - - - - 17,878,147 17,878,147
Grants - - - 338,442 - 338,442
Provision for operational risk - 13,372 - - - 13,372
Supplementary capital - - - - 11,510,321 11,510,321
Shareholders’ funds - - - - 31,556,504 31,556,504
Total liabilities and shareholder funds 7,957,991 3,170,981 20,401,714 19,462,830 64,336,353 115,329,870
Net liquidity gap at 31 December 2012 3,385,555 (780,898) (5,721,070) (11,609,375) 14,725,789 -
Net liquidity gap at 31 December 2011 1,493,825 6,178,076 350,220 31,788,039 (39,810,160) -
Market risk is the risk that changes in market prices, such as interest rate and foreign exchange rates will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within the acceptable parameters, while optimiz-ing the return on risk.
Management of market riskOverall authority for market risk is vested in the Asset and Liability Committee (ALCO). ALCO is responsible for the development of detailed risk management poli-cies and for the day to day review of their implementation.
Interest rate riskIn broad terms the interest rate risk is the risk that concerns the sensitivity of the Bank’s financial performance to changes in the interest rates. The Bank’s op-erations are subject to the risk of interest rate fluctuations to the extent that interest earning assets and interest bearing liabilities mature or reprice at different times or in differing amounts. Risk management activities are aimed at optimizing net interest income, given market interest rate levels sconsistent with the Bank’s business strategies. In order to minimize interest rate risk, the Bank has a policy where the approved lending commitments are matched to specific lines of credit or source of funds, including adopting the funding interest rate characteristics (fixed or variable) to its on lending activities.
Exchange rate riskExchange rate risk arises from a mismatch between the value of the assets and that of capital and liabilities denominated in foreign currency. The Bank does not actively engage in dealing and trading operations in currencies and so the Bank’s exposure mainly involves assets, liabilities and off balance sheet items denomi-nated in foreign currency. To minimize exchange rate risk in a multi currency environment, the Bank matches its borrowing in one currency with its assets in that currency.
Fair value of financial assets and liabilitiesThe table below summarises the carrying amounts and fair values of those financial assets and liabilities not presented on the Bank’s balance sheet at their fair value.
106 BRD ANNUAL REPORT 2012
Company Carrying Value Fair Value
2012 2011 2012 2011
RWF ‘000 RWF ‘000 RWF ‘000 RWF ‘000
Financial assets
Cash and bank balances 4,482,711 2,585,853 4,482,711 2,585,853
Deposits due from banks 1,522,045 3,617,171 1,522,045 3,617,171
Investment security held to maturity 25,241 23,501 25,241 23,501
Investments in subsidiaries 1,297,843 297,843 1,297,843 351,278
Loans and advances at amortized cost 86,704,288 65,515,344 86,704,288 65,441,843
Equity investments at cost 4,964,305 4,666,917 4,964,305 4, 617,955
Other assets receivable 12,883,167 6, 277,016 12,883,167 6, 277,016
Assets held for sale 310,045 880,926 310,045 880,926
TOTAL FINANCIAL ASSETS 112,189,645 83,864,571 112,189,645 83,795,543
Financial liabilities
Medium and long term borrowings 27,431,300 19,094,395 27,431,300 19,094,395
Other accounts payable 9,260,431 7,187,210 9,260,431 7,187,210
TOTAL FINANCIAL LIABILITIES 36,691,731 26,281,605 36,691,731 26,281,605
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED)
34. FINANCIAL RISK MANAGEMENT (CONTINUED)
(4) Market risk (Continued)Currency riskThe Bank is exposed to currency risk through transactions in foreign currencies. The Bank’s transactional exposure gives rise to foreign currency gains and losses that are recognized in the statement of comprehensive income. In respect of monetary assets and liabilities in foreign currencies, the Bank ensures that its net exposure is kept to an acceptable level by buying and selling foreign currencies at spot rates when considered appropriate.
