ANNUALANNUAL REPORTREPORT ANDAND FINANCIALFINANCIAL STATEMENTSTAATEMENT FOR THE YYEAREAR ENDEDENDED 3311ST DECEMBERDECEMBER 20132013
I&MI&M BANK (RWANDA) LLIMITEDIMITED For decades, the community at large has been crying out for the Healing Touch.
The Healing Touch for the ailing...through medical care.
The Healing Touch for those in need of education... so the community can prosper as a whole.
The Healing Touch for a scarred and ravaged environment... through a green and clean movement.
We at I&M Bank strongly support The Healing Touch with our many social responsibility activities based on the three pillars of health, education and environment.
TABLE OF CONTENTS
• Board of Directors 02 • Senior Management 03 • Directors, Offi cials and Administration 04 • Branches 05 • I&M Bank Rwanda News 06 • Management Moves 08 • Chairman’s Statement 13 • Report of the Directors 18 • Statement of Directors’ Responsibilities 19 • Report of the Independent Auditor to the members of I&M Bank Limited 20 • Statement of Comprehensive Income 22 • Statement of Financial Position 23 • Statement of Changes in Equity 24 • Statement of Cash Flows 26 • Notes to the Financial Statements 27 • I&M Bank Rwanda Activities 72
I&M Bank (Rwanda) Limited Annual Report and 1 Financial Statements for the year ended 31st December 2013 2 BOARD OF DIRECTORS
Standing (Left To Right): Arun S. Mathur – NED, Soundararajan Madabhushi – NED, Sanjeev Anand – ED, Jonathan Nzayikorera – NED (Government of Rwanda), Irwin William Carlisle – Chairman, Eric Kaleja – NED, Richard Mugisha – NED 3 SENIOR MANAGEMENT TEAM
Sanjeev Anand Isaiah G Chinduba Alfred Baguma Blaise Pascal Gasabira Managing Director Benjamin Mutimura Chief Operations Officer Head of Credit Head of Retail Banking Head of Treasury
Callixte Nyilindikwe Christelle Kayihura Faustin Byishimo Innocent Muhizi John Gatashya Head of Business Banking Head of Risk Head of Corporate Banking Head of IT & TBS
Judith Muhongewa Lena M. Militisi Lina Mukashyaka Higiro Louise Kagaju Ngagi Kabarega Head of Human Resources Head of Legal & Company Head of Corporate Strategy Chief Internal Auditor Head of Internal Control and Secretary Planning and Marketing Compliance DIRECTORS, OFFICIALS AND ADMINISTRATION
BOARD OF DIRECTORS Irwin William Carlisle – Chairman Soundararajan Madabhushi – NED Arun S. Mathur -NED Eric Kaleja – NED Richard Mugisha - NED Sanjeev Anand - ED Jonathan Nzayikorera - NED (Government of Rwanda)
COMPANY SECRETARY Lena M. Militisi
AUDITORS Ernst & Young Avenue de la Paix P.O. Box 3638 KIGALI, RWANDA
BANK ADDRESS I&M Bank (Rwanda) Limited KN 03 Ave/09 KIGALI, RWANDA
CORRESPONDENT BANKS National Bank of Rwanda CITIBANK N.Y. ING Belgium COMMERZBANK Frankfurt BHF Bank I&M Bank LTD I&M Bank Tanzania
I&M Bank (Rwanda) Limited Annual Report and 4 Financial Statements for the year ended 31st December 2013 I&M BANK RWANDA BRANCHES
Nyabugogo Rusizi HEAD OFFICE Nyabugogo Sector Building Rusizi District Kamembe Sector KN 3 AV/9 Kigali/Rwanda Inkundamahoro Kigali/ Rwanda Western Province, Rwanda Tel: +250 788 162 000 Tel: 0788302993 Tel: 0788304656 Email: [email protected] Operating Hours: Operating Hours: Operating Hours: Monday-Friday : 8:00 am to 06:00 pm Monday-Friday: 8:00 am to 6:00pm Monday - Friday: 8:00 am to 6:00 pm Saturday : 8:00 am to 01:00 pm Saturday: 8:00 am to 1:00 pm Saturday: 8:00am to 1:00 pm Kacyiru-Stippag Huye Boulevard de l’Umuganda Stippag Building Ngoma Sector, Southern Province. KCM (Kigali City Market) Kacyiru Kigali / Rwanda P.O.Box 616 Huye, Rwanda KIGALI CITY MARKET BUILDING. Tel: 0788388251 Tel: 0788308629 Tel: 0788388433 Operating Hours: Operating Hours: Operating Hours: Monday-Friday: 8:00 am to 6:00 pm Monday-Friday: 8:00 am to 6:00 pm Monday-Friday: 8.00 am to 6.00pm Saturday: 08:00 am to 01:00 pm Saturday: 8:00 am to 1:00 pm Saturday: 7:00 am to 1:00 pm Rubavu Musanze Kacyiru - Umubano Rubavu District Secteur, Gisenyi Muhoza Sector/Musanze District Gasabo District, Boulevard de l’Umuganda P.O.Box 169 Western Province Rwanda P.O. Box 120 Musanze Rwanda Umubano Hotel Tel: 0788302995 Tel: 0788300886 Tel: 0788300847 Operating Hours: Operating Hours: Operating Hours: Monday-Friday: 8:00 am to 6:00 pm Monday-Friday : 8:00 am to 6:00pm Monday - Saturday: 8:00 am to 8:00 pm Saturday: 8:00 am to 1:00 pm Saturday: 8:00 am to 1:00pm Sunday : 10:00 am to 4:00 pm Karongi Gicumbi Remera RSSB Building/District Karongi Byumba Sector/Gicumbi District Gasabo District Kisimenti Kigali, Rwanda Tel: 0788388433 P.O. Box 08, Byumba, Rwanda. Tel: 0788312883 Operating Hours: Tel: 0788309304 Operating Hours: Monday-Friday: 8:00 am to 6:00 pm Operating Hours: Monday - Saturday: 8:00am to 8:00pm Saturday : 8:00 am to 1:00 pm Monday-Friday: 8:00 am to 6:00pm Sunday : 10:00 am to 4:00 pm Saturday: 8:00 am to 1:00pm Kenya Airways (Cash & Deposit Nyamirambo Counter) Rwamagana Rwezamenyo Secteur,Nyarugenge District UTC BUILDING Rwamagana District Kigabiro Sector Kigali/ Rwanda Nyarugenge District Kigali, Rwanda Eastern Province Tel: 0788381483 Tel: 0788302993 Tel: 0788302265 Operating Hours: Operating Hours: Operating Hours: Monday-Friday: 8:00 am to 6:00 pm Monday-Friday: 8.00 am to 6.00pm Monday-Friday: 8:00 am to 06:00 pm Saturday: 8:00 am to 1:00 pm Saturday: 9:00 am to 2:00pm Saturday: 8:00 am to 01:00 pm
Mateus MAGERWA (Cash & Deposit Counter) ULK BRANCH Rue du Travail Nyarugenge District Quartier MAGERWA OFFICE KIGALI INDEPENDENT UNIVERSITY Mateus Kigali/Rwanda Gikondo, Kigali, Rwanda Tel: 0788302993 Tel: 0788302993 Tel: 0788302993 Operating Hours: Operating Hours: Operating Hours: Monday-Friday: 9:00 am to 7:00 pm Monday-Saturday : 12:00 pm to 7:00 pm Monday-Friday: 7:00 am to 12:00 am Saturday - Sunday: Closed Saturday: 7:00 am to 1:00 pm I&M NEWS
AGACIRO DEVELOPMENT FUND I&M Bank Rwanda and its staff contributed Frw The cost of the new service is even cheaper 30,000,000 to the Agaciro Development Fund (a compared to a mobile money agent. This, therefore, solidarity fund fi nanced by Rwandans and aimed at means that we are creating quality, effi ciency and improving the fi nancial autonomy of Rwanda). more secure means of fi nancial transactions.
The Cheque was received by the then Minister of Finance and Planning, Mr. Rwangombwa John. The MD Speaking at the Launch of the new ATM Cardless I&M BANK LAUNCHES CARDLESS ATM WITHDRAWAL WITH AIRTEL MONEY AND The cardless ATM facility will soon be rolled out by RSWITCH other telecoms including MTN and Tigo once the It will now be easier for mobile money users to ongoing system upgrade is completed. transact business after Airtel Rwanda, RSwitch and I&M Bank unveiled a the collaboration that will enable customers to access services on ATMs country wide.
During the launch event, Mr. Konde Bugingo, the RSwitch Chief Executive Offi cer, said the new system would allow interoperability of the telecom’s mobile money platform and I&M Bank ATMs across the country. “This means if you are on Airtel money you can send or receive money using I&B Bank ATMs anywhere in the country,” explained Bugingo.
The system was launched at the Transform Africa Summit in Kigali that brought together Industry leaders from around the globe. The Goveror BNR Mr. John Rwangombwa, I&M Bank MD Sanjeev Anand, Airtel Money Corporate Manager Salma Ingabire and the then Airtel Rwanda MD Marcellin Paluku test It is now convenient, especially at night when mobile the new service money agents have retired. People are still be able to use I&M Bank ATMs to access all Airtel money services.
I&M Bank (Rwanda) Limited Annual Report and 6 Financial Statements for the year ended 31st December 2013 I&M NEWS (CONTINUED)
REBRAND TO I&M BANK (RWANDA) LTD.
