Professional Documents
Culture Documents
Parcelle 6112, Avenue de la paix - Kigali (Rwanda) Tel:252 593100 / 252 593200, 252 788 143000 Fax: 575504 / 573461 SWIFT: BKIGRWRW Email: bk@bk.rw Website: www.bk.rw
Designed by Emmanuel NTAKIRUTIMANA
OUR VISION Bank of Kigali aspires to be the leading provider of most innovative financial solutions in the region. OUR MISSION Our mission is to be the leader in creating value for our stakeholders by providing the best financial services to businesses and individual customers, through motivated and professional staff. OUR VALUES Customer focus Resilience Integrity Quality Unique Excellence OUR MOTTO Your Trusted Partner in Wealth Creation
Contents
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Five Year Performance Analysis.............................................................................................3 Value Added Statement..........................................................................................................4 A Message from the Chairman...............................................................................................5 Managing Directors Report..................................................................................................8 Corporate Governance Report.............................................................................................12 Bank of Kigali Board Profile................................................................................................17 Executive Management Profile............................................................................................20 Corporate Social Responsibility Report...............................................................................24 Financial Statements............................................................................................................29
2006
2007
2008
YEAR
2009
2010
35,000
101,403
2006
2007
2008
YEAR
2009
2010
2006
2007
2008
YEAR
2009
2010
Bank of Kigali
VALUE ADDED STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2010 2010
Value Added Interest, commissions and other revenues Interest paid to depositors and costs of other services Wealth created Distribution of wealth Employees Salaries, wages and other benefits Government Shareholders Dividends paid to shareholders Retentions to support future business growth Retained surplus Depreciation and amortisation Wealth distributed 7,716,365 6,178,582 1,537,783 16,312,914 100% 47% 2,643,482 3,546,880 2,643,482 903,398 12,036,698 100% 22% 29% 3,882,773 4,713,776 24% 29% 2,267,457 3,578,879 19% 30% 25,329,695 9,016,781 16,312,914 19,409,938 7,373,240 12,036,698
2009
TAXES PAID
2010 2009
Corporate Tax Value Added Tax Withholding Tax District Tax Staff PAYE
1,155,568
788,358
Bank of Kigali
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Lado Gurgenidze, Chairman
am pleased to report that in 2010 your Bank performed well. It continued on the path of profitable growth, as Net Income grew by 16.9% to Rwf 6,179 million and as
Total Assets grew by 30.2% to Rwf 197,677 million. The Rwandan banking sector as a whole had a good year in 2010, as the global macroeconomic conditions improved, the Rwandan economy continued to grow and so did the sector liquidity. In keeping with its leadership status, Bank of Kigali led the banking sector growth in these relatively benign conditions, increasing its market share by Total Assets and Net Loans to 27.4% from 26.3% and 31.5% from 26.8%, respectively. Bank of Kigalis strategy is to become a universal bank with a ubiquitous branch network and modern, high-capacity technology driven banking channels in order to maximize shareholder value. In 2010, Bank of Kigali made significant progress in its quest to build a ubiquitous footprint in Rwanda, making banking services available and within easy reach of the majority of Rwandans. We have extended our branch network, adding 15 new branches, most of them outside Kigali. We continued making significant investments in the modernisation of our electronic banking channels. We upgraded our card processing capabilities and achieved interoperability with the national switch, grew our ATM footprint to 26 from 6, increased merchants Points of Sale to 97 from 52 and launched SMS banking.
In 2010, Bank of Kigali made significant progress in its quest to build a ubiquitous footprint in Rwanda, making banking services available and within easy reach of the majority of Rwandans.
Bank of Kigali
These investments will bear fruit in 2011 and beyond, as our electronic channels complement the expanding branch footprint to enable us to serve hundreds of thousands of previously un- or underbanked individuals in the medium term. We have made progress in many areas we highlighted at the outset, when formulating our new strategy. In 2010, we extended our lead as the best capitalised bank in Rwanda, and laid the groundwork for accessing capital markets in the near future. We have begun expanding our product range, although much remains to be done in this area. We managed to maintain lending discipline, even as our loan book grew rapidly in 2010, and are now better equipped to aggressively manage credit risks as we continue serving as the lender of choice to Rwandas young corporate sector and seek to step up retail lending. I am very pleased to see the clients respond to our efforts to be more accessible and relevant to their everyday lives. In 2010, 19,420 new retail accounts were opened at your Bank, bringing the total number of retail accounts 60,025. Building a ubiquitous footprint is not only about bricks and mortar and investing in electronic delivery channels. As your Banks reach and client base grow, the personnel headcount must grow concurrently. I wish to complement our management team for capably handling the staff headcount expansion in 2010 without compromising on the quality of new recruits or letting the costs grow beyond a reasonable level. Today, we are considerably closer
to our objective of being the employer of choice to young Rwandan professionals than we were a year ago. The Board of Directors you have elected is now stronger and more attuned to the challenge of guiding the management through our current phase of rapid growth and development than was the case a year ago. Your decision to support the Banks growth by voting for a zero dividend payout from the 2010 profit is a welcome sign of support and confidence in our chosen growth strategy. A loyal and growing client base, sufficient funding to continue lending to our clients, rapidly improving access to institutional funding sources, including the stock market, dedicated and hard-working staff, capable management and sound corporate governance these are the key ingredients of our continued success in 2011 and beyond. Our exciting journey continues, and I look forward to reporting our sustained progress and achievement of certain historical milestones in next years annual report.
Bank of Kigali
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Bank of Kigali
am pleased to report on the Banks sustained strong growth and financial performance in profitability, balance sheet and market share. The Banks focus on branch expansion, liquidity management, credit risk management, continuous improvement in customer service and cost management has enabled us to continue building a sustainable business that efficiently serves our customers and their changing demands. This focus has enabled the Bank to grow its profit after tax by 16.9% and total assets by 30.2%.
We managed to stay at the top because of customers confidence in our resilience, strong performance and excellent focus on customer needs.
Bank of Kigali
Net Provisions for non performing loans increased by 62% to 2,424 million. However, we expect going forward the figure will be mitigated by the improved external and internal credit risk environment. Our Balance sheet saw a considerable growth of 30.2% in 2010 reaching Rwf 197,677 million. This growth was supported by the increased lending which saw our net loans increased by 31.5% to Rwf 101,403 million. On the liability side, the growth saw customer deposits reach Rwf 135,677 million, a growth of 24.2% from 2009. This growth was attributable to the branch expansion where I am happy to report that some of the new branches and agencies managed to outperform some of the more established branches in our network. Overall, the continued loyalty and confidence of our customers enabled us to consolidate our position as the market leader in the lending and deposits in the banking sector. Shareholders are among our main stakeholders and creating value for them is an important part of our mission. I am pleased to announce that the Bank increased Shareholders Equity by 72% to Rwf 31,870 million from Rwf 18,541 million. Part of this increase was due to retention of the total profits made as shareholders decided to retain 100% of the profits to support the Banks growth strategies. The other part is attributable to the Revaluation Surplus arising from the revaluation of the Banks properties to reflect their fair value in line with the requirements of the International Financial Reporting Standards. With this shareholders equity the Bank was able to maintain its position as best capitalised bank in the market. The Bank remains very strong in key parameters with the largest balance sheet among all banks on Rwf 197,677 million, capital base of Rwf 31,870 million and branch network of 33 across all the provinces in the country. This positions us favorably to take advantage of market opportunities and derive good value for our current and potential investors. The total capital to total risk weighted assets ratio rose from 17% to 20% whereas the liquidity ratio remained stable at 44% from 42% in 2009.
As part of our strategic plan, the Bank continues to enhance the risk management culture by investing in activities that increase education and awareness in risk management and compliance among our staff in order to reach the level of regional and international banks. Credit risk remains the most significant risk to be managed. During the year, the Bank reengineered its approach to credit risk management to focus more on file and case management. In this regard files in performing and watch categories are actively managed by the corporate and retail relationship departments. Those in substandard and doubtful categories are actively managed by the Credit Risk Department. Files in loss category are managed by the legal services section with the assistance of outsourced legal services providers. In 2011, we expect the default rate to come down as a result of the gains expected from the market support given by the Government through the enactment and implementation of Mortgage Law, reorganization of the Land Registry and the Registrar Generals Office coupled with the establishment of commercial courts and the establishment of the Credit Reference Bureau.
Bank of Kigali
Your Trusted Partner in Wealth Creation enhanced risk management reporting. Furthermore, we are increasing our self service products by promoting Zipp cards which are prepaid cards that appeal to the lower income - brackets for the transfer of payments, microfinance loan repayments and receipt of salaries without necessarily incurring the high maintenance costs of bank accounts.
customers the ability to check their balances and order cheque books, in addition to making transactions such as purchase prepaid electricity, pay DSTV and Star Media together with transfer of funds between accounts. This product has been very popular with our customers as we continue to promote self service branch-less banking. We improved our secure internet banking product, B-Web with which customers are now able to access their bank accounts, make transfers, print bank statements, order cheque books or give instructions to the Bank securely at the comfort of their offices and homes 24/7. We also increased the number of ATMs to 26 in order to give our customers 24 hour access to their bank accounts. Our ATMs now accept VISA cards, in addition, to the local SIMTEL cards. In addition to our ATM, customers can access their accounts in more than 77 cash dispensers around the country because of our strategic partnership with SIMTEL, the national switch service provider. These technology driven products also aim at reducing the footfall in our banking halls. At the same time they reduce the paper based customer requests as part of our contribution to the environment.
Our theme for 2011 will be to consolidate our gains made in realizing our customer service promise of always endeavoring to meet and exceed our customer expectations.