BRD ANNUAL REPORT 2012 107
35. EMPLOYEE RETIREMENT BENEFIT PLANNote 2012 2011
RWF ‘000 RWF ‘000
Contribution to the retirement benefit plan (i) 58,580 31,902
Contribution to the statutory pension scheme (RSSB) (ii) 87,734 55,916
146,314 87,818
(i) The Bank operates a defined contribution retirement benefit scheme to which the employer (Bank) contributes 100%. SONARWA Insurance Company man-ages the fund.
(ii) The Bank also makes contributions to a statutory pension scheme, the National Social Security Fund. The contributions and obligations under the scheme are limited to specific contributions legislated from time to time and the Bank’s contribution is currently 5% of the employees’ gross salary excluding transport allowance.
Other staff benefitsThe Bank ensures proper welfare of its staff by providing welfare schemes such as car loan purchase scheme, housing and medical schemes.
The Bank gives salary advances to its employees at an interest rate of 0% payable in one year.
The Bank pays for professional membership and subscription fees at rate of 80% for staff that belong to professional bodies.
Employees are eligible for a car loan and house loan payable in 5 and 20 years respectively; these loans are calculated based on sizeable portion of an employ-ee’s salary.
The Bank operates a medical insurance scheme which covers Bank employees appointed either on permanent or consultancy terms, including spouses and children.
108 BRD ANNUAL REPORT 2012
36. OFF BALANCE SHEET ITEMS AND CONTIGENCIESThe Bank conducts business involving guarantees, performance bonds and indemnities. The following are the commitments and contingencies outstanding as at year-end.
Nature of contingent liabilities(a) Commitments to lend are agreements to lend to a customer in the future subject to certain conditions. Such commitments are normally made for a fixed period. (c) Letters of credit commit the Bank to make payments to suppliers of equipment to approved projects, on production of shipping documents
Note 2012 2011
RWF ‘000 RWF ‘000
Un-disbursed commitments (a) 15,226,675 11,976,357
Committed Letters of Credit (b) 10,704,311 239,982
25,930,986 12,216,339
BRD ANNUAL REPORT 2012 109
DEVELOPMENT BANK OF RWANDA (BRD)NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2012 (CONTINUED) 36. OFF BALANCE SHEET ITEMS AND CONTIGENCIES (CONTINUED) Nature of contingent liabilities (Continued)
37. POST BALANCE SHEET EVENTS
38. EMPLOYEES
39. INCORPORATION
40. CURRENCY
Litigations The bank is involved in several litigation cases which arise from day to day banking operations. The directors of the Bank have strong grounds for success in majority of them and are confident that they will obtain rulings in the Bank’s favour and none of the cases individually or in aggregate would have a significant impact on the Bank’s Operations. Accordingly, no provision has been made to the financial statements.
The Board of Directors and the Shareholder of BRD in their meeting of 22 March 2012 approved the following for the financial year ended 31 December 2012; - Allocation of to SME Guarantee Funds an amount worth RWF. 1.4 billion, - Dividends worth RWF. 663 million from a net profit of RWF. 3.3 billion to be distributed to the shareholders in year 2012,- Transfer of 5% of the net profit to the legal reserve. This was an amount worth RWF. 166 million, - The request by KFW/DEG, FMO, Bank of Tokyo and to sell their shareholdings in the Bank worth 2.50%, 0.23%, 3.49% respectively and gave them 30 days to exercise their preemptive rights.
The number of permanent employees of the Bank at the year-end was 114 (2011: 114).
The Bank was created by law in 1967 and is incorporated and domiciled in Rwanda as a public limited liability company. However, pursuant to the Law No.14/2011 of 30/05/2011, BRD ceased to be governed by an Act of Parliament and changed into a Public Company Limited by shares in accordance with the Law relating to Companies in Rwanda of 07/2007 of 27/04/2009.
These financial statements are expressed in Rwanda Francs (RWF).
110 BRD ANNUAL REPORT 2012
Published by
112 BRD ANNUAL REPORT 2012
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