In July of 2012 BCR joined the I&M Bank Group, and in August 2013 following statutory approvals, had a rebrand and change of name from Banque Commerciale du Rwanda Ltd to I&M Bank (Rwanda) Ltd. After 3 years, the coveted Bank of the Year Award from The Banker Magazine was once again awarded to I&M Bank Rwanda As a result of the acquisition, the eff ective shareholding of BCR changed with 55% being held by I&M Bank Ltd, 12.5% each by PROPARCO and DEG - two leading European Development Finance Institutions, I&M BANK RWANDA SPONSORED 19.8% by the Government of Rwanda and 0.2% by AMONG OTHERS private shareholders. The Queen Elizabeth Diamond Jubilee Trust While maintaining the management structure and operations of the bank, the rebrand brought fresh Building of Classroom in Nyagatare vigour to the Bank’s operations as a regional entity District with network presence in 4 countries. Business to Business Networking Forum at the Serena
AWARDS AND RECOGNITION 2013 Agri-Business Forum
2013 was a good year for I&M Bank Rwanda as 2013 Transform Africa Summit the bank managed to scoop many industry awards ICPAR Best Student including: •“The Banker Award” for Bank of the year in Rwanda 2nd Annual NAEB Tea convention in 2013, after a gap of fi ve years. • The “Global Finance award” for the Best Bank in FERWACY Cycling Competition Rwanda, for the fi fth year running • The Rwanda Country Award for “CIO 100” as most Equipment for SACCOs technologically innovative company in Rwanda. •The Rwanda Revenue Authority award for Circle Sportif Squash Tournament “Exemplary Tax Compliance”. 2nd Annual International Food Fair
I&M Bank (Rwanda) Limited Annual Report and 7 Financial Statements for the year ended 31st December 2013 MANAGEMENT MOVES
NEW EXECUTIVE COMMITTEE MEMBERS CONFIRMED I&M Bank welcomed seasoned bankers Callixte Nyilindekwe and Blaise Gasabira to the Executive Committee.
Blaise Pascal Gasabira- Head: Treasury. Callixte NYILINDEKWE - Head: Business Banking
During his Banking career, Blaise has earned immense Callixte joined the bank in 2002 with a wealth of experience to eff ectively manage and control experience in banking (Bank of Kigali: 1998-2002), I&M Bank Rwanda’s treasury in line with local and in UN Projects (UNDP Rwanda: 1996-1998). His international best practices. His abilities range from focus is SME Banking: deals structuring, product trade fi nance management, international banking development and SME policy set up. Prior to SME transactions and payment related products and banking, he was extensively involved in bank’s systems, exchange control systems, correspondent back offi ce operations as branch manager. He has banking, treasury products’ marketing, market a strong customer focus and indepth knowledge of research, to risk management of the bank’s liquidity, the Rwanda market. interest rates and foreign currency. He holds an MBA from the University of Eastern Africa He holds a bachelor’s degree in Economics, with Baraton and a Bachelor’s Degree in Management a major in International Economics from NUR and from the National University of Rwanda (NUR). is Certifi ed in Access Bank school of Banking in Callixte is a certifi ed Credit Analyst by OMEGA Nigeria. He is currently pursuing CFA. Performance UK.
I&M Bank (Rwanda) Limited Annual Report and 8 Financial Statements for the year ended 31st December 2013 I&M Bank (Rwanda) Limited Annual Report and 9 Financial Statements for the year ended 31st December 2013 COMMUNITY NEWS
Umuganda I&M Bank Staff participated in Umuganda (monthly community cleaning). Up to 30 members of staff took part in the exercise that involved creating drainage to prevent soil erosion in Jali Sector (Cellule Nyaburiba) in Gasabo District.
Nkerenke School Project In 2013, I&M Bank Rwanda to donated Frw 7,000,000 towards the building of a new classroom for Nkerenke School in Nyagatare District as part of the @50 CSR projects.
The school that previously only had six buildings now has a whole new classroom that sits up to 45 students. before
Nyagatare District also contributed funds that resultied in the school now having two new classrooms offering an improved learning environment for the 861 pupils
SME Training I&M Bank annualy trains up to 200 SME businesses owners in Basic Accounting and Book keeping. after
19th Commemoration of 1994 Genocide Against the Tutsi
I&M Bank staff came together for the 19th commemoration of the 1994 Genocide against the Tutsi with a visit to Ntarama Memorial Site in Nyamata district, where I&M Bank (then as BCR) paid their respects to the victims and contributed Frw 1,000,000 towards the rehabilitation of the memorial site.
I&M Bank (Rwanda) Limited Annual Report and 10 Financial Statements for the year ended 31st December 2013 11 12 CHAIRMAN’S STATEMENT
Change in Name In the course of the year, after approval by the National Bank of Rwanda, the bank changed its name from Banque Commerciale du Rwanda Limited to I&M Bank (Rwanda) Ltd.
The name change recognizes that we are now part of a regional banking group with an expanding presence, currently in 4 countries-Kenya, Tanzania Mauritius and Rwanda.
Financial Performance I am delighted to inform you that I&M Bank Ltd., enjoyed an outstanding performance in the fi nancial year 2013. Not only were our Profi t and Loss Account (P&L) and Balance Sheet (BS) much stronger and healthier, on most indicators we delivered a better performance than the industry. The P&L and BS in this report speak for themselves but the following are the main highlights:
• Our loans and advances grew by 25% to Frw 65.6 Billion. If we factor in amortizations, this implies that I&M Bank Ltd. provided new loans of approximately Frw 25 Billion to our Corporate, SME and Retail clients. • Our customer deposits grew handsomely from Frw 85.8 Billion to Frw 94.1 Billion and our total deposits grew from Frw 86.6 Billion to Frw 99 Billion. • Profi t before tax increased from Frw 6 Billion to Frw 6.8Billion and profi t after tax from Frw 4.2 Billion to Frw 4.5 Billion. • Our total shareholder equity improved substantially from Frw 15.5 Billion to Frw 18.7 Billion. • Our capitalization was strong with a solvency ratio of 23% as against the minimum prescribed 15%. • Our return on average equity was 26% compared to an industry average of 7%, thereby indicating an effi cient deployment of shareholder funds. • Our liquidity ratio was 54% compared to 50% for industry, refl ecting ample liquidity.
Risk Management In a relatively challenging credit environment, I am glad to report that our loan quality continues to be among the best in the industry. Our NPL ratio was 2.6% compare to 2.7% last year. Overall I&M has strong, stable and independent risk management systems that allows us to monitor credit, operational, market and other risks in a pro-active manner.
Innovation strategy and Electronic Delivery Channels (EDC) EDC continues to be the corner stone of our innovation strategy. Our aim under EDC is to provide our services to customers Anytime, Anywhere, Always. This is also the route through which we are gradually extending our services to almost 80% of the Rwandese population which currently does not have access to formal banking services. • We enhanced our eTax service to include payment of non-fi scal taxes and RSSB pension remittances. • We signifi cantly enhanced our mobile and internet banking platforms to provide additional services. • Our ATM’s can now accept VISA, American Express, China Union Pay, and Pulse cards. • We introduced Cardless ATM product to enable customers without bank accounts to access cash. • We introduced eUniversity to enable students to pay fees and other costs; we expect to enhance this facility to University of Rwanda. • We introduced Mobile-to-Bank and Bank-to-Mobile integration which is expected to go a long way to meet the banking needs of the unbanked. • We enhanced our strengths through straight-through processing services to provide hands free disbursement of salaries and other payments.
I&M Bank (Rwanda) Limited Annual Report and 13 Financial Statements for the year ended 31st December 2013 CHAIRMAN’S STATEMENT (CONTINUED)
In addition to the above, the following innovations are planned for 2014: • mVisa: a branchless banking product in collaboration with VISA, which will go a long way with banking the unbanked initiatives, as well as extending our fi nancial services across the entire geography of Rwanda. • We shall be launching VISA cards which will enable our customers to access fi nancial payment services both locally and internationally. • We are launching products to support payments to farmers, teachers, facilitate school fees payments, city transport collection and insurance. • We will work together with respective agencies to cover payment to pensioners. • We will continue to enhance our B2M and M2B to make them inter-operable with other service providers.
Customer Relations We continue to grow our base of Corporate, SME and Retail customers. Last year we added over almost 2,000 new clients. In addition to this, we continue to expand our relationship with existing customers. As we move closer to our dream of banking the unbanked, this fi gure will grow exponentially. Customer service continues to be our area of focus and we recently launched the fi rst edition of the “Art of Service”, which will become the standard for our customer service and ensure a consistent and excellent level of service at all our branches.
Staff and Management Our total staff strength currently is 275. We consider our staff to be our core strength and our competitive advantage. We continuously develop opportunities and provide training to our staff in all areas of banking, service, leadership, governance and ethics. Majority of our promotions are from within in order to provide our staff development possibilities. Our compensation policies are fair, transparent and competitive. As a result of the above measure, we are happy to report that our staff turnover remains within acceptable parameters and employee morale is high.
CorporateSocial Responsibility (CSR) As a leading institution in Rwanda, I&M Bank (Rwanda) Ltd. attaches great value to Corporate Social Responsibility (CSR) with a focus on Education, capacity building and the Environment. Signifi cant support has also been directed to the Agriculture sector. I&M Bank supports education in various ways: through donations for school renovation projects, Technical Vocational Educational Training (TVET) initiatives and internship programs to University students.
The Bank also remains committed in its desire to support capacity building of the SME sector as an engine of Rwanda’s industry growth, with free training off ered in bookkeeping and basic accounting to the sector. This is done on a public-private partnership basis.