Technology
We have continued to invest in technological developments to meet our customer demands. In 2010, we upgraded our banking software from Delta 7 to Delta 9 which is more user friendly and facilitates more
We hope to realize this promise by continuing to launch innovative self service products and services. We intend to bring existing and new products and services closer to our customers through continued branch expansion while reducing the cost of service delivery by investing in technology based delivery channels. In addition, we have dedicated more investment in training and development of our staff. We will also continue to review our processes to ensure that we are cost effective and efficient in our service delivery.
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Bank of Kigali
In addition, to the support given by the shareholders through the retention 100% of the 2010 profits, the Bank is seeking to raise additional capital through the issue of a 25% initial public offering in June 2011. We are also at advanced stages of negotiating long term credit lines with two international financial institutions. We believe that our growth strategies will be met through these long term funding initiatives and they will also help avoid the liquidity challenges faced by the banking sector in 2009 and 2010.
we are on track to establishing and reinforcing lending to the lower income earners among our population which we believe shall go a long way in financially transforming the lives of under-banked population in Rwanda.
Funding our growth strategies
As is the case with all banks across Rwanda and the region, the Banks long term loan assets are mainly funded by mobilized short term deposits. This results into increased maturity and interest rate risk of the Bank.
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Bank of Kigali
Shareholders responsibilities
In accordance with the Law Relating to Companies , shareholders have the primary role to appoint the board of directors and the external auditors. This role is extended to holding the Board accountable and responsible for efficient and effective governance. The responsibility of the shareholders is exercised through the annual and extraordinary general meetings.
Shareholding Structure
The Shareholding Structure is as follows: Name of Shareholder
Government of Rwanda Social Security Fund of Rwanda (CSR) Prime Holding OCIR Caf OCIR Th National Post Office RAMA (National Health Insurance Fund) Total
No. of Shares
30,182 15,313 1 1 1 1 1 45,500
Shareholding %
66.33 33.66 0.002 0.002 0.002 0.002 0.002 100
No. of Shareholders
5 2 7
No. of Shares
5 45,495 45500
% Shareholding
0.01 99.99 100
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Bank of Kigali
Boards responsibilities
The Board of Directors is responsible for the governance of the Bank and for conducting its business and operations with integrity and in accordance with the generally accepted corporate governance practices based on transparency, accountability and responsibility.
Board performance
The Board is the Banks apex corporate governance body while the Board Committees and the individual directors are the leading authority in formulation of the Banks policies and procedures. Key policies and procedures are in place and the strategic leadership is exercised through meetings attended as well as through holding management accountable. The Board receives detailed financial information and regular presentations from executives on the Banks business performance. In addition, prior to each Board meeting, the Board receives all the necessary information on the matters at hand. This enables the directors to make informed decisions on governance, strategic, financial and operational issues under consideration.
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Bank of Kigali
Board
Credit Committee
12 Attendance X X X X X 12/12 12/12 X
ALCO committee
4 Attendance X x X X 4/4 X X 4/4
Meetings held Members Lado GURGENIDZE Marc HOLTZMAN Caleb RWAMUGANZA Apollo NKUNDA Perrine MUKANKUSI Sudadi KAYITANA Alphonsine NIYIGENA Dativa MUKESHIMANA
Board Committees
In line with the BNR guidelines 06/2008 on corporate governance, four Board Committees are in place to support the board in performing its functions particularly in respect to Audit and Risk Management, Credit Risk Management, Asset and Liability Management and the Nominations and Remuneration Committee. Setting up and performance of board committees remains instrumental in reinforcing the performance of the Board and underpins its critical responsibilities. In this respect, the board committees have terms of reference which underscore the scope and context of their performance as approved by the board and corporate governance regulation.
Credit Committee
The committee comprises of three independent non-executive directors. The committee meets on monthly basis or as required by the business demands. The functions of the committee include appraisal and approval of credit applications. The Committee also monitors and reviews credit risk, non-performing assets and ensures adequate provisions are held against identifiable losses in accordance with BNR guidelines. Credit facilities in excess of Rwf 250 million require board review and approval through its Board Credit Committee.
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Bank of Kigali
Management Committees
Management committees assist the Managing Director in the day to day implementation of the policies and management of business operations. The committees include;
Credit Committee
This committee comprises the Managing Director, Chief Operating Officer, Head of Credit, Head of Retail Banking and Head of Corporate Banking. It is charged with credit risk management, appraisal of loans and advances and other credit related matters. The committee meets on weekly basis.
Asset-Liability Committee
The Bank has a Management Asset-Liability Committee (Management ALCO), which is chaired by the Banks Managing Director and comprises the Chief Operating Officer and includes Head of Retail, Head of Corporate Banking, Head of Risk and Compliance and Head of Finance and Budget. The committee meets on a daily basis as part of the Banks treasury, liquidity and balance sheet management.
Procurement Committee
The procurement committee is chaired by the Chief Shared Services Officer and comprises the Heads of Human Resources and Administration, Information Systems and Technology, Administration Manager and Procurement Officer. It is responsible for handling the review and appraisal of all tenders and procurement of goods and services above Rwf 10 million and implementation of the Banks Procurement Policy and procedures.
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Lado Gurgenidze is a career banker who after a decade spent at several investment banks in Eastern Europe and London returned to his native Georgia in 2004 and spearheaded, as Executive Chairman and CEO, a turnaround of Bank of Georgia (LSE: BGEO). During Lados three-year tenure, the banks total assets and net income grew 760% and 1,563%, respectively. As its market share grew from 18% to 34%, Bank of Georgia became the leading universal bank in Georgia and the region with market capitalisation exceeding US$900 million at the time of Lados departure (up from US$30 million at the time of his arrival). In 2007-2008, Lado served as Prime Minister of Georgia, leading the Georgian economy through the final stage of freemarket reforms, including tax reforms, financial services sector reform as well as aggressive privatisation and liberalisation policies. Since he stepped down as Prime Minister, Lado has been a frequent public speaker on issues of economic liberty and free-market reforms in developing countries and co-chairs the Emory Center for Alternative Investments. In October 2009, he was invited to join, as Chairman, the board of Bank of Kigali, the largest bank in Rwanda.
Sudadi is a practising accountant with wide experience in finance and audit. He has served in public and private sector, and the international community organisations including UNDP with additional experience in the Insurance Industry. He is a Chartered Accountant (ACCA), qualified professional of supply chain management and is a member of the Institute of Purchasing and Supply (MCIPS). He also holds an Associate degree in Accounting from the National University of Rwanda.
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practice from both the public and private sector. He specialises in Banking and Finance Law, Labour Law and Government procurement. Prior to joining the private sector, he was head of Legal Services of the National Tender board, now the Rwanda Procurement Authority. Apollo holds a Masters degree in Business and Trade law from Erasmus University Rotterdam, the Netherlands, and a Bachelors of Law from the National University of Rwanda. He is a member of the Rwanda Bar Association, the East African Law Society, an associate member of the Chartered Institute of Purchasing and Supply, a founding member of the Centre for Arbitration and honorary counsel to the Kigali Golf Club.
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Alphonsine is Chairperson of the Union Investments Corporation (UIC), Chairperson of Liberal professionals Chamber, one of the nine chambers of the Rwanda Private Sector Federation. She serves as Board Member of Motor Guarantee Fund, Rwanda Institute of Administration and Management (RIAM) and Private Sector Federation of Rwanda. Alphonsine is the Managing Director of WorldWide Initiatives SARL, a regional consulting firm registered in Rwanda and has conducted national and international consultancies as an independent consultant in the areas of finance, economic planning, and audit. Prior to joining the private sector, Alphonsine served in the Office of Auditor General for 5 years as senior auditor and team leader. Alphonsine holds a Masters Degree in Business Administration in Finance from Maastricht University, Netherlands.
Marc is Vice Chairman of Barclays Capital. Prior to joining Barclays Capital in August 2008, Marc served as Vice Chairman of ABN Amro Bank. He was also co-founder and President of MeesPierson EurAmerica and a Senior Adviser to Salomon Brothers, he lived and worked in Eastern Europe and Russia from September 1989 until October 1998. Drawing on his early experience in helping develop Central Asias finance sector, Marc was appointed by Kazakhstans Prime Minister to serve on the Board of Trustees of The Almaty Regional Financial Centre. In addition, Marc serves as non-executive Chairman of Indus, a leading Indian oil and gas company listed on Londons AIM market and as Chairman of CSM Global Pharma. Marc is also a member of the Board of Prospect Global Resources, a US based natural resources and mining company. Marc is widely recognized as a leading authority on economic and political developments in emerging markets. He also served as President of The University of Denver with approximately 10,000 students and as Colorados first Secretary of Technology. Marc draws on almost three decades of political and public service in the United States. He holds a Bachelor of Arts Degree in Economics from Lehigh University.
Dativa is the Executive Secretary for Duterimbere Asbl, a women Entrepreneurial institution which has experience in Micro Finance and Women Association in Rwanda. Dativa has vast experience in programme management and financing of NGOs, especially gender related programmes. She has managed institutional finances including resource mobilization as well as human resources at operation and strategic levels. Dativa holds a Bachelors degree in Economics majoring in Money and Banking from Kigali Independent University and Ms Project Management from CEPROMEC University, Bujumbura in partnership with the Inter University Centre of Development Studies of Craydon, Australia.
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Lawson is the Chief Operating Officer. He has been with the Bank since 2009. He has wide experience in Strategic Management processes, Financial Advisory, Corporate Governance, Risk Management and Compliance Advisory gained from over 15 years post qualification experience previously in CFC Bank Group. Immediately prior to joining the Bank, Lawson was an Associate Director specialising in Transaction Services at KPMG East Africa. Mr. Naibo is a qualified business strategy and financial services advisor and holds MBA in Strategic Management and BSc in Financial Services. He is also a Certified Public Accountant and Chartered Banker and certified trainer in Corporate Governance.