Furthermore the Bank contributes to National Development programs such as the Agaciro Development Fund project, as well as being an active participant in Genocide commemorative activities. The latter included a contribution made in 2013 to renovate a memorial site, and the inclusion of potential staff recommended from the National Commission for the fi ght against Genocide (CNLG) in our recruitment processes.
As part of our environmental awareness policies, the bank ensures that all its credit applications are subjected to appropriate and specifi c environmental impact assessments such that we only support sustainable projects. On this basis the bank has designed its upcoming Head-Offi ce premises on a “Green building” standard, and will also be contributing to the beautifi cation of green spaces in Kigali.
The bank has ensured that banking halls are accessible to our physically disadvantaged clientele and staff .
I&M Bank (Rwanda) Limited Annual Report and 14 Financial Statements for the year ended 31st December 2013 CHAIRMAN’S STATEMENT (CONTINUED)
Last but not least, as a responsible citizen, I&M Bank Ltd. supports the government’s eff orts on attracting foreign and regional direct investment by actively engaging with all concerned government agencies such as Rwanda Development Board and Private Sector Federation, as well as off ering investment advice to potential investors.
Future Plans We have set ourselves ambitious but attainable growth targets for next year (2014). We expect our association with I&M Bank group to start yielding more and more benefi ts as we pursue regional customers, regional products and other regional opportunities. We will also benefi t from the interchange of new products as well as the harmonization of policies and procedures.
We will continue to upgrade our branches to provide an atmosphere of comfort, security and satisfaction. We expect to open up to 2 new branches in strategic locations. Our counter at Nyabugogo is being upgraded to a full branch and, our counter at ULK will become shortly operational.
Plans for introducing our new head offi ce project are at an advanced stage. We expect to start construction as soon as certain legal processes are cleared.
We expect to continue supporting our credit extension through good quality loans. At the same time, deposit growth will also receive extended focus.
Our tradition of innovation will continue to be pursued with full momentum and will off er new products and services.
In 2014, we remain committed to positioning ourselves as a responsible bank, dedicated to its customers and off ering them not only the best quality services and products but also to provide them solutions which are appropriate to their needs and are competitively and transparently priced.
Awards and recognition Last but not least, I am proud to announce that I&M Bank Ltd. received a number of awards and recognition during the year.
For the fi fth year running we were awarded the “Global Finance award” for the Best Bank in Rwanda. After a gap of fi ve years we were re-awarded “The Bankers Award” for Best Bank in Rwanda in 2013. In addition, we received Rwanda Country Award for “CIO 100” as most technologically innovative company in Rwanda.
The Rwanda Revenue Authority recognized us with an award for “Exemplary Tax Compliance”.
Conclusion As we come to the close of another successful year, we take the opportunity to express our appreciation for the support provided by our Shareholders and Directors.
We thank our staff for their hard work and commitment, which was primarily responsible for our success. We applaud the Central Bank and the Government of Rwanda for their supportive policies and a conducive business environment, which allows businesses to fl ourish.
We look forward to 2014 with great optimism.
I&M Bank (Rwanda) Limited Annual Report and 15 Financial Statements for the year ended 31st December 2013
BCR’s JUBILEE CELEBRATION
On 27th May 2013, BCR (now I&M Bank Rwanda), the first operational bank in Rwanda, marked its 50th anniversary since opening its doors in 1963.
Speaking at the event, the MD, Mr. Sanjeev Anand said “Most people grow old and weak at fifty years of age but for BCR it’s the opposite, we are stronger and fresher, and that calls for celebration,” he went on to add “It’s a moment which doesn’t come every day, enjoy it and remember to share it in future for we are lucky to be part of it today; happy fiftieth anniversary!”
It was a declaration which set off screams of joy and warm comradely hugs among BCR’s staff, the majority of whom are young professionals that have benefited from the extensive training programs which the bank has heavily invested in.
16
BCR is now I&M Bank (Rwanda) Limited
Enjoy the strength of a wider regional network
17 I&M BANK (RWANDA) LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR THE YEAR ENDED 31ST DECEMBER 2013
The directors submit their report together with the audited fi nancial statements for the year ended 31st December 2013, which disclose the state of affairs of I&M Bank (Rwanda) Limited (“the Bank”).
PRINCIPAL ACTIVITIES
The Bank is engaged in the business of banking and the provision of related services.
RESULTS AND DIVIDEND
The net profi t for the year of Frw 4,509 million (2012: Frw 4,239 million) has been added to retained earnings. The directors recom- mend the payment of a dividend of Frw 1,800 million for the year (2012: Frw 1,272 million)
GENERAL INFORMATION The Bank is incorporated in Rwanda as a limited liability company, and is domiciled in Rwanda. The address of its registered offi ce is:
I&M Bank (Rwanda) Limited KN 03 AVE/9 P O Box 354 Kigali, Rwanda
CHANGE OF NAME During the year, after approval by the National Bank of Rwanda, the bank changed its name from Banque Commerciale du Rwanda Limited to I&M Bank (Rwanda) Limited.
DIRECTORS
The directors who held offi ce during the year and to the date of this report were:
Bill Irwin Carlisle Chairman Vincent Munyeshyaka Non executive director (Resigned on 04 June 2013) Sanjeev Anand Managing Director Richard Mugisha Non executive director Arun S. Mathur Non executive director Soundararajan Madabhushi Non executive director Eric Kaleja Non executive director Jonathan Nzayikorera Non executive director (Appointed on 26 July 2013)
AUDITOR
In accordance with the auditor rotation regulations issued by the National Bank of Rwanda, the term of the bank’s current auditor, PricewaterhouseCoopers Rwanda Limited has ended.
BY ORDER OF THE BOARD
SECRETARY
I&M Bank (Rwanda) Limited Annual Report and 18 Financial Statements for the year ended 31st December 2013 I&M BANK (RWANDA) LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR THE YEAR ENDED 31ST DECEMBER 2013
Law No. 7/2009 relating to companies and Law No. 7/2008 concerning organisation of banking requires the directors to prepare fi nancial statements for each fi nancial year that give a true and fair view of the state of affairs of the Bank as at the end of the fi nancial year and of its profi t or loss. It also requires the directors to ensure that the Bank keeps proper accounting records that disclose, with reasonable accuracy, the fi nancial position of the Bank. They are also responsible for safeguarding the assets of the Bank.
The directors accept responsibility for the annual fi nancial statements, which have been prepared using appropriate accounting policies supported by reasonable estimates, in conformity with International Financial Reporting Standards and the requirements of the Law No. 7/2009 relating to companies and Law No. 7/2008 concerning organisation of banking . The directors are of the opinion that the fi nancial statements give a true and fair view of the state of the fi nancial affairs of the Bank and of its profi t in accordance with International Financial Reporting Standards. The directors further accept responsibility for the maintenance of accounting records that may be relied upon in the preparation of fi nancial statements, as well as designing, implementing and maintaining internal control relevant to the preparation and fair presentation of fi nancial statements that are free from material misstatement.
Nothing has come to the attention of the directors to indicate that the Bank will not remain a going concern for at least twelve months from the date of this statement.
I&M Bank (Rwanda) Limited Annual Report and 19 Financial Statements for the year ended 31st December 2013 REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF I&M BANK (RWANDA) LIMITED
Report on the fi nancial statements
We have audited the accompanying fi nancial statements of I&M Bank (Rwanda) Limited (“the Bank”) set out on pages 5 to 52. These fi nancial statements comprise the statement of fi nancial position at 31 December 2013, and the statements of comprehensive income, changes in equity and cash fl ows for the year then ended, and a summary of signifi cant accounting policies and other explanatory notes.
Directors’ responsibility for the fi nancial statements
The directors are responsible for the preparation and fair presentation of these fi nancial statements in accordance with International Financial Reporting Standards and with the requirements of Law No. 7/2009 relating to companies and for such internal controls as the directors determine necessary to enable the preparation of fi nancial statements that are free from material misstatements, whether due to fraud or error.
Auditor’s responsibility
Our responsibility is to express an independent opinion on the fi nancial 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 our audit to obtain reasonable assurance that the fi nancial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the fi nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the fi nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the fi nancial 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 Bank’s internal controls. 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 fi nancial statements.
We believe that the audit evidence we have obtained is suffi cient and appropriate to provide a basis for our opinion.
Opinion
In our opinion the accompanying fi nancial statements give a true and fair view of the state of the Bank’s fi nancial affairs at 31 Decem- ber 2013 and of its profi t and cash fl ows for the year then ended in accordance with International Financial Reporting Standards and Law No. 7/2009 relating to companies.
Report on other legal requirements
Law No. 7/2009 relating to companies requires that in carrying out our audit we consider and report to you on the following matters. We confi rm that:
i. There are no circumstances that may create threat to our independence as auditor of the Bank;
ii. We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit;
iii. In our opinion proper books of account have been kept by the Bank, so far as appears from our examination of those books; and
I&M Bank (Rwanda) Limited Annual Report and 20 Financial Statements for the year ended 31st December 2013 REPORT OF THE INDEPENDENT AUDITOR TO THE MEMBERS OF I&M BANK (RWANDA) LIMITED
Report on other legal requirements (continued)
iv. We have communicated to the Bank’s Board of Directors, through a separate management letter, internal control matters identifi ed in the course of our audit including our recommendations in relation to those matters.
For PricewaterhouseCoopers Rwanda Limited, Kigali.
I&M Bank (Rwanda) Limited Annual Report and 21 Financial Statements for the year ended 31st December 2013 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Statement of comprehensive income
Year ended 31 December: Notes 2013 2012 Frw ’000 Frw ’000
Interest income 1 12,196,881 9,400,827 Interest expense 2 (3,154,456) (1,625,434)
Net interest income 9,042,425 7,775,393
Fee and commission income 3(a) 2,439,454 2,460,290 Fee and commission expense 3(b) (134,436) (88,333)
Net fee and commission income 2,305,018 2,371,957
Net foreign exchange income 5,214,700 5,032,236 Other operating income 4 320,457 599,357
Operating income 16,882,600 15,778,943
Net impairment recoveries on loans and advances 5 421,070 623,038 Operating expenses (10,335,786) (10,180,262) Finance costs 6 (212,411) (269,772)
Profi t before income tax 7 6,755,473 5,951,947
Income tax expense 9 (2,246,724) (1,713,285)
Profi t for the year 4,508,749 4,238,662
Other comprehensive income
Fair value gains on available for sale fi nancial assets (net of taxes) 67,892 -
Total comprehensive income for the year 4,576,641 4,238,662
The notes on pages 27 to 70 are an integral part of these fi nancial statements.
22 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Statement of fi nancial position
At 31 December: Notes 2013 2012 Frw ’000 Frw ’000 Assets Cash and balances with the National Bank of Rwanda 10 9,166,932 8,105,819 Amounts due from other banks 11 22,573,577 30,218,781 Financial assets: - at fair value through profi t or loss 12 (a) 798,419 1,195,733 - held to maturity 12 (b) 22,252,786 11,786,136 - available-for-sale 12 (c)254,680 157,691 Loans and advances to customers 13 65,636,408 52,471,671 Property and equipment 14 4,040,135 4,325,362 Intangible assets 15 112,569 193,217 Deferred tax asset 21 316,186 427,327 Other assets 16 652,087 1,716,335
Total assets 125,803,779 110,598,072
Liabilities Customer deposits 17 94,062,954 85,816,091 Deposits from other banks 18 5,007,816 800,934 Borrowings 19 924,157 1,416,267 Corporate bond 20 941,737 1,046,375 Current income tax liabilities 801,159 717,653 Deferred income tax liabilities 21 519,951 551,143 Provisions 22 828,247 747,388 Other liabilities 23 3,971,099 4,042,297
Total liabilities 107,057,120 95,138,148
Shareholders’ equity Share capital 24 5,000,000 5,000,000 Retained earnings 11,811,407 9,102,658 Fair value reserve 25 135,252 67,360 Revaluation reserve 26 - 18,308 Proposed dividends 27 1,800,000 1,271,598
Total shareholders’ equity 18,746,659 15,459,924 Total equity and liabilities 125,803,779 110,598,072
The notes on pages 27 to 70 are an integral part of these fi nancial statements. The fi nancial statements on pages 22 to 70 were approved for issue by the Board of Directors on 12th March 2014 and signed on its behalf by:
23 earnings Total Retained 528,402 (1,800,000) (1,271,598) dividend Proposed Proposed 67,892 - 4,508,749 4,576,641 reserves Fair value reserve Revaluation - - - - 4,508,749 4,508,749 -- --- 5,000,000 - 135,252 1,800,000 11,811,407 18,746,659 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000
Notes capital Share nancial statements. DECEMBER 2013 st t for the year Year ended 31 December 2013 Year At start of year income: Comprehensive Profi income: comprehensive Total with owners: Transactions 2012 dividends paid dividendsProposed transactions with owners: Total 5,000,000At end of year 18,308 67,360 1,271,598 27 27 9,102,658 15,459,924 ------(1,271,598) 1,800,000 (1,800,000) - (1,271,598) - Fair value gains on available for sale equity investment income tax on fair value gainsDeferred 12 - - - 96,989 - - (29,097) - - 96,989 - (29,097) Elimination of Revaluation reserves - (18,308) - - - (18,308) Statement of changes in equity The notes on pages 27 to 70 are an integral part of these fi The notes on pages 27 to 70 are I&M BANK (RWANDA) LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS LIMITED ANNUAL REPORT I&M BANK (RWANDA) FOR THE YEAR ENDED 31
24 - 7,894 - earnings Total Retained (1,271,598) (1,144,309) - 127,289 1,271,598 (1,271,598) dividend Proposed Proposed reserves Fair value reserve Revaluation - - - - 4,238,662 4,238,662 - (7,894) - --- Share Share capital 5,000,000 18,308 67,360 1,271,598 9,102,658 15,459,924 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 27 Notes nancial statements. DECEMBER 2013 st t for the year Year ended 31 December 2012 Year At start of year income: Comprehensive Profi gains on sale of property Realised revaluation transactions with owners: Total At end of year 5,000,000 26,202 67,360 1,144,309 6,127,700 12,365,571 Transactions with owners: Transactions 2011 dividends paid dividends Proposed 27 - - - (1,144,309) - (1,144,309) Statement of changes in equity (continued) The notes on pages 27 to 70 are an integral part of these fi The notes on pages 27 to 70 are I&M BANK (RWANDA) LIMITED ANNUAL REPORT AND FINANCIAL STATEMENTS LIMITED ANNUAL REPORT I&M BANK (RWANDA) FOR THE YEAR ENDED 31
25 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013 Statement of cash fl ows
Year ended 31 December: Notes 2013 2012 Frw ‘000 Frw ‘000 Cash fl ows from operating activities
Profi t before income tax 6,755,473 5,951,947 Adjustments for: Depreciation on property and equipment 14 754,363 837,201 Amortisation of intangible assets 15 115,953 142,503 Gain on sale of property and equipment (69,232) (42,650) Finance costs 6 212,411 269,772
Cash fl ows from operating activities before changes in operating 7,768,968 7,158,773 assets and liabilities
Changes in operating assets and liabilities: - loans and advances (13,164,737) (14,855,681) - fi nancial assets held to maturity (5,332,731) 14,190,627 - fi nancial assets at fair value through profi t and loss 397,314 (17,277) - other assets 1,064,248 477,292 - customer deposits 8,246,863 14,820,258 -provision for litigation 80,859 231,862 - other liabilities (71,199) (454,140) -cash reserve requirement (471,622) (918,683) -income tax paid (2,112,365) (1,579,695)
Net cash (used in)/ from operations (3,594,402) 19,053,336
Cash fl ows from investing activities Purchase of property and equipment 14 (500,423) (919,030) Purchase of intangible assets 15 (35,305) (178,768) Proceeds from sale of property and equipment 82,211 42,945
Net cash used in investing activities (453,517) (1,054,853)
Cash fl ows from fi nancing activities Dividends paid 27 (1,271,598) (1,144,309) Repayment of borrowings (596,748) (440,774) Interest paid on borrowings (113,230) (163,023) Interest paid on corporate bond (99,181) (106,750)
Net cash fl ows used in fi nancing activities (2,080,757) (1,854,856)
Net (decrease) /increase in cash and cash equivalents (6,128,676) 16,143,627
Cash and cash equivalents at start of year 29 39,403,326 23,259,699
Cash and cash equivalents at end of year 29 33,274,650 39,403,326
The notes on pages 27 to 70 are an integral part of these fi nancial statements.
26 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes
1 Interest income 2013 2012 Frw ’000 Frw ’000
Loans and advances 9,436,945 7,070,502 Government securities 2,063,323 1,739,666 Placements with other banks 696,613 590,659
12,196,881 9,400,827
2 Interest expense
Customer deposits 3,140,867 1,616,786 Placements from other banks 13,589 8,648
3,154,456 1,625,434
3 Fees and commissions (a) Fee and commission income
Current account ledger fees 835,175 818,677 Local and international cash transfers 273,317 325,152 Credit related fees and commissions 373,032 321,845 Commissions on guarantees and letters of credit 220,207 250,729 Other 737,723 743,887
2,439,454 2,460,290
(b) Fee and commission expense
Banking services (67,245) (66,308) Other (67,191) (22,025)
(134,436) (88,333)
Net fee and commission income 2,305,018 2,371,957
27 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
4 Other operating income 2013 2012 Frw ’000 Frw ’000
Operating lease income 250,554 240,720 Gains on disposal of property and equipment 69,232 35,622 Other income 671 323,015
320,457 599,357
5 Impairment recoveries on loans and advances
Provision for loans and advances impairment (Note 13) (291,967) (431,643) Amounts written off (7,203) (13,791) Recoveries on amounts previously provided for (Note 13) 147,220 447,968 Recoveries on amounts previously written off 573,020 620,504
421,070 623,038
6 Finance costs
Interest expense on: - borrowings 113,230 164,772 - corporate bond 99,181 105,000
212,411 269,772
7 Profi t before income tax
The following items have been charged in arriving at profi t before income tax: 2013 2012 Frw ’000 Frw ’000 Employee benefi ts expense (Note 8) 5,755,046 5,601,927 Depreciation charge on property and equipment (Note 14) 754,363 837,201 Directors remuneration, fees and allowances (Note 28) 628,439 513,666 Repairs and maintenance 392,309 384,032 Advertising costs 281,641 200,002 Management fees paid to the parent company (Note 28) 88,280 86,081 Amortisation charge on intangible assets (Note 15) 115,953 142,503 Other professional fees 62,664 77,188 Auditors’ remuneration 54,693 41,535
28 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
8 Employee benefi ts expense 2013 2012 Frw ’000 Frw ’000
Salaries and wages 5,072,214 4,943,848 Retirement benefi t costs: - Contributions to Rwanda Social Security Board 210,352 196,572 Medical insurance costs 154,855 172,115 Mileage allowances 121,685 129,060 Other 160,332 195,940
5,755,046 5,601,927
9 Income tax expense
Current income tax 2,172,630 1,763,973 Deferred income tax charge (Note 21) 50,852 (50,688) Under provision of current income tax charge in prior years 23,242 -
2,246,724 1,713,285
The tax on the Bank’s profi t before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2013 2012 Frw ’000 Frw ’000 Profi t before income tax 6,755,473 5,951,947
Tax calculated at the statutory income tax rate of 30% (2012: 30%) 2,026,642 1,785,584 Tax effect of: Expenses not deductible for tax purposes 344,911 117,447 Amounts recoverable in respect of prior period matters (33,722) (96,905) Under provision of current income tax charge in prior years 23,242 - Tax discount in accordance with Rwanda tax laws (114,349) (92,841)
Income tax expense 2,246,724 1,713,285 10 Cash and balances with National Bank of Rwanda Cash in hand 3,828,106 3,102,968 Balances with National Bank of Rwanda 5,338,826 5,002,851
9,166,932 8,105,819
Cash in hand balances and balances with the National Bank of Rwanda are classifi ed as current assets. Balances with the National Bank of Rwanda are non-interest earning.