Louis has been with the Bank for over 30 years. He has served in various capacities including a range of management positions. Mr Rugerinyange holds a Bachelors Degree in Economics from the National University of Rwanda. Prior to holding his new role as CSSO, Louis was the head of Administration and HR and was responsible for the growth in staff and branch network.
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Flora is the head of Human Resources and Administration Department. She has been with the Bank since 2008. Prior to joining the Bank, she worked in the telecommunication industry with about ten years of experience. Flora has been responsible for growth in branch network and staff since 2008 and she was a focal point in managing the consultants charged with organisational reforms in 2009. She is also responsible for the growth of the branch infrastructure which has seen the Banks branch network grow from 14 in 2008 to 33 in 2010. She has overseen the Banks strategic human resources restructuring from a product driven structure to a customer focused structure. In addition she has overseen the supply and demand side of the Banks human capital with staff complement of 284 in 2008 to 457 in 2010.
Flora holds a Bachelors degree in Business Administration with specialisation in Human Resources from Kigali Institute of Science, Technology and Management (KIST).
John has been the Head of Finance and Budget Department since 2009. John brings in a wealth of experience from the financial sector. He served as a financial consultant and Audit Manager in Ernst and Young Uganda and the United Kingdom respectively. John is responsible for overseeing the development and implementation of the Banks strategic and statutory financial reporting information systems since 2009. John holds a Bachelors degree in Business Administration from Makerere University-Uganda and an MBA-Accounting & Finance from Oxford Brookes University, UK. He is also a member of the Association of Certified Chartered Accountants UK (ACCA).
Frances is the Head of Corporate Affairs department. She joined the Bank in 2009 with 10 years of experience in Public Services Management. She has served as a Non-Executive Director on the Board of Directors for various organisations, and is trained in Corporate Governance. She has been instrumental in establishing professional company secretarial services and an inhouse legal counsel section at the Bank. In addition in her role as Head of Corporate Affairs she has overseen the development and implementation of the Corporate Social Reponsibility policy of the Bank. Frances holds a Masters degree in Public Administration from the University of Liverpool, UK and Bachelor of Commerce degree from Kigali Institute of Science Technology and Management.
Adolphe is the Head of Retail Banking, and has been in the Bank for over 10 years. Adolphe held various responsibilities in the Bank including; Branches management, Corporate Banking and Operations Departments. Prior to joining the Bank, he worked in the banking industry in Burundi. Adolphe is a holder of a Bachelors degree in Economics from the University of Bujumbura in Burundi.
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Martin is Head of Corporate Banking Department and has been with the Bank since 2009. Martin has wide experience in Credit Analysis, Relationship Management, and corporate Banking gained from his service in management positions with the Rwandan Banking sector. Martin holds a MBA in Finance from Maastricht School of Management in Netherlands and a Bachelors degree in management from the National University of Rwanda (NUR).
Innocent is the Head of Credit Risk and has been with the Bank since 2004. Innocent has wide experience in credit analysis and management which he gained from having worked with the Rwandan Banking sector for over seven years. Innocent is a holder of a Bachelors degree in Economics from the National University of Rwanda.
Innocent MUSOMINARI, Head of Credit Department Alex is the Head of Information and Communication Technology and has been with the Bank since 2009. Prior to joining the Bank, Alex was Head of the Applications Division, G7 and was charged with management of all software and application in place at the Rwanda Revenue Authority. Alex has been responsible for the information, communication and technology development and advancements at the bank since 2009. Alex holds a Bachelors degree in Technical Electro-mechanical Engineering and Information Technology, from the National University of Rwanda.
Yves is the Head of Risk and Compliance since early 2010. Yves brings to the Bank vast experience from the Banking sector after serving as a Bank examiner at the National Bank of Rwanda for ten years. Prior to joining the Bank, he held the position of Internal Control and Compliance in one of the commercial banks in Rwanda. He holds a Bachelors degree in Economics from the National University of Rwanda. Yves GATSIMBANYI, Head of Risk & Compliance
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Gerald heads Internal Audit and Control Department. He joined the Bank in 2009 and has over 10 years experience in Audit and Finance especially in the financial sector and telecommunication industry. Gerard holds a Bachelor of Commerce degree from Makerere UniversityUganda, and Bachelor of Accounting degree from Transkei UniversityRepublic of South Africa. He is also a member of the Association of Certified Chartered Accountants UK (ACCA) and Institute of Certified Public Accountants Rwanda (ICPAR). Gerald NYANGEZI, Head of Internal Audit
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Bank of Kigali
The Bank has a clear environment and social policy that details its approaches to environmental conservation within the provisions of the national environment policy as well as the strategies to reduce our carbon footprint in order to conserve our environment. Under its environment policy, the Bank has taken deliberate steps to reduce paperwork produced for its customers such as printed bank statements by offering alternative technology driven services such as SMS banking, internet banking and e-statements. Moreover on the supply side, the staff of Bank of Kigali promotes environmental conservation through tree planting and continued participation in community work, Umuganda.
Our Vision on the impact of CSR policy and strategy on the countrys social economic development
We believe that the country faces four major challenges that need to be addressed if the country is to achieve the Vision 2020 aspiration of becoming a middle income country by 2020. These challenges include; elimination of illiteracy through education, eradication of diseases by promoting community health, environmental sustainability and eradication of poverty. The Banks CSR plan encompasses the areas of education, health, environmental conservation and poverty eradication as its major focus areas in its CSR investment policy in the medium term. Related projects are mainly implemented through partnerships with civil society groups. In our 2009 report, we outlined a number of projects and social orientations undertaken to realise the Banks CSR policy. In the year under review, we sustained these projects and initiated new ones some of which are detailed below.
Our contribution towards elimination of of poverty through improving access to our services
The Bank has an ambitious plan of improving access to financial services especially in the rural areas where majority of Rwandans live. On one hand this is being done through the expansion of
2010 Annual Report
Bank of Kigali
branches where the Bank is acting as a catalyst in spurring economic development within the locality where the new branches will be located. On the other hand, we are also developing products and services aimed at the lower income groups. These products and services include micro credit products aimed at women groups, youth groups and retired citizens with the aim of transforming these target markets to higher income generating segments of our business.
It is through the education systems that we are able to tap the professional human capital required to provide our products and services to our customers now and in the future. It is therefore, imperative for the Bank to respond to the national and global call to support education especially for under privileged children. This enables us to make our humble steps towards the countrys achievement of the 2015 Millennium Development Goals and Vision 2020. We therefore have sustained the education project that we started in 2008, to provide scholarships for 200 students throughout their secondary education in partnership with Imbuto Foundation, a reputable Civil Society Organization in Rwanda. Investing in Community Health Bank of Kigali intends to continually strive to promote community health. We believe that a healthy community will be able to enhance our business growth through increased productivity. We are especially passionate about being part of the national and global efforts to combat killer diseases especially malaria and HIV/AIDS pandemics. In this respect, the Bank has committed to a three year partnership with the Global Fund through the Friends of Africa Initiative running from 2011 to 2013. The funds raised shall be used to combat malaria and HIV/AIDS in Africa. Furthermore, we contribute financially to two hospitals in Rwanda, King Faycal Hospital and Central University Hospital of Kigali (CHUK).
Education
We acknowledge that being a partner in education is key to our role in social and economic development.
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Bank of Kigali
Conclusion
The Bank will continue to streamline the corporate social responsibility policy in line with the changing needs of our society. Our mission includes continuous investment in our community as an important part of our strategic plan. Our approach will be to do things right so as to create long term stakeholder value by promoting sustainable initiatives in human capital development and environmental conservation. In order to achieve this we have put aside one percent of our net operating revenue for CSR activities. Our activities are principally through strategic alliances with established organisations working with the marginalised groups.
Sports Enhancement
We also acknowledge the necessity of sports in our community and we are very happy to extend our support to sports and activities that promote physical fitness for our staff and the society. Our company football team-pictured below- has won numerous competitions.
Bank of Kigali Team together with the Managing Director, James Gatera, after winning the annual Labour Day Competition.
As a good corporate citizen, we support the well being of our neighborhoods and our communities at large.
2010 Annual Report 27
FOR E
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Bank of Kigali
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NO MORE BURDEN
Financial Reports
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Financial Reports
BANK OF KIGALI LIMITED BANK INFORMATION AS AT 31 DECEMBER 2010 PRINCIPAL PLACE OF BUSINESS Bank of Kigali Limited Avenue de la Paix P.O. Box 175 Kigali - Rwanda REGISTERED OFFICE Bank of Kigali Limited Avenue de la Paix P.O. Box 175 Kigali - Rwanda LAWYERS Mr. Emmanuel Rukangira P.O Box 3270 Kigali Rwanda Mr. Athanase Rutabingwa P.O. Box 6886 Kigali - Rwanda BANK SECRETARY Frances Ihogoza Bank of Kigali Building Avenue de la Paix P.O. Box 175 Kigali - Rwanda BANK AUDITORS Ernst & Young (Rwanda) SARL Certified Public Accountants Bank of Kigali Building Avenue de la Paix P.O. Box 3638 Kigali - Rwanda
Bank of Kigali
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Bank of Kigali BANK OF KIGALI LIMITED REPORT OF THE DIRECTORS YEAR ENDED 31 DECEMBER 2010
Financial Reports
The directors submit their report and the audited financial statements for the year ended 31 December 2010 which show the state of the Banks state of affairs. 1. PRINCIPAL ACTIVITY The Bank offers commercial and retail banking services. 2. RESULTS The results for the year are set out on page 36. 3. DIVIDEND The directors do not recommend payment of dividend in respect of the year ended 31 December 2010 (2009: Rwf 2,643,482,000) 4. RESERVES The reserves of the Bank are set out on page 38 and note 16. 5. DIRECTORS The directors who served during the year and to the date of this report were: Mr. Lado Gurgenidze Mr. Sudadi Kayitana Mr. Caleb Rwamuganza Mr. Marc Holtzman Mr. Apollo Nkunda Mrs. Perrine Mukankusi Mrs. Alphonsine Niyigena Mrs. Dative Mukeshimana Mr. Francois Nkulikiyimfura Mr. James Gatera 6. AUDITORS Ernst & Young (Rwanda) SARL have expressed their willingness to continue in office. By Order of the Board - Chairman - Appointed on 02 September 2010
.. 2011
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Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED STATEMENT OF DIRECTORS RESPONSIBILITIES FOR THE YEAR ENDED 31 DECEMBER 2010 The Companies Act of Rwanda requires the directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Bank as at the end of the financial year and of its operating results for that year. It also requires the directors to ensure the Bank keeps proper accounting records which disclose, with reasonable accuracy the financial position of the Bank. They are also responsible for safeguarding the assets of the Bank. The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates in conformity with International Financial Reporting Standards and the requirements of the Companies Act of Rwanda. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Bank and of its operating results. The directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control. Nothing has come to the attention of the directors to indicate that the Bank will not remain a going concern for at least the next twelve months from the date of this statement.