29 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
11 Amounts due from other banks 2013 2012 Frw ’000 Frw ’000
Current accounts with other banks 11,456,438 15,864,314 Placements with other banks 11,117,139 14,354,467
22,573,577 30,218,781
All amounts due from other banks are classifi ed as current assets. All placements with other banks are interest earning. 12 Financial assets
(a) At fair value through profi t or loss 2013 2012 Frw ’000 Frw ’000
Government securities 798,419 1,195,733
Fair value gains on government securities held for trading were insignifi cant in 2013 and 2012 as the yield on the securities approximat- ed the coupon interest rates. (b) Held to maturity: 2013 2012 Frw ’000 Frw ’000
Treasury bonds and bills issued by the Government of Rwanda 22,252,786 11,249,998 Corporate bonds - 536,138
At 31 December: 22,252,786 11,786,136
The corporate bonds as at 31 December 2012 were issued by the Guaranty Trust Bank Plc of Nigeria. The maturity profi le of the held to maturity fi nancial assets is as follows: 2013 2012 Frw ’000 Frw ’000
Treasury bills maturing: - within 91 days from date of acquisition 11,616,103 6,482,184 - 91 days to 1 year from date of acquisition 8,570,554 1,708,987 - After 5 years 2,066,129 3,058,827 22,252,786 11,249,998
Corporate bonds maturing within 1 year from date of acquisition - 536,138
22,252,786 11,786,136
30 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
12 Financial assets (continued) (c) Available-for-sale equity investments Unquoted securities 2013 2012 Frw ’000 Frw ’000 At start of year 157,691 157,691 Fair value gains 96,989 -
254,680 157,691
13 Loans and advances to customers
(a) Mortgages 18,911,459 17,349,361 Equipment loans 15,791,649 12,270,232 Overdrafts 13,754,229 10,139,633 Consumer loans 13,772,669 9,179,194 Leases 609,571 1,183,442 Others 4,063,389 3,715,856
Gross loans and advances 66,902,966 53,837,718
Less: provision for impairment of loans and advances - Individually assessed (639,820) (823,389) - Collectively assessed (626,738) (542,658)
65,636,408 52,471,671
Current 31,479,641 22,742,271 Non-current 29,729,400 34,156,767
65,636,408 52,471,671
(b) Movements in provisions for impairment of loans and advances are as follows: Individually Collectively Total assessed assessed Frw’ 000 Frw’ 000 Frw’ 000 Year ended 31 December 2013 At start of year 823,389 542,658 1,366,047 Additional provision (Note 5) 207,887 84,080 291,967 Recoveries on provisions (Note 5 ) (147,220) - (147,220) Decrease in interest in suspense (82,426) - (82,426) Loans written-off (161,810) - (161,810) At end of year 639,820 626,738 1,266,558
31 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
13 Loans and advances to customers (continued)
Individually Collectively Total assessed assessed Frw ’000 Frw ’000 Frw ’000 Year ended 31 December 2012 At start of year 969,797 399,558 1,369,355 Additional provision (Note 5) 288,543 143,100 431,643 Recoveries on provisions (Note 5 ) (447,968) - (447,968) Increase in interest in suspense 233,239 - 233,239 Loans written-off (220,222) - (220,222)
At end of year 823,389 542,658 1,366,047
All loans are carried at their estimated recoverable amount.
The Bank does not accrue interest on impaired loans. Accrued interest is only computed for specifi c loans when the Bank is negotiating restructuring terms with defaulting customers.
(c) Finance lease receivables
An analysis of fi nance lease receivables as at 31 December 2013 and 2012 was as follows:
2013 2012 Frw ’000 Frw ’000
Gross investment in fi nance leases: Not later than 1 year 67,426 118,916 Later than 1 year and not later than 5 years 692,661 1,309,395
760,087 1,428,311 Unearned future fi nance income on fi nance leases (97,871) (259,919) Provision for impairment (23,856) (3,617)
Present value of minimum lease payments receivable 638,360 1,164,775
The present value of minimum lease payments receivable as at 31 December 2013 and 2012 was as follows:
2013 2012 Frw ’000 Frw ’000
Not later than 1 year 79,872 145,621 Later than 1 year and not later than 5 years 558,488 1,019,154
638,360 1,164,775
32 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued) 14 Property and equipment Land and Furniture Motor Computer Work in buildings & fi ttings vehicles Equipment equipment progress Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Year ended 31 December 2013 Opening net book amount 2,736,335 336,076 386,106 610,060 159,037 97,748 4,325,362 Additions 290,010 14,210 - 63,896 53,496 78,811 500,423 Transfers from WIP - - - 14,448 - (14,448) - Elimination of revaluation reserve (18,308) - - - - - (18,308) Disposals at cost (58,849) (10,432) - (26,417) (138,381) - (234,079) Accumulated depreciation on disposal 48,889 10,432 - 23,399 138,381 - 221,101 Depreciation (294,248) (84,369) (150,991) (140,904) (83,851) - (754,363)
Closing net book amount 2,703,829 265,917 235,115 544,482 128,681 162,111 4,040,135
As at 31 December 2013 Cost 3,562,698 687,968 1,086,156 1,214,941 978,387 162,111 7,692,261 Accumulated Depreciation (858,869) (422,051) (851,041) (670,459) (849,706) - (3,652,126)
Net book amount 2,703,829 265,917 235,115 544,482 128,681 162,111 4,040,135
Year ended 31 December 2012 Opening net book amount 2,736,119 420,902 446,172 368,601 112,535 159,499 4,243,828 Additions 7,765 8,754 155,725 294,162 151,183 301,441 919,030 Transfers from WIP 259,765 - - 103,427 - (363,192) - Disposals - - (295) - - - (295) Depreciation (267,314) (93,580) (215,496) (156,130) (104,681) - (837,201)
Closing net book amount 2,736,335 336,076 386,106 610,060 159,037 97,748 4,325,362
As at 31 December 2012 Cost 3,349,844 684,191 1,086,156 1,163,014 1,063,271 97,748 7,444,224 Accumulated Depreciation (613,508) (348,115) (700,050) (552,954) (904,234) - (3,118,862)
Net book amount 2,736,335 336,076 386,106 610,060 159,037 97,748 4,325,362
33 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
15 Intangible assets 2013 2012 Frw ’000 Frw ’000
Net book value at 1 January: 193,217 156,952 Additions 35,305 178,768 Amortisation charge (115,953) (142,503)
Net book value at 31 December: 112,569 193,217
At 31 December: Cost 1,330,918 1,295,613 Accumulated amortisation (1,218,349) (1,102,396)
112,569 193,217
Intangible assets relate to computer software licenses. 16 Other assets
Items in the course of collection 39,257 1,086,650 Prepayments 425,290 415,824 Other commissions recoverable 3,344 4,335 Other debtors 184,196 209,526
652,087 1,716,335
Items in the course of collection relate to uncleared cheque amounts recoverable from other banks.
17 Customer deposits
Current and demand deposits 60,415,190 68,843,711 Fixed deposit accounts 20,066,761 9,719,639 Savings accounts 12,101,929 6,890,779 Interest payable 1,479,074 361,962
94,062,954 85,816,091
Current 91,899,773 84,216,091 Non-current 2,163,181 1,600,000
94,062,954 85,816,091
Customer deposits only include fi nancial instruments classifi ed as liabilities at amortised cost. Interest earning fi xed and demand deposits are at fi xed and variable interest rates respectively.
34 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
18 Deposits from other banks
2013 2012 Frw ’000 Frw ’000
Demand and term deposits from banks 5,007,816 800,934
Deposits from other banks only include fi nancial instruments classifi ed as liabilities at amortised cost and are at fi xed interest rates. All deposits from other banks are current.
19 Borrowings 2013 2012 Frw ’000 Frw ’000
Loan from European Investment Bank 813,418 1,272,790 Amounts due to the National Bank of Rwanda 110,739 143,477
924,157 1,416,267
Current 458,692 489,840 Non-current 465,465 926,427
924,157 1,416,267
The loan from European Investment Bank matures in 2015 and bears interest at a rate of 11.66 % (2012: 11.66%). Long term advances from the National Bank Rwanda mature in 2017 and bear interest at a rate of 9.5% (2012: 9.5%). The two facilities are unsecured. The carrying value of the borrowings approximate to their fair value.
20 Corporate bond The bank issued a 10.5% corporate bond at a nominal value of Rwf 1 billion through the Rwanda Over The Counter market in January 2008. The bond has a maturity period of 10 years and is unsecured.
The carrying value of the corporate bond approximates to its fair value.
35 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
21 Deferred income tax
Deferred income tax is calculated using the enacted income tax rate of 30% (2012: 30%). The movement on the deferred income tax account is as follows: 2013 2012 Frw’ 000 Frw’ 000
At start of year 123,816 174,504 Charge for the year 50,852 (50,688) Charge to equity - revaluation of available for sale fi nancial assets 29,097 -
At end of year 203,765 123,816
The deferred income tax liability, deferred income tax charge/(credit) to profi t and loss (PL) and deferred income tax charge to other comprehensive income (OCI) are attributable to the following items:
Current year charged/ 1 January (credited) 31 December Year ended 31 December 2013 2013 to PL Charge to OCI 2013 Frw ’000 Frw ’000 Frw ’000 Frw ’000
Property and equipment 508,388 (49,223) - 459,165 Fair value gains on available for sale equity investments 28,869 - 29,097 57,966 Other temporary differences 13,886 (11,066) - 2,820
Deferred income tax liability 551,143 (60,289) 29,097 519,951
Provisions for impairment of loans (28,011) 28,011 - - Other provisions (399,316) 83,130 - (316,186)
Deferred tax asset (427,327) 111,141 - (316,186)
Net deferred income tax liability 123,816 50,852 29,097 203,765
36 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
21 Deferred income tax (continued) Current year charged/ 1 January (credited) 31 December Year ended 31 December 2012 2012 to PL Charge to OCI 2012 Frw ’000 Frw ’000 Frw ’000 Frw ’000
Property and equipment 523,324 (14,936) - 508,388 Fair value gains on available for sale equity investments 28,869 - - 28,869 Other temporary differences 22,198 (8,312) - 13,886
Deferred income tax liability 574,391 (23,248) - 551,143
Provisions for impairment of loans (127,117) 99,106 - (28,011) Other provisions (272,770) (126,546) - (399,316)
Deferred income tax assets (399,887) (27,440) - (427,327)
Net deferred income tax liability 174,504 (50,688) - 123,816
22 Provision for litigation 2013 2012 Frw ’000 Frw ’000
At 1 January 747,388 515,526 Charged to statement of comprehensive income: – Additional provision 164,410 327,345 – Unused amounts reversed (75,080) (38,454) Used during year (8,471) (57,029)
828,247 747,388
The timing of settlement of the litigation provisions cannot be estimated with certainty 23 Other liabilities
Cheque clearing accounts 1,397,739 1,835,007 Accruals 1,822,526 1,756,063 Other taxes payable 259,951 103,711 Other 490,883 347,516
3,971,099 4,042,297
37 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued
24 Share capital Number of Ordinary shares shares Frw ‘000
Balance at 1 January 2012, 1 January 2013 and 31 December 2013 5,000,000 5,000,000
The total authorised number of ordinary shares is 5,000,000 with a par value of Frw 1,000 per share. All issued shares are fully paid. 25 Fair value reserve
Movements in the fair value reserve for available for sale equity investments are shown in the statement of changes in equity. The reserve is not distributable. 26 Revaluation reserve Movements in the revaluation reserve are shown on the statement of changes in equity.
27 Proposed dividends The directors have recommended dividend payment of Rwf 1,800 million for the fi nancial year ended 31 December 2013 (2012: Rwf 1,272 million). Payment of dividends is subject to withholding tax rate of 10 - 15%.
28 Related party transactions The Bank is controlled by BCR Investment Company Limited, incorporated in Mauritius. The ultimate parent of the Bank is I&M Holdings Ltd, domiciled in Kenya. There are other companies which are related to I&M Bank (Rwanda) Limited through common shareholdings or common directorships.
BCR Investment Company Limited holds 80% shareholding in I&M Bank (Rwanda) Limited. During the fi nancial year, BCR Investment Company Limited shareholders included I&M Bank Limited with a shareholding of 68.742%. With effect from 2 January 2014, I&M Bank Limited transferred all its shares in BCR Investment Company Limited to I&M Holdings Limited, a non-operating holding company for the I&M Group listed on the Nairobi Securities Exchange.
The Bank enters into transactions, arrangements, and agreements involving directors, senior management and their related concerns in the ordinary course of business. Related-party transactions during the year, outstanding balances at the year-end, and relating expense and income recognised during the year are as follows:
(a) Purchase of services 2013 2012 Frw ‘000 Frw ‘000
Management fees paid to Parent company 88,280 86,081
38 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
28 Related party transactions (continued)
(b) Deposits from related parties 2013 2012 Frw ’000 Frw ’000
Deposits from employees 419,002 285,488 Deposits from directors 292,999 11,526
712,001 297,014
The deposits are unsecured, carry variable interest rates and are repayable on demand.
(c) Loans and advances to related parties 2013 2012 Frw ’000 Frw ’000
Loans and advances to employees 1,729,192 1,658,272 Loans and advances to directors 13,455 102,733
1,742,647 1,761,005
Loans and advances to staff were issued at an interest rate of 6% and were all performing as at 31 December 2013 and 2012.
The interest income earned on loans to directors and employees during the year was Frw 181 million (2012: Frw 94 million). No provisions have been recognised in respect of loans given to related parties (2012: nil).
(d) Key management compensation 2013 2012 Frw ’000 Frw ’000
Salaries and other short-term employment benefi ts 1,640,036 1,440,462
(e) Directors’ remuneration
Emoluments included in key management compensation above 504,491 411,875 Other emoluments 123,948 101,791
628,439 513,666
(f) Outstanding balances from Nostro account operations
Nostro account balances with I&M Bank Limited 1,954,540 4,561,841
39 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
29 Analysis of cash and cash equivalents as shown in the cash fl ow statement
2013 2012 Frw ’000 Frw ’000
Cash and Central bank balances (Note 10) 9,166,932 8,105,819 Less: cash reserve requirement (5,074,146) (4,602,524)
4,092,786 3,503,295 Placements with other banks (Note 11) 22,573,577 30,218,781 Treasury bills maturing within 91 days (Note 12(b)) 11,616,103 6,482,184 Deposits from other banks (Note 18) (5,007,816) (800,934)
33,274,650 39,403,326
For the purposes of the statement of cash fl ows, cash and cash equivalents comprise balances with less than 90 days maturity from the date of acquisition including: cash and balances with Banks, treasury bills and other eligible bills, and amounts due from other banks. Cash and cash equivalents exclude the cash reserve requirement held with the National Bank of Rwanda. Banks are required to maintain a prescribed minimum cash balance with the National Bank of Rwanda that is not available to fi nance the bank’s day-to-day activities. The amount is determined as 5 % of the average outstanding customer deposits over a cash reserve cycle period of one month.
30 Off balance sheet fi nancial instruments, contingent liabilities and commitments
In common with other banks, the Company conducts business involving acceptances, letters of credit, guarantees, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties.
2013 2012 Frw ’000 Frw ’000 Contingent liabilities
Acceptances and letters of credit 4,925,193 5,303,651 Guarantees 3,065,395 1,934,310
7,990,588 7,237,961
Nature of contingent liabilities
An acceptance is an undertaking by a bank to pay a bill of exchange drawn on a customer. The bank expects most acceptances to be presented, and reimbursement by the customer is normally immediate. Letters of credit commit the bank to make payments to third parties, on production of documents, which are subsequently reimbursed by customers.
Guarantees are generally written by a bank to support performance by a customer to third parties. The bank will only be required to meet these obligations in the event of the customer’s default.
40 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
30 Off balance sheet fi nancial instruments, contingent liabilities and commitments (continued) Other commitments 2013 2012 Frw ’000 Frw ’000
Other commitments to lend 3,418,863 3,014,000
Nature of commitments
Commitments to lend are agreements to lend to a customer in future subject to certain conditions. Such commitments are normally made for a fi xed period. The bank may withdraw from its contractual obligation for the undrawn portion of agreed overdraft limits by giving reasonable notice to the customer.
31 Classifi cation of fi nancial instruments
The table below sets out the Bank’s classifi cation of each class of fi nancial assets and liabilities, and their fair values.
Fair value Held to Loans and Available for Total carrying through P&L maturity receivables sale amount Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Year ended 31 December 2013
Financial assets Cash and balances with the National Bank of Rwanda (Note 10) - - 9,166,932 - 9,166,932 Amounts due from other banks (Note 11) - - 22,573,577 - 22,573,577 Treasury bills and bonds (Note 12) 798,419 22,252,786 - - 23,051,205 Equity investments (Note 12) - - - 254,680 254,680 Loans and advances to customers (Note 12) - - 65,636,408 - 65,636,408 Other receivables (Note 16) - - 226,797 - 226,797 Total fi nancial assets 798,419 22,252,786 97,603,714 254,680 120,909,599
Trading Amortised Total carrying cost amount Rwf’000 Rwf’000 Rwf’000 Financial liabilities Customer deposits - 94,062,954 94,062,954 Deposits from other banks - 5,007,816 5,007,816 Borrowings - 924,157 924,157
Corporate bond - 941,737 941,737
Other liabilities - 3,711,148 3,711,148
Total fi nancial liabilities - 104,647,812 104,647,812
41 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
31 Classifi cation of fi nancial instruments (continued) Fair value Held to Loans and Available for Total carrying through P&L maturity receivables sale amount Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Year ended 31 December 2012
Financial assets Cash and balances with the National Bank of Rwanda (Note 10) - - 8,105,819 - 8,105,819 Amounts due from other banks (Note 11) - - 30,218,781 - 30,218,781 Treasury bills and bonds (Note 12) 1,195,733 11,786,136 - - 12,981,869 Equity investments (Note 12) - - - 157,691 157,691 Loans and advances to customers (Note 12) - - 52,471,671 - 52,471,671 Other receivables (Note 16) - - 1,300,511 - 1,300,511 Total fi nancial assets 1,195,733 11,786,136 92,096,782 157,691 105,236,342
Trading Amortised Total carrying cost amount Frw ’000 Frw ’000 Frw ’000 Financial liabilities Customer deposits - 85,816,091 85,816,091 Deposits from other banks - 800,934 800,934 Borrowings - 1,416,267 1,416,267
Corporate bond - 1,046,375 1,046,375
Other liabilities - 3,938,586 3,938,586
Total fi nancial liabilities - 93,018,253 93,018,253
42 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32 Risk Management
32.1 Financial Risk Management
The Bank defi nes risk as the possibility of losses or profi ts foregone, which may be caused by internal or external factors. As such, the core functions of the Bank’s risk management function are to identify the signifi cant risks that the Bank is exposed to, measure these risks, manage the risk positions and determine capital allocations. The Bank regularly reviews its risk management policies and systems to refl ect changes in markets, products and best market practice.