................ Director
................ Director
Date
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Bank of Kigali
Financial Reports
REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OF BANK OF KIGALI LIMITED REPORT ON THE FINANCIAL STATEMENTS We have audited the accompanying financial statements of Bank of Kigali Limited as set out on pages 35 to 87, which comprise the statement of financial position as at 31 December 2010, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and, a summary of significant accounting policies and other explanatory notes. DIRECTORS RESPONSIBILITY FOR THE FINANCIAL STATEMENTS The directors are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Rwanda and Laws and Regulations governing Banks in Rwanda, and for such internal control as the directors determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. AUDITORS RESPONSIBILITY Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements 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 selected depend on the auditors 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 auditor considers internal control relevant to the Banks 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 Banks internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, 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. OPINION In our opinion, the financial statements give a true and fair view of the state of financial position of the Bank as at 31 December 2010, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Rwanda and Laws and Regulations governing Banks in Rwanda.
33
Financial Reports
Bank of Kigali
REPORT OF THE INDEPENDENT AUDITORS (Continued) TO THE MEMBERS OF BANK OF KIGALI LIMITED
REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS The Companies Act of Rwanda which was promulgated on 27 April 2009 requires that in carrying out our audit, we consider and report to you on the following matters. We confirm that: i) ii) iii) iv) We have no relationship, interests and debts in the Bank; We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purpose of our audit; In our opinion, proper books of account have been kept by the Bank, so far as appears from our examination of those books; We have communicated to you through the management letter, internal control weaknesses identified in the course of our audit including our recommendations with regard to those matters.
..2011
34
Bank of Kigali BANK OF KIGALI LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010
Financial Reports
Note ASSETS Cash in hand Cash balances with the National Bank of Rwanda Due from banks Loans and advances to customers Financial investments held-to-maturity Financial investments available-for-sale Other assets Intangible assets Property and equipment TOTAL ASSETS LIABILITIES AND EQUITY Customer deposits Due to banks Tax payable Other payables Dividend payable Deferred tax TOTAL LIABILITIES EQUITY Share capital Revaluation Surplus Reserves Retained earnings TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 15 16 16 16 24 12 13 24 14 3 4 5 6 7 8 9 10 11
2010 Rwf 000 6,881,845 22,562,505 38,452,178 101,402,657 5,224,395 268,375 4,390,670 180,604 18,313,417 197,676,646
2009 Rwf 000 4,623,520 19,099,158 28,754,599 77,095,866 12,312,906 315,108 3,277,799 16,892 6,375,155 151,871,003
These financial statements were approved by the Board of Directors on .. 2011 and signed on its behalf by:-
...................... Director
...................... Director
35
Financial Reports
BANK OF KIGALI LIMITED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010
Bank of Kigali
Note
2009 Rwf 000 13,798,240 ( 3,409,474 ) 10,388,766 1,677,749 3,335,299 598,649 16,000,463 ( 1,500,046 ) 14,500,417 ( 3,055,815 ) ( 903,398 ) ( 3,099,306 ) ( 7,058,519 ) 7,441,898 ( 2,154,935 ) 5,286,963
Interest and similar income Interest and similar expense Net interest income Net fee and commission income Foreign exchange gains Other income Total operating income Impairment loss on financial assets Impairment loss on financial assets Net operating income Personnel expenses Depreciation and amortization Operating expenses Total operating expenses Profit before taxation Income tax expense Profit for the year Earnings per share: Basic and diluted earnings per share
17 18
19 20 21
6(e) 8 (b)
22 23
24
( 2,502,810 ) 6,178,582
25
136
116
36
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2010
Note
Profit for the year Other comprehensive income Revaluation of Buildings Total comprehensive income net of taxes 16 (a)
6,178,582
7,150,542 13,329,124
5,286,963
37
Financial Reports
38 Share capital (Note 16(b)) Rwf000 5,005,000 5,005,000 5,005,000 5,005,000 2,800,890 2,886,124 528,636 528,636 2,272,254 2,357,488 2,272,254 2,357,488 6,262,540 6,262,540 1,586,209 7,848,151 7,150,542 7,150,542 565,400 565,400 4,523,557 1,706,854 1,792,088 1,738,983 Rwf000 Rwf000 Rwf000 Rwf000 Rwf 000 5,654,357 (5,654,357) 5,286,963 (2,643,482) 2,643,481 2,643,481 (2,643,481) 6,178,582 6,178,582 (Note 16(b)) (Note 16(b)) Rwf000 15,897,282 5,286,963 (2,643,482) 18,540,763 18,540,763 7,150,542 6,178,582 31,869,887 Legal reserves Special reserves Other reserves Revaluation surplus Retained earnings Total
BANK OF KIGALI LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2010
At 1 January 2009
Bank of Kigali
Dividends paid
At 31 December 2009
At 1 January 2010
At 31 December 2010
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2010
Note OPERATING ACTIVITIES Profit before taxation Adjustment for: Depreciation Amortisation of intangible assets Dividends received Provisions on equity investments Cash flows generated from operating activities before changes in working capital Loans and advances to customers Other assets Customer deposits Other accounts payable Cash flows generated from operations Income taxes paid Net cash flows from operating activities INVESTING ACTIVITIES Buy/ (Sale) of investments Held to Maturity Dividends received Purchase of property and equipment Purchase of intangible assets Net cash flows used in investing activities FINANCING ACTIVITIES Dividends paid Net cash flows used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 01 January Cash and cash equivalents at 31 December 26 24 (a)
39
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 1. CORPORATE INFORMATION
Bank of Kigali
Bank of Kigali Limited is a financial institution licensed to provide corporate and retail banking services to corporate, small and medium size enterprises and retail customers in various parts of Rwanda. The Bank is a limited liability company incorporated and domiciled in Rwanda. The financial statements for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the directors on 28 March 2011. 2. ACCOUNTING POLICIES 2.1. Basis of preparation The financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The financial statements are presented in Rwandan Francs (Rwf) and all values are rounded to the nearest thousand (Rwf 000) except when otherwise indicated. Statement of compliance The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). Presentation of financial statements The bank presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the statement of financial position date (current) and more than 12 months after the statement of financial position date (non- current) is presented in note 31. 2.2. Changes in accounting policy and disclosures New and amended standards and interpretations The accounting policies adopted are consistent with those of the previous financial year. Amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Bank. IFSR2 Share- based payment: Group Cash-settled Share-based Payment transactions effective 1 January 2010 IFRS 3 Business Combinations (Revised) AND IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1 July 2009, including consequential amendments to IFRS 2, IFRS 5, IFRS 7, IAS7, IAS 21, IAS 28, IAS 31 and IAS 39. IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items effective 1 July 2009 IFRIC 17 Distribution of Non Cash Assets to Owners effective 1 July 2009 IFRIC 18, Transfers of assets from customers Improvements to IFRSs (May 2008) Improvements to IFRSs (April 2009)
40
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued) 2.2. Changes in accounting policy and disclosures (continued) The adoption of the standards or interpretations is described below: IFRS 2 Share-based Payment (Revised) The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for Bank cash-settled share-based payment transactions. The standard is not relevant to the Bank and did not impact on the financial position or performance of the Bank. IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results. IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January 2010. The change in accounting policy was early adopted in 2009 and applied to the acquisition of the controlling interest in Kingdom Securities Limited. IAS 39 Financial Instruments: Recognition and Measurement Eligible Hedged Items The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Bank has concluded that the amendment will have no impact on the financial position or performance of the Bank, as the Bank has not entered into any such hedges. IFRIC 17 Distribution of Non-cash Assets to Owners This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation has no effect on either, the financial position nor performance of the Bank. IFRIC 18, Transfers of assets from customers IFRIC 18 was issued in January 2009. It clarifies how to account for transfers of items of property, plant and equipment by entities that receive such transfers from their customers. The interpretation also applies to agreements in which an entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment, and the entity must then use that item to provide the customer with ongoing access to supply of goods and/or services. The Bank is not impacted by applying IFRIC 18. Improvements to IFRSs In May 2008 and April 2009, the IASB issued omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments where relevant resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Bank.
41
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
Bank of Kigali
42
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
43
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued) Improvements to IFRS (Issued in May 2010) The IASB issued improvements to IFRSs, an omnibus of amendments to its IFRS standards. The amendments have not been adopted as they became effective for annual periods beginning on or after either 1 July 2010 or 1 January 2011. The amendments are listed below. IFRS 3 Business Combinations IFRS 7 Financial Instruments: Disclosures IAS 1 Presentation of Financial Statements IAS 27 Consolidated and Separate Financial Statements IFRIC 13 Customer Loyalty Programmes
The Bank, however, expects no impact from the adoption of the amendments on its financial position or performance.