The overall goal of the Bank’s risk management policies is to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Bank’s fi nancial performance.
Risk management is carried out by the bank’s Head of Risk, under the supervision of the Board Risk committee and the Managing Director (“the parties”). The parties execute their risk management roles under policies approved by the Board of Directors. The parties identify, evaluate and manage fi nancial risks in close co-operation with the Bank’s operating units. The Board provides written principles for overall risk management, as well as written policies covering specifi c areas, such as foreign exchange risk, interest rate risk and credit risk. In addition, the internal audit department is responsible for the independent review of risk management and the control environment.
The risks arising from fi nancial instruments to which the Bank is exposed to are credit risk, liquidity risk, market risk (which are discussed below) and operational risk.
(a) Credit risk
Credit risk is the risk of suffering fi nancial loss, should any of the Bank’s customers, clients or market counterparties fail to fulfi l their contractual obligations to the Bank. Credit risk arises mainly from commercial and consumer loans and advances and loan commit- ments arising from such lending activities, but can also arise from credit enhancement provided, such as fi nancial guarantees, letters of credit and acceptances.
The Bank is also exposed to other credit risks arising from investments in debt securities and other exposures arising from its trading activities (‘trading exposures’), including settlement balances with market counterparties and reverse repurchase loans.
Credit risk is the single largest risk for the Bank’s business; management therefore carefully manages its exposure to credit risk. The credit risk management and control are centralised in a credit risk management team, which reports to the Board of Directors through the Managing Director and head of each business unit regularly.
(i) Credit risk measurement
(a) Loans and advances (including commitments and guarantees)
The estimation of credit exposure is complex and requires the use of models, as the value of a product varies with changes in market variables, expected cash fl ows and the passage of time. The assessment of credit risk of a portfolio of assets entails further estima- tions as to the likelihood of defaults occurring, of the associated loss ratios and of default correlations between counterparties.
43 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial risk management (continued)
(a) Loans and advances (including commitments and guarantees) (continued)
In measuring credit risk of loan and advances to customers and to banks at a counterparty level, the Bank refl ects three components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future development, from which the Bank derives the ‘exposure at default’; and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’).
Probability of default The Bank assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty.
For regulatory purposes and for internal monitoring of the quality of the loan portfolio, all the customers are segmented into fi ve rating classes as shown below:
The Bank’s internal ratings scale
Regulatory rating Bank’s rating Description of the grade I I Performing II II Watch III III Substandard IV IV Doubtful V V Loss
Exposure at default
Exposure at default is based on the amounts the Bank expects to be owed at the time of default. For example, for a loan this is the face value. For a commitment, the Bank includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur.
Loss given default
Loss given default or loss severity represents the Bank’s expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure. It typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit support.
(ii) Risk limit control and mitigation policies
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one bor- rower, or groups of borrowers, and to industry segments. Such risks are monitored on a revolving basis and subject to annual or more frequent review. Limits on the level of credit risk by product, and industry sector are approved annually by the Board of Directors. The Board of Directors also approves individual borrower limits above specifi ed amounts.
The exposure to any one borrower including banks is further restricted by sub-limits covering on- and off-balance sheet exposures and daily delivery risk limits in relation to trading items such as forward foreign exchange contracts. Actual exposures against limits are monitored daily. Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing lending limits where appropriate.
44 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial risk management (continued)
(a) Credit risk
(ii) Risk limit control and mitigation policies (continued)
The Bank employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Bank implements guidelines on the acceptability of specifi c classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are:
• Mortgages over residential properties;
• Charges over business assets such as premises, plant and equipment;
• Charges over fi nancial instruments such as debt securities and equities.
Longer-term fi nance and lending to corporate entities are generally secured.
(b) Credit related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit, which represent irrevocable assurances that the bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are writ- ten undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank up to a stipulated amount under specifi c terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct lending.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specifi c credit standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
(iii) Impairment and provisioning policies
The impairment allowance shown in the balance sheet at year end is derived from each of the fi ve internal rating grades. The bank determines the impairment provision on loans and advances to customers as the difference between the carrying amount of a loan balance and the present value of estimated future cash fl ows, discounted at the loan’s effective interest rate.
45 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(a) Credit risk (continued)
(iv) Maximum exposure to credit risk before collateral held or other credit enhancements
Maximum exposure to credit risk before collateral held 2013 2012 Frw ’000 Frw ’000
Balances with National Bank of Rwanda 5,338,826 5,002,851 Current accounts and placements with other banks 22,573,577 30,218,781 Loans and advances to customers 65,636,408 52,471,671 Financial assets : - At fair value through profi t or loss 798,419 1,195,733 - Held to maturity 22,252,786 11,786,136 Other assets 226,797 1,300,511 Credit risk exposures relating to off-balance sheet items: - Acceptances and letters of credit 4,925,193 5,303,651 - Guarantees 3,065,395 1,934,310
124,817,401 109,213,644
The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2013 and 2012, without taking ac- count of any collateral held or other credit enhancements attached. For on-balance sheet assets, the exposures set out above are based on carrying amounts as reported on the balance sheet.
Loans and advances to customers, are secured by collateral in the form of charges over land and buildings and/or plant and machinery or corporate guarantees.
Management is confi dent in its ability to continue to control and sustain minimal exposure of credit risk to the Bank resulting from both its loan and advances portfolio and debt securities as the Bank exercises stringent controls over the granting of new loans.
Financial assets that are past due or impaired
Loans and advances are summarised as follows: 2013 2012 Frw ’000 Frw ’000
Neither past due nor impaired 60,015,007 47,713,323 Past due but not impaired 4,918,071 4,440,839 Individually impaired 1,969,888 1,683,556
Gross 66,902,966 53,837,718 Less: allowance for impairment (Note 13) (1,266,558) (1,366,047)
Net 65,636,408 52,471,671
No other fi nancial assets are either past due or impaired.
46 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(a) Credit risk (continued)
(iv) Maximum exposure to credit risk before collateral held or other credit enhancements (continued)
Loans and advances neither past due nor impaired
The credit quality of the portfolio of loans and advances that were neither past due nor impaired can be assessed by reference to the internal rating system recommended by the central bank:
2013 2012 Frw ’000 Frw ’000
Performing 60,015,007 47,713,323
Loans and advances past due but not impaired
Loans and advances less than 90 days past due are not considered impaired, unless other information is available to indicate the contrary. The gross amounts of loans and advances that were past due but not impaired were as follows: 2013 2012 Frw ’000 Frw ’000
Past due 31 – 90 days 4,918,071 4,440,839
Loans and advances individually impaired
Of the total gross amount of impaired loans, the following amounts have been individually assessed:
2013 2012 Frw ’000 Frw ’000
Individually assessed impaired loans and advances 1,969,888 1,683,556
Fair value of collateral held 2,033,782 1,175,110
47 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(a) Credit risk (continued)
v) Concentrations of risk of fi nancial assets with credit risk exposure.
Economic sector risk concentrations within the customer loan portfolios were as follows: Wholesale and retail Other Construction trade Manufacturing Agriculture industries Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000
Overdrafts 287,868 5,019,575 3,484,729 136,164 4,486,282 13,414,618 Term Loans 2,229,397 7,588,153 1,596,154 9,837,952 7,851,508 29,103,164 Mortgages 9,454,913 2,440,195 1,109,559 2,763,562 2,947,384 18,715,613 Leases - 348,470 5,561 - 255,540 609,571 Other 345,154 2,494,082 594,161 613,563 1,013,040 5,060,000
At 31 December 12,317,332 17,890,475 6,790,164 13,351,241 16,553,754 66,902,966 2013
Wholesale and retail Other Construction trade Manufacturing Agriculture industries Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000
Overdrafts 371,613 3,776,445 880,108 262,657 4,284,388 9,575,211 Term Loans 269,013 5,406,818 2,251,810 8,337,224 5,141,576 21,406,441 Mortgages 8,207,431 3,606,878 797,469 2,001,246 2,517,909 17,130,933 Leases - 657,748 34,722 - 490,480 1,182,950 Other 339,653 838,219 1,195,353 669,690 1,499,267 4,542,183
At 31 December 9,187,710 14,286,108 5,159,462 11,270,817 13,933,621 53,837,718 2012
(b) Liquidity risk Liquidity risk is the risk that the Bank is unable to meet its payment obligations associated with its fi nancial liabilities as they fall due and to replace funds when they are withdrawn. The Bank is exposed to daily calls on its available cash resources from overnight deposits, current accounts, maturing deposits, and calls on cash settled contingencies. The Bank does not maintain cash resources to meet all of these needs as experience shows that a minimum level of reinvestment of maturing funds can be predicted with a high level of certainty. The National Bank of Rwanda requires that the Bank maintains a cash reserve ratio. In addition, the Board sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand. The Treasury department monitors liquidity ratios on a daily basis. Sources of liquidity are regularly reviewed by a separate team in the Treasury department to maintain a wide diversifi cation by provider, product and term.