44
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
45
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
In addition to the arrears period, banks must follow subjective criteria in arriving at the classification attributable to the assets. Impairment of available-for-sale investments The Bank reviews its debt securities classified as available-for-sale investments at each reporting date to assess whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances. The Bank also records impairment charges on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is significant or prolonged requires judgment. In making this judgment, the Bank evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost. Deferred tax assets Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.
46
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
47
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
48
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
49
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
50
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
51
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
52
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
53
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
54
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories: Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis. Fee income from providing transaction services Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria. (iii) Dividend income Dividend income is recognised when the Banks right to receive the payment is established. (k) Cash and cash equivalents Cash and cash equivalents as referred to in the statement of cash flows comprises cash on hand, current accounts with National Bank of Rwanda, and amounts due from banks and government securities on demand or with an original maturity of three months or less. (l) Property and equipment Buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of the revaluation. Valuations are performed frequently to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any revaluation surplus is recognised in other comprehensive income and accumulated in the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred from the asset revaluation reserve to retained earnings. All other property and equipment (including equipment under operating leases where the Bank is the lessor) is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.
55
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
Freehold land is not depreciated as it is deemed to have an indefinite life. Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in Other income in profit or loss in the year the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate. (m) Intangible Assets The Banks intangible assets include the value of computer software. An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Bank. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Amortisation is calculated using the reducing balance method to write down the cost of intangible assets to their residual values over their estimated useful lives at 2 years. (n) Impairment of non-financial assets The Bank assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the assets recoverable amount. An assets recoverable amount is the higher of an assets or cash-generating units (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.
56
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
57
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
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Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 2. ACCOUNTING POLICIES (continued)
59
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 3. CASH IN HAND
2010 Rwf 000 Cash in foreign currencies Cash in local currency 4,402,749 2,479,096 6,881,845 2009 Rwf 000 2,917,830 1,705,690 4,623,520
6.
Non performing loans and advances on which interest has been suspended amount to Rwf 9,003 million (2009: Rwf 6,685 million). Interest income continues to be accrued on the account balances based on the original effective interest rate but it is suspended.
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Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 6. LOANS AND ADVANCES TO CUSTOMERS (continued)
2010 Rwf 000 d) Impairment allowance for loans and advances At 1 January Impairment losses on loans and advances Recoveries Amounts written off At 31 December e) Impairment losses for the year Impairment losses on loans and advances Recoveries on non performing loans Charge for the year (6,074,342) 3,698,061 (2,376,281) (4,108,897) 2,608,851 (1,500,046) 2,932,503 6,074,342 (3,698,061) (2,110,726) 3,198,058 3,791,537 4,108,897 (2,608,851) (2,359,080) 2,932,503 2009 Rwf 000
Impairment is carried out by individual assessment. There were no repossessions and collaterals held are not considered in impairment assessment.
Treasury bills and treasury bonds are debt securities issued by the Government of Rwanda and are classified as held-to-maturity. The Banks investments in treasury bills and government bonds are carried at amortised cost.
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Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 8. FINANCIAL INVESTMENTS AVAILABLE-FOR-SALE INVESTMENTS
a) Investments in unlisted shares Banque Rwandaise de Dveloppement S.A Banque de lHabitat du Rwanda S.A Banque de Dveloppement des Etats de Grands Lacs S.A Magasins Gnraux du Rwanda S.A Socit des Transports Internationaux King Faycal Hospital Socit Interbancaire de Montique et de Tlcompensation 2010 Rwf 000 21,975 75,000 5,000 5,000 20,000 46,733 166,400 340,108 (71,733) 268,375 b) Impairment loss for available for sale investments At 1 January Charge for the year 2009 Rwf 000 21,975 75,000 5,000 5,000 20,000 46,733 166,400 340,108 (25,000) 315,108
25,000 25,000
The available-for-sale Investment (unquoted equity) is recorded at cost since there is no active market for these investments. Available-for-sale financial assets are valued using models which sometimes only incorporates data observable in the market and at other time use both observable and non-observable data. The non-observable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates. 9. OTHER ASSETS
Prepayments and other receivables Clearing effects and accounts in transit Staff salary advances 2,803,092 1,582,133 5,445 4,390,670 570,801 2,689,870 17,128 3,277,799
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BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
Bank of Kigali
2010 Annual Report Land Rwf000 Rwf000 Rwf000 Rwf000 Rwf000 Rwf000 Building Computer equipment Motor Furniture, fittings and Work in progress vehicles equipment Total Rwf000 31,172 31,172 17,064,291 1,280,583 392,286 4,418,564 6,188,125 661,106 10,215,060 903,018 377,565 311,436 80,850 2,846,585 1,571,979 388,883 388,883 10,280,336 3,080,383 10,215,060 23,575,779 1,888,634 991,585 247,297 1,569,593 319,041 732,337 259,248 198,968 48,329 1,404,283 730,563 2,134,846 3,905,181 1,357,181 5,262,362 31,172 31,172 4,618,532 170,681 15,175,657 288,998 144,989 112,468 2,283,718 1,442,302 388,883 18,313,417 6,375,155
COST/REVALUATION
At 31 December 2010
DEPRECIATION
At 31 December 2010
At 31 December 2010
At 31 December 2009
Buildings were revalued by management in 2010 based on the estimated market value. The revaluation was carried out by an independent valuer.
Financial Reports
63
Financial Reports
64 Land Rwf000 Rwf000 Rwf000 Rwf000 Rwf000 Building Computer equipment Motor vehicles Furniture, fittings and equipment Total Rwf000 31,172 31,172 6,188,125 903,018 311,436 463,627 220,437 5,724,498 682,581 311,436 1,827,540 1,019,045 2,846,585 8,577,227 1,703,109 10,280,336 1,569,593 732,337 306,120 170,680 1,263,473 561,657 161,479 37,489 198,968 1,032,066 372,217 1,404,283 3,018,675 886,506 3,905,181 31,172 31,172 4,461,025 4,618,532 170,681 120,924 112,468 149,957 1,442,302 795,474 6,375,155 5,558,552
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
COST
At 1 January 2009
Additions
Bank of Kigali
At 31 December 2009
DEPRECIATION
At 1 January 2009
At 31 December 2009
At 31 December 2009
At 31 December 2008
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 12. CUSTOMER DEPOSITS
2010 Rwf 000 Demand deposits Term deposits Current accounts and other customer deposits 97,436,848 33,179,653 5,061,245 135,677,746 2009 Rwf 000 76,261,072 29,916,046 3,305,686 109,482,804
Revaluation reserve represents an increase in carrying value of buildings that were revalued in year 2010. The revaluation was carried out by Archus SARL qualified valuers who are registered with the National Bank of Rwanda.
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Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 16. RESERVES AND RETAINED EARNINGS (Continued)
(b) Reserves
2010 Rwf000 Legal reserves Special reserves Other reserves 2,800,890 2,886,124 7,848,749 13,535,763 2009 Rwf000 2,272,254 2,357,488 6,254,489 10,892,282
6,178,582
2,643,481
The Bank transfers 20% of its profit after tax to special reserves. (10% legal reserves and 10 % special reserves) Other reserves represent amounts transferred from retained earnings to reserves that may be decided by the General Assembly. 17. INTEREST INCOME
Interest on ordinary accounts with banks Interest received from pension, borrowings and other debtors Income from transactions with other banks Interest on overdrawn accounts Interest on overdrafts Interest on equipment loans Interest on consumer loans Interest on mortgage loans Interest on other loans to customers Interest on financing commitments Interest on assets held to maturity
12,019 920,027 24,611 1,966,020 2,878,594 891,336 1,392,333 4,691,951 2,880,673 178,379 735,787 16,571,730
67,140 555,955 26,775 2,753,111 2,205,933 630,343 1,001,433 3,360,263 2,398,864 191,384 607,039 13,798,240
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Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 19. FEES AND COMMISSIONS INCOME
2010 Rwf000 Commissions on operation of accounts Commissions on payment facilities Commissions on loan service Other fees from services Commissions received from financing commitments Commissions received from guarantees commitments 315,431 930,897 781,235 247,693 3,175 540,610 2,819,041 2009 Rwf000 216,827 768,181 134,891 217,723 2,535 337,592 1,677,749
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Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 24. TAXES
2010 Rwf 000 a) Corporate Tax Statement of financial position: Balance brought forward Charge for the year Over provision in prior year Paid during the year Tax payable Statement of comprehensive income: Current tax at 30% on the taxable profit for the year Overprovision in prior year Deferred tax expense Income tax expense Reconciliation of the total tax charge: Accounting profit before tax At statutory income tax rate of 30% (2010: 30%) Income not subjected to tax Tax effect on non deductable expenses Reversal of tax overprovision 8,681,392 2,604,417 131,180 103,349 (336,136) 2,502,810 7,441,898 2,232,569 (346,067) 268,433 2,154,935 2,371,630 131,180 2,502,810 2,171,445 (136,048) 119,538 2,154,935 1,036,637 2,371,630 (2,911,451) 496,817 1,032,867 2,171,445 (136,048) (2,031,627) 1,036,637 2009 Rwf 000
b) Deferred tax The following table shows deferred tax recorded on the statement of financial position in other assets and other liabilities and changes recorded in the income tax expense:
Deferred tax liabilities 2010 Rwf 000 Capital allowances Revaluation of assets-property 805,919 3 ,064,518 3,870,437 Profit or loss 2010 Rwf 000 131,180 131,180 Deferred tax liabilities 2009 Rwf 000 674,739 674,739 Profit or loss 2009 Rwf 000 119,538 119,538
The revaluation surplus was accounted for through other comprehensive income in the statement of comprehensive income.
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Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 25. EARNINGS PER SHARE Earnings per share is calculated on the Profit after tax of Rwf 6,179 million (2009: Rwf 5,287 million) and on the total number of shares in issue during the year. Basic and diluted earnings per share are the same since the Bank did not issue any potentially dilutive instruments.
2010 Rwf000 Profit for the year Number of ordinary shares Earnings per share; Basic earnings per share Diluted earnings per share 6,178,582 45,500 136 136 2009 Rwf000 5,286,963 45,500 116 116
26. CASH AND CASH EQUIVALENTS For the purposes of the statement of cash flows, cash and cash equivalents comprise of the following balance sheet accounts.
Cash in hand due from banks Due from National Bank of Rwanda Due from banks Due to banks 6,881,845 22,562,505 38,452,178 ( 18,920,636) 48,975,892 4,623,520 19,099,158 28,754,599 ( 15,103,987) 37,373,290
The contingent liabilities represent transactions entered into in the normal course of business and are represented by counter indemnities or cash securities from customers for the same amount. Letters of credit, guarantee and acceptance commit the Bank to make payments on behalf of the customers in the event of a specific act, generally relating to the import and export of goods. Guarantees and letters of credit carry the same credit risk as loans.
b) Legal cases The Bank is also party to various legal proceedings from default customers for a total amount of Rwf 5,950 million (2009: Rwf 1,423 million). Having regarded the legal advice received, and in all circumstances, the management is of the opinion that these legal proceedings will not give rise to liabilities, which in aggregate, would otherwise have material effect on these financial statements.
69
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 28. CAPITAL COMMITMENTS There were no capital commitments at the reporting date. 29. RELATED PARTY TRANSACTIONS (a) Transactions with Key management personnel of the bank The bank enters into transactions, arrangements and agreements involving directors, senior management and their related concerns in the ordinary course of business at commercial interest and commission rates. The following table provides the total amount of transactions, which have been entered into with related parties for the relevant financial year. Key management personnel of the bank
Maximum balance during the year 2010 Rwf000 Residential mortgages Other loans 59,093 40,000 Balance as at 31 December 2010 Rwf000 58,093 40,000 Income 2010 Maximum balance during the year 2009 Rwf000 Rwf000 2,860 792 70,301 Balance as at 31 December 2009 Rwf000 70,301 Income 2009 Rwf000 3,178 -
Transactions with other related parties In addition to transactions with key management, the bank enters into transactions with entities with significant influence over the bank. The following table shows the outstanding balance and the corresponding interest during the year.
Amount owed by related parties Interest Interest Balance as at Maximum balance from related to related 31 December during the year parties parties Rwf000 Rwf000 Rwf000 Rwf000 Entities with significant influence over the bank 2010 2009 Amount owed to related parties Balance as at Income 31 December Rwf000 Rwf000
12,646,706 9,507,157
10,989,035 9,507,157
1,040,272 518,125
Loans and advances are advanced to employees at an interest rate of 7%. Loans to directors are advanced at arms length in the ordinary course of business and are adequately secured.
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Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 29. RELATED PARTY TRANSACTIONS (continued) (c) Due to employees and directors
2010 Rwf000 Deposits by directors and shareholders Directors and key management remuneration Key management compensation Directors emoluments 11,798,303 2009 Rwf000 10,150,702
The members of the Board of Directors are listed on page 17. The key management comprise of Managing Director, Chief Operations Officer and Chief Shared Services officer. 30. CAPITAL The Bank maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the Banks capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (BIS rules/ratios) and adopted by the National Bank of Rwanda in supervising the Bank. The Bank always complies in full with all its externally imposed capital requirements. Capital Management The primary objectives of the Banks capital management policy are to ensure that the Bank complies with externally imposed capital requirements and that the Bank maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value. The Bank manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes yet have been made in the objectives, policies and processes from the previous years. However, it is under constant scrutiny of the Board. Regulatory capital The Banks capital adequacy ratio as 31 December was as follows:
Actual 2010 Rwf000 Tier 1 Capital Tier 2 Capital Total Capital 24,719,345 1,787,636 26,506,981 Required 2010 Rwf000 19,798,758 19,798,758 Actual 2009 Rwf000 18,540,763 18,540,763 Required 2009 Rwf000 10,650,617 10,650,617
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Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 30. CAPITAL (Continued)
2010 Rwf000 Total risk weighted assets Tier 1 capital ratio Tier 2 capital ratio 131,991,717 18.7% 20.1% 2009 Rwf000 106,506,172 17.4% 17.4%
Regulatory capital consists of Tier 1 capital, which comprises share capital, share premium, retained earnings including current year profit, foreign currency translation and non-controlling interests less accrued dividends, net long positions in own shares and goodwill. Certain adjustments are made to IFRS-based results and reserves as required by Article 2 (VIII) Regulation Number 11/2009 on Capital Adequacy Requirements of National Bank of Rwanda (BNR). The other component of regulatory capital is Tier 2 capital, which includes 25% of revaluation reserves. The National Bank of Rwanda (BNR) sets and monitors capital requirements for the banking industry as a whole. The BNR has set among other measures, the rules and ratios to monitor adequacy of a banks capital. A prescribed minimum percentage on Capital to total risk-weighted credit exposure is required by the BNR to all Banks operating in Rwanda. The Banks regulatory capital is a ratio of the following components: Capital: This comprises of capital which is permanently and freely available to absorb losses without the bank being obliged to cease trading. Credit Exposures : This is comprised of Total Risk weighted assets (to account for difference in degree of riskiness) made up of On and Off Balance sheet exposures 31. RISK MANAGEMENT Introduction Risk is inherent in the Banks activities but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Banks continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is exposed to credit risk, liquidity risk and market risk, the later being subdivided into trading and non trading risks. It is also subject to various operating risks. The independent risk control process does not include business risks such as changes in the environment, technology and industry. The Banks policy is to monitor those business risks through the Banks strategic planning process. Risk management structure The Board of directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. The Board has appointed the Risk Management subcommittee which has the responsibility to monitor the overall risk process within the Bank The risk committee has the overall responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits. The Risk committee is responsible for managing risk decisions and monitoring risk levels and reports on a weekly basis to the Risk Management subcommittee of the Board. The risk department is responsible for implementing and maintaining risk related procedures to ensure an independent control process is maintained. The unit works closely with the risk committee to ensure that procedures are compliant with overall framework The Risk department is responsible for monitoring compliance with risk principles and limits across the Bank. It is also responsible for the independent control of risks, including monitoring the risk of exposures against limits and the assessment of risks of new products and structured transactions. The department also ensures the complete capture of risks in measurement and reporting systems. Exceptions are reported on a daily basis, where necessary to the risk committee takes the relevant actions to address exceptions and any areas of weakness.
72
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (continued) Risk management structure (Continued) Bank Treasury is responsible for managing the Banks assets and liabilities and the overall financial structure. It is also primarily responsible for the funding and liquidity risks of the Bank. The Banks policy is that risk management processes throughout the Bank are audited annually by the internal audit function, which examines both the adequacy of the procedures and the Banks compliance with the procedures. Internal audit discusses the results of all assessments with management, and report its findings and recommendations to the audit committee Risk measurement and reporting systems The Banks risks are measured using a method which reflects both the expected loss likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on statistical models. The models make use of probabilities derived from historical experience, adjusted to reflect the economic environment. The Bank also runs worst case scenarios that would arise in the event that extreme events which are unlikely to occur do, in fact occur. Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits reflect the business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept, with additional emphasis on selected industries. In addition, the Banks policy is to measure and monitor the overall risk bearing capacity in relation to the aggregate risk exposures across all risk types and activities. Information compiled from all the businesses is examined and processed in order to analyse, control and identify risks on a timely basis. This information is presented and explained to the Board of Directors, the risk committee and the head of each business division. On a monthly basis detailed reporting of industry, consumer and geographical risks takes place. Senior management assesses the appropriateness of the allowances for credit losses on a monthly basis. The Board receives a comprehensive risk report once a quarter which is designed to provide all necessary information to assess and conclude on the risks of the Bank A daily briefing is given to the Managing Director and all other relevant members of the Bank on the utilisation of market limits, proprietary investments and liquidity plus any other risk developments. Excessive risk concentration Concentration arises when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Banks performance to developments affecting a particular industry or geographical location. And in order to avoid excessive concentrations of risk, the Banks policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Bank to manage risk concentrations at both the relationship and industry levels. (a) Credit risk 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 Banks loans and advances to customers and other banks and investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure. Risk Management Department is responsible for independently reviewing all limit applications and making recommendations to the Management Credit Committee and the Board Credit Committee, in terms of authority limits.
2010 Annual Report
73
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (continued) (a) Credit risk (Continued) Management of credit risk The Board Credit Committee owns the credit policy and are responsible for reviewing the policy at least once in a year, ensuring it remains current. The Board of Directors is responsible for approving and periodically reviewing the credit risk strategy of the Bank, significant underwriting initiatives as defined in the Credit Policy Limits, and significant credit risk policies. Executive management is responsible for implementing Credit Policy and recommending amendments to the Board Credit Committee. On an annual basis, Management presents to the Board Credit Committee its annual Credit Strategy outlining: i) ii) iii) iv) v) vi) Review of current portfolio, distribution, profitability and quality; Target markets; A review of economic environment and willingness to trade with various economic sector; Its credit appetite; Aggregate loan for the Bank as a proportion of total assets; Financial statements budgets
The Board is responsible for approving the Credit Risk Strategy. The Risk Management Committee is responsible for monitoring credit and ensuring compliance with limits and that credit risk exposure do not expose undue threat on capital and compound risks. Internal audits are carried out annually and ensure compliance with authority limits, origination and documentary requirements, regulatory guidelines, other internal procedures and policies. Once exposures are booked into the statement of financial position, the following credit risk attributes are monitored by lending department in the various business lines, and independently by Risk Management Department at least monthly: i) ii) iii) iv) v) vi) vii) Adherence to limits; Portfolio diversification by industry sector, product type and business line; Level of significant credit concentration and compliance to prudential lending limits; Maturity distribution of portfolio; Past-due status and level of Non Performing Loans; Portfolio risk grading profile; Lending authority breaches.
Non performing loans Class 3: Substandard Class 4: Doubtful Class 5: Loss Interest in suspense Non performing loan portfolio Allowance for impairment Carrying amount
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Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
31. RISK MANAGEMENT (continued) (a) Credit risk (Continued) Loans and advances classified as 3, 4 and 5 in the Banks internal credit risk grading system are non performing. These are advances 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 agreements. Specific provisions are made on these classes. Loans and advances classified as 1 and 2 are performing loans. According to the National Bank of Rwanda guidelines, no specific provisions for these loans are required.
Less than 30 days 2010 Rwf000 9,924,515 12,965,997 13,374,794 11,801,230 25,696,140 11,427,204 1,281,352 86,404,232 31-90 days 2010 Rwf000 326,283 1,755,726 4,963,202 970,992 1,044,016 790,749 268,332 10,119,300 Total 2010 Rwf000 10,250,798 14,721,723 18,337,996 12,772,222 26,673,156 12,217,953 1,549,684 96,523,532
Overdrafts Treasury loans Equipment loans Consumer loans Mortgage loans Other loans to clients Receivables in transit Total
Aging analysis of past due but not impaired loans by class of financial assets Less than 30 days 2009 Rwf000 2,971,247 12,336,190 6,189,577 17,311,798 22,769,601 61,578,413 31-90 days 2009 Rwf000 482,719 2,131,253 1,844,773 2,766,249 5,130,570 294,683 12,650,247 Total 2009 Rwf000 3,453,966 14,467,443 8,034,350 20,078,046 27,900,171 294,683 74,228,660
Overdrafts Treasury loans Equipment loans Consumer loans Mortgage loans Other loans to clients Receivables in transit Total
(b) Liquidity risk Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities. Management of liquidity risk Assets and Liabilities Management Committee are charged with the responsibility of managing liquidity risk. They delegate the responsibility for daily management of funding requirements to the Head of Finance and Treasury. Management attempts to achieve a balance between the need to provide for liquidity and achieve profitability. The bank maintains a statutory deposit with the National Bank of Rwanda equal to 5% of customer deposits.
75
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (Continued) (b) Liquidity risk (Continued) The Bank has put in place a liquidity risk policy that, at least: Identifies who is responsible for measuring liquidity risk within the Bank; The frequency of internal reporting; Define how senior management monitors liquidity; Desired sources of liquidity and appropriate funding structure. The Bank has adequate procedures and systems for monitoring liquidity. As such, the Bank: Clearly allocates responsibility for measuring and reporting liquidity; Assets and Liabilities Committees maintain Management Information system that can produce accurate liquidity reports promptly; Regularly reports on the level of liquid assets and funding requirements through appropriate reports to the Management and Board.
Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to total liquid liabilities. Details of the reported Bank ratio of net liquid assets to total liquid liabilities at the reporting date and during the reporting year were as follows:
2010 Rwf000 Total liquid assets Total liquid liabilities Liquidity ratio Minimum liquidity ratio required 67,896,528 154,598,382 44% 20% 2009 Rwf000 52,477,277 124,586,791 42% 20%
The bank stresses the importance of current accounts and savings accounts as sources of funds to finance lending to customers. They are monitored using the advances to deposit ratio, which compares loans and advances to customers as a percentage of core customer current and savings accounts, together with term funding with a remaining term to maturity in excess of one year. Loans to customers that are part of reverse repurchase arrangements, and where the bank receives securities which are deemed to be liquid, are excluded from the advances to deposit ratio
76
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (continued) (b) Liquidity risk (continued)
2010 Year end Maximum Minimum Average 44% 51% 44% 48% 2009 42% 52% 41% 47%
Net liquid assets to customer liabilities ratios Net liquid assets are liquid assets less all funds maturing in the next 90 days from wholesale market sources and from individual customers. The bank defines liquid assets for the purpose of the liquidity ratio as cash balances, short-term interbank deposits and highly rated debt securities available for immediate sale and for which a liquid market exists.
77
Financial Reports
78 Up to one month Rwf 000 29,444,350 59,005 38,452,178 16,829,464 4,390,670 89,175,667 7,640,067, 2,493,287 6,810,783 2,534,277 5,105,790 177,015 2,316,272 1,742,662 5,068,121 Rwf 000 Rwf 000 Rwf 000 Rwf 000 711,436 37,154,764 37,866,200 1-3 months 3-6 months 6-12 months 1-5 years Over 5 years Rwf 000 34,928,246 268,375 18,494,021 53,690,642 Total Rwf 000 29,444,350 5,224,395 38,452,178 101,402,657 268,375 4,390,670 18,494,021 197,676,646 10,611,246 106,607,290 7,647,043 124,865,579 (35,689,912) Negative Gap 6,811,602 828,465 Positive Gap 2,718,200 3,596,587 496,815 3,564,790 13,569,471 17,134,261 (14,640,974) Negative Gap 2,026,400 11,774,388 13,800,788 (6,990,005) Negative Gap 130,010 766,130 896,140 36,970,060 Positive Gap 2,298,389 2,298,389 31,869,887 19,522,366 Positive Gap 18,920,636 135,677,746 496,815 10,711,562 165,802,649 31,869,887 -
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
The maturity risk profile of the bank as at 31 December 2010 was as follows
Assets
Bank of Kigali
Cash and balances with NBR Investment in Government bonds Investment with other banks Net advances to customers Other investments Other assets Property and equipments
Liabilities
Deposits and balances with other banks Customer deposits Tax liabilities Other accounts payable
Total liabilities as at 31 December 2010 Owners equity as at 31 December 2010 Maturity Gap for 2009
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
Bank of Kigali
2010 Annual Report Up to one month Rwf 000 23,722,678 1,633,570 28,754,599 17,411,423 3,277,799 74,800,069 7,140,861, 3,937,570 7,990,128 2,249,739 3,243,482 6,661,809 4,891,122 694,088 1,328,319 3,765,807 33,099,395 36,865,202 Rwf 000 Rwf 000 Rwf 000 Rwf 000 1-3 months 3-6 months 6-12 months 1-5 years Over 5 years Rwf 000 14,430,018 315,108 6,392,047 21,137,173 Total Rwf 000 23,722,678 12,312,906 28,754,599 77,095,866 315,108 3,277,799 6,392,047 151,871,003 8,168,986 84,907,759 7,706,812 100,783,557 (25,983,488) Negative Gap 9,626,653 (2,485,792) Negative Gap 8,621,652 1,005,001 2,000,000 7,493,378 1,036,637 10,530,015 (6,592,445) Negative Gap 3,930,000 6,746,157 10,676,157 (2,686,029) Negative Gap 1,713,858 1,713,858 35,151,344 Positive Gap 18,540,763 2,596,410 Positive Gap 15,103,987 109,482,804 1,036,637 7,706,812 133,330,240 18,540,763 -
The maturity risk profile of the bank as at 31 December 2009 was as follows
Assets
Other investments
Other assets
Liabilities
Customer deposits
Tax liabilities
Financial Reports
79
Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (Continued) (c) Market risk Market risk is the risk that fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices. The most common market risk factors for the Bank are interest rates and foreign exchange rates. Movements in market risk factors may result in adverse (or favourable) changes in the market value of an asset or commitment. The market risk of both individual financial instruments and portfolios of instruments can be a function of one, several, or all of these basic factors and, in many cases, can be significantly complex. The Bank ensures that it adequately measures, monitors, and controls the market risks involved in its activities. Market risk is managed through the Asset and Liability Committee process for interest rate and foreign exchange risk related to asset/liability management activities. On a day-to-day basis, market risk exposures are independently reviewed and measured by the Finance department and Risk department, and appropriate management reports generated. Interest risk exposure The Bank is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of changes in the prevailing levels of market rates but may also decrease or create losses in the event that unexpected movements arise. The Bank actively manages the interest rate sensitivity (the exposure of net interest income to interest rate movements), Interest rate risk is measured by evaluating the potential effect on earnings of various interest rate shocks scenarios. Interest rate sensitivity is quantified by calculating the change in rate spread and net interest income between the scenarios over a 12 month holding period. The measurement of interest rate sensitivity is the percentage change in net interest income and rate spread calculated. Asset and Liability Committee requires frequent reviews of scenarios to examine the impact of large interest rate movements. The interest sensitive risk profile of the Bank as at 31 December 2010 was as follows:
80
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
Bank of Kigali
2010 Annual Report Up to 1 1 to 3 months month Rwf 000 16,229,323 1,972,284 18,201,607 2,825,542 1,962,437 4,787,979 13,413,628 13,413,628 380% Asset (1,269,227) 12,144,401 (0%) Liability 1,269,227 4,787,884 (3,808,968) 8,335,433 (20%) Liability 1,269,227 4,787,884 1,250,000 25,140,981 26,390,981 3,197,190 11,532,623 112% Asset 978,916 29,588,171 40,494,492 6,485,000 19,125 6,504,125 33,990,367 45,522,990 623% Asset 29,123,415 37,154,764 978,916 464,756 3,339,728 440,995 30,366,685 30,807,680 30,807,680 76,330,670 100% Asset Rwf 000 Rwf 000 Rwf 000 Rwf 000 Rwf 000 3 to 6 months 6 to 12 months 1 to 5 years Over 5 years Non -interest bearing Rwf 000 13,215,027 36,479,894 4,757,794 268,375 4,390,670 18,494,021 77,605,781 8,360,094 102,498,092 496,815 10,711,562 122,066,563 31,869,887 (44,460,782) 31,869,887 Total Rwf 000 29,444,350 5,224,395 38,452,178 101,402,657 268,375 4,390,670 18,494,021 197,676,646 18,920,636 135,677,746 496,815 10,711,562 165,806,754 31,869,887 -
Other investments
Other assets
Tax liabilities
Financial Reports
81
Financial Reports
82 3 to 6 months Over 5 years Total Up to 1 month Rwf 000 15,700,004 26,688,583 Rwf 000 3,120,802 3,120,802 29,716,027 30,881,567 24,941,888 Rwf 000 638,695 24,303,193 42,388,587 748,488 1 to 3 months Rwf 000 748,488 6 to 12 1 to 5 years months Rwf 000 Rwf 000 761,674 7,043,247 28,954,353 23,838,320 Non -interest bearing Rwf 000 8,022,674 2,066,016 315,108 3,277,799 6,392,047 20,073,644 Rwf 000 23,722,678 12,312,906 28,754,599 77,095,866 315,108 3,277,799 6,392,047 151,871,003 2,825,542 3,494,312 1,683,477 5,112,677 1,250,001 17,908,722 6,485,000 1,713,858 4,543,444 79,569,758 1,036,637 7,706,812 15,103,986 109,482,805 1,036,637 7,706,812 6,319,854 36,068,733 36,068,733 671% Asset 1,683,477 (934,989) 35,133,744 (44%) Liability 5,112,677 (1,991,875) 33,141,869 (61%) Liability 19,158,723 10,557,304 43,699,173 155% Asset 8,198,858 22,682,709 66,381,882 377% Asset 92,856,651 18,540,763 24,941,888 (72,783,007) 91,323,770 100% Asset 133,330,240 18,540,763 -
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
Bank of Kigali
Cash and balances with BNR Investment in Government bonds Investment with other banks Net advances to customers Other investments Other assets Property and equipment
Deposits and balances from other banks Customer term deposits Tax liabilities Other accounts payable
Interest Sensitive liabilities as at 31 December 2009 Owners equity as at 31 December Sensitive gap as 31 December Cummulative gap % age of IS assets to IS Liabilities Asset/Liability sensitivity
Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (Continued) (c) Market risk (continued) Interest rate sensitivity The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, on the Banks profit before tax (through the impact on floating rate borrowings). There is only an immaterial impact on the Banks equity.
2010 US$ JPY CHF GBP EURO Others 2009 US$ JPY CHF GBP EURO Others Increase/decrease in basis points +/- 10 +/- 10 +/- 10 +/- 10 +/- 10 +/- 10 Increase/decrease in basis points +/- 10 +/- 10 +/- 10 +/- 10 +/- 10 +/- 10 Effect on profit before tax Rwf 000 (525,064) 45 8,032 320,605 (172,637) 4,193 Effect on profit before tax (568,582) 446 (2,018) 679 (24,748) 2,183
Foreign currency exchange risk The Bank records transactions in foreign currencies at the rates in effect at the date of the transaction. The Bank retranslates monetary assets and liabilities denominated in foreign currencies at the rates of exchange in effect at the statement of financial position date. All the gains or losses arising from the changes in the currency exchange rates are accounted for in profit and loss. The foreign currency sensitive risk profile of the Bank as at 31 December 2010 was as follows:
83
Financial Reports
84 Rwf Rwf 000 23,478,595 5,224,395 116,724 100,962,825 268,375 3,555,057 18,494,021 152,099,992 32,582,936 502 204,558 3,571,493 434,973 10 106 432,530 12 2,916 4,359 400,513 9,144,210 26,914,867 502 139,054 3,487,220 7,739,383 4,800,566 65,482 81,251 999,955 18,501 54,196 15 10 72,722 Rwf 000 Rwf 000 Rwf 000 Rwf 000 Rwf 000 Rwf 000 USD JPY CHF GBP EUR CAD Others Rwf 000 233 233 Total 29,444,350 5,224,395 38,452,178 101,402,657 268,375 4,390,669 18,494,021 197,676,646 15,468,687 96,708,845 496,815 10,404,557 123,078,904 5,005,000 20,685,707 6,178,582 31,869,887 N/A (308,724) 32,891,660 293,625 56 446 31,650,097 56 947,938 56,047 56,047 148,511 34,506 249,580 30 284,117 3,287,377 2,458,646 7,011,469 13,343 9,483,458 (339,248) 1,585 7 1,592 71,131 (10,693) 10,858 67 10,925 18,920,635 135,677,746 496,815 10,711,562 165,806,759 5,0005,000 20,685,707 6,178,582 31,869,887 N/A
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
Assets
Bank of Kigali
Other investments
Other assets
Total assets
Liabilities
Tax liabilities
Total liabilities
Equity
Share capital
Reserves
Net profit
Total equity
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010
Bank of Kigali
2010 Annual Report Rwf Rwf 000 19,187,431 12,312,906 18,962 76,805,589 315,108 2,713,426 6,392,047 117,745,469 25,021,655 4,506 60,525 359,531 8,618,915 4,022,691 20,200,887 290,277 507,800 4,506 23,033 37,484 8 27,901 330,824 806 446,286 8,116,878 55,751 15,336 35,981 8 51,325 Total USD JPY CHF GBP EUR CAD Others Rwf 000 Rwf 000 Rwf 000 Rwf 000 Rwf 000 Rwf 000 Rwf 000 Rwf 000 9,077 9,077 23,722,678 12,312,906 28,754,599 77,095,866 315,108 3,277,799 6,392,047 151,873,003 14,297,832 75,342,642 1,036,637 7,564,646 98,241,757 26,317,366 48 57,659 679,101 25,497,884 140,381 48 57,659 28,325 295,708 3 324,036 98,430 8,265,932 1,779 8,366,141 299 22,795 3 23,097 136 136 15,103,987 109,482,804 1,036,637 7,706,812 133,330,240 5,005,000 10,892,282 2,643,481 18,540,763 N/A (1,295,711) 4,458 2,866 35,495 252,774 28,228 8,941 5,0005,000 10,892,282 2,643,481 18,540,763 -
Assets
Cash and balances with BNR Investment in Government bonds Investment with other banks Net advances to customers Other investments Other assets Property and equipments
Total assets
Liabilities
Deposits and balances from other banks Customer term deposits Tax liabilities Other accounts payable
Total liabilities
Equity
Total equity
Financial Reports
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Financial Reports
Bank of Kigali
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (Continued) (c) Market risk (continued) Foreign currency risk (Continued) Foreign currency sensitivity The following table demonstrates the sensitivity to a reasonably possible change in the exchange rates for the major currencies, with all other variables held constant, on the Banks profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Banks equity (due to changes in the fair value of forward exchange contracts and net investment hedges). There is only an immaterial impact on the Banks equity.
2010 US$ JPY CHF GBP EURO Others 2009 US$ JPY CHF GBP EURO Others Increase/decrease in basis points +/- 10 +/- 10 +/- 10 +/- 10 +/- 10 +/- 10 Effect on profit before tax Rwf 000 (30,872) 45 14,851 328,738 (33,925) 6,044
(d) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Banks processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all of the Banks operations and are faced by all business units. Risk management department is responsible for overseeing the development and implementation of policies and procedures, continuous assessments and control of operational risks, and reporting significant operational risks to Executive Management, heads of business units and staff. The department measures operational risk losses and ensure risks are consciously reduced through appropriate management interventions, policies, and functional controls. An effective operational risk analysis involves an attempt to quantify the potential financial impact of operational risks on capital and financial performance. The risk management department has developed quantifiable means of tracking and reporting on all operational risks. Operational risk loss data are collected regularly, and incorporated in risk management reports. Significant losses are communicated to the risk committees and they comprise any loss equal or greater than Rwf 10 million.
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Bank of Kigali
Financial Reports
BANK OF KIGALI LIMITED NOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010 31. RISK MANAGEMENT (Continued) (e) Capital/Solvency risk The solvency risk is the risk that the Bank will be unable to absorb losses with the available capital. As such, the Banks capital level defines the amount of solvency risk in the Bank where the potential losses in all risk positions are properly measured. The role of capital is to act as a buffer against future and unidentified losses that may be incurred. The Board of Directors is responsible for making sure that the Banks capital is adequate for safe and sound operation. Fulfilling this responsibility entails monitoring and evaluating the capital adequacy positions on a regular basis and planning for future capital needs. The Board ensures that: The Banks capital structures are appropriate for businesses; The adequacy of capital cushion against risks by measurement and monitoring trends in regulatory capital adequacy ratios; Determines capital structure and quality of capital. The capital structure may contain permanent shareholders equity and revenue reserves, supplemented by other qualifying capital in terms of the banking regulations; The adequacy of capital to support the level of current and anticipated business activities; The adequacy of reserves; Access to further capital. The Bank maintains a Capital Adequacy Ratio of no less than 10% at any one time. The capital is adjusted to levels that match the valuation of risks. (f) Legal and compliance risk The compliance risk is the current and prospective risk to earnings or capital arising from violations of, or nonconformity with, laws, rules, and regulations, prescribed practices, internal policies, procedures, or ethical standards. The Board and senior management recognise the consequences associated with non-compliance and devote sufficient resources to ensure that the Bank has an adequate compliance program, covering the legal and compliance issues associated with the Banks operations to this end. Management is also responsible for instilling a compliance culture throughout the Bank. 32. COMPARATIVES Where necessary, comparative figures have been adjusted to conform to changes in the current year.
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