48 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(b) Liquidity risk (continued)
The table below presents the undiscounted cash fl ows payable by the Bank under fi nancial liabilities by remaining contractual maturities at the balance sheet date and from fi nancial assets by expected maturity dates.
Less than 1 Over 5 At 31 December 2013 month 1-3 months 3-12 months 1-5 Years Years Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Liabilities Customer deposits 67,849,077 5,128,296 18,922,400 2,163,181 - 94,062,954 Deposits from other banks 4,082,816 354,000 500,000 71,000 - 5,007,816 Borrowings 266,255 192,436 354,727 110,739 924,157 Corporate bond 141,737 - 100,000 700,000 - 941,737 Other liabilities 3,711,148 - - - - 3,711,148
Total fi nancial liabilities 75,784,778 5,748,551 19,714,836 3,288,908 110,739 104,647,812
Assets Cash and balances with balances with National Bank of Rwanda 9,166,932 - - - - 9,166,932 Placements with other banks 18,553,113 4,020,464 - - - 22,573,577 Loans and advances to customers 18,311,785 3,537,991 9,629,865 24,715,980 9,440,787 65,636,408 Investment securities § Held for trading 798,419 - - - - 798,419 § Held to maturity 4,044,520 13,667,768 3,276,661 1,263,837 - 22,252,786 Other assets 226,797 - - - - 226,797
Total fi nancial assets 51,101,566 21,226,223 12,906,526 25,979,817 9,440,787 120,654,919
Net liquidity gap (24,683,212) 15,477,672 (6,808,310) 22,690,909 9,330,048 16,007,107
49 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(b) Liquidity risk (continued) Less than1 Over 5 At 31 December 2012 month 1-3 months 3-12 months 1-5 Years Years Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Liabilities Customer deposits 77,107,259 281,855 6,826,977 1,600,000 - 85,816,091 Deposits from other banks 552,157 248,777 - - - 800,934 Borrowings - 264,038 225,802 782,950 143,477 1,416,267 Corporate bond 46,375 - - - 1,000,000 1,046,375 Other liabilities 3,938,586 - - - - 3,938,586
Total fi nancial liabilities 81,644,377 794,670 7,052,779 2,382,950 1,143,477 93,018,253
Assets Cash and balances with balances with National Bank of Rwanda 8,105,819 - - - - 8,105,819 Placements with other banks 25,262,798 4,419,846 536,137 - - 30,218,781 Loans and advances to customers 13,175,322 2,760,229 6,806,719 21,788,496 7,940,905 52,471,671 Investment securities § Held for trading 1,195,733 - - - - 1,195,733 § Held to maturity 6,482,184 341,587 2,154,463 2,807,902 11,786,136 Other assets 1,300,511 - - - - 1,300,511
Total fi nancial assets 55,522,367 7,521,662 9,497,319 24,596,398 7,940,905 105,078,651
Net liquidity gap (26,122,010) 6,726,992 2,444,540 22,213,448 6,797,428 12,060,398
(c) Market risk
Market risk is the risk that changes in market prices, which include currency exchange rates and interest rates, will affect the fair value or future cash fl ows of a fi nancial instrument. Market risk arises from open positions in interest rates and foreign currencies, both of which are exposed to general and specifi c market movements and changes in the level of volatility. The objective of market risk management is to manage and control market risk exposures within acceptable limits, while optimising the return on risk. Overall responsibility for managing market risk rests with the Assets and Liabilities Committee (ALCO). The Treasury department is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day to day implementation of those policies.
50 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(c) Market risk (continued)
(ii) Interest rate risk
The Bank takes on exposure to the effects of fl uctuations in the prevailing levels of market interest rates on both its fair value and cash fl ow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unex- pected movements arise. The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be under- taken, which is monitored daily. The tables below summarise the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorised by the earlier of contractual repricing or maturity dates. The Bank does not bear an interest rate risk on off balance sheet items. All fi gures are in thousands of Rwandan Francs.
Non At 31 December Less than 1-3 3-12 Over 5 interest 2013 1 month months months 1-5 Years Years bearing Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Liabilities Customer deposits 2,887,780 5,128,296 17,443,326 2,163,181 - 66,440,371 94,062,954 Deposits from other banks 3,534,000 421,197 500,000 71,000 - 481,619 5,007,816 Borrowings 266,255 192,436 354,727 110,739 - 924,157 Corporate bond 141,737 100,000 700,000 - 941,737 Other liabilities 3,711,148 3,711,148 Total fi nancial liabilities 6,829,772 5,741,929 18,398,053 3,044,920 - 70,633,138 104,647,812
Assets Cash and balances with balances with Na- tional Bank of Rwanda - - - - 9,166,932 9,166,932 Placements with other banks 8,602,537 4,020,464 - - - 22,573,577 22,573,577 Loans and advances to customers 18,311,785 3,537,991 9,629,865 24,715,980 9,440,787 - 65,636,408 Investment securities § Held for trading 798,419 - - - - - 798,419 § Held to maturity 4,044,520 13,667,768 3,276,661 1,263,837 - - 22,252,786 Other assets - - - - - 226,797 226,797
Total fi nancial as- sets 31,757,261 21,226,223 12,906,526 25,979,817 9,440,787 19,344,305 120,654,919
Interest sensitivity gap 24,927,489 15,484,294 (5,491,527) (22,934,897)9,440,787 (51,288,833) 16,007,107
51 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(c) Market risk (continued)
(ii) Interest rate risk (continued)
At 31 December 2012 Less than 1-3 3-12 Over 5 Non inter- 1 month months months 1-5 Years Years est bearing Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Liabilities Customer deposits 4,216,919 281,855 12,505,152 1,600,000 - 67,212,165 85,816,091 Deposits from other banks - 248,777 - - - 552,157 800,934 Borrowings 264,038 225,802 782,950 143,477 - 1,416,267 Corporate bond 46,375 - - - 1,000,000 - 1,046,375 Other liabilities 3,938,586 3,938,586 Total fi nancial liabilities 4,263,294 794,670 12,730,954 2,382,950 1,143,477 71,702,908 93,018,253
Assets Cash and balances with balances with National Bank of Rwanda - - - - - 8,105,819 8,105,819 Placements with other banks 18,821,181 4,419,846 536,137 - - 6,441,617 30,218,781 Loans and advances to customers 13,175,322 2,760,229 6,806,719 21,788,496 7,940,905 - 52,471,671 Investment securities § Held for trading 1,195,733 - - - - - 1,195,733 § Held to maturity 6,482,184 341,587 2,154,463 2,807,902 - - 11,786,136 Other assets - - - - - 1,300,511 1,300,511
Total fi nancial assets 39,674,720 7,521,662 9,497,319 24,596,398 7,940,905 15,847,947 105,078,651 Interest sensitivity gap 35,411,126 6,726,992 (3,233,635) 22,213,448 6,797,428 (55,854,961) 12,060,398
The matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the management of the Bank. It is unusual for banks ever to be completely matched since business transacted is often of uncertain terms and of different types. An unmatched position potentially enhances profi tability, but can also increase the risk of losses.
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure to changes in interest rates and exchange rates.
52 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued) (c) Market risk (continued)
Currency risk
The Bank takes on exposure to the effects of fl uctuations in the prevailing foreign currency exchange rates on its fi nancial position and cash fl ows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily.
The table below summarises the Bank’s exposure to foreign currency exchange rate risk at 31 December 2013 and 2012. Included in the table are the Bank’s fi nancial instruments, categorised by currency:
At 31 December 2013 USD Euro GBP Other Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Assets Cash balances 1,695,340 350,714 209,870 226 2,256,150 Placements with other banks 14,390,788 2,602,643 331,315 20,294 17,345,040 Loans and advances to customers 4,663,641 166,194 51 - 4,829,886
Total assets 20,749,769 3,119,551 541,236 20,520 24,431,076
Liabilities Customer deposits 21,849,317 3,078,837 551,372 71 25,479,597 Borrowings - 813,418 - - 813,418 Deposits from other banks 65,872 - - - 65,872
Total liabilities 21,915,189 3,892,255 551,372 71 26,358,887
Net on-balance sheet position (1,165,420) (772,704) (10,136) 20,449 (1,927,811)
53 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
Currency risk (continued) At 31 December 2012 USD Euro GBP Other Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Assets Cash balances 1,267,146 410,530 50,827 208 1,728,711 Placements with other banks 19,784,382 2,495,203 142,031 70,815 22,492,431 Loans and advances to customers 3,737,278 323,166 855 - 4,061,299 Investment securities held to maturity 536,138 - - - 536,138
Total assets 25,324,944 3,228,899 193,713 71,023 28,818,579
Liabilities Customer deposits 25,842,268 2,994,175 196,273 72 29,032,788 Borrowings - 1,272,790 - - 1,272,790 Deposits from other banks 42,741 - - - 42,741
Total liabilities 25,885,009 4,266,965 196,273 72 30,348,319
Net on-balance sheet position (560,065) (1,038,066) (2,560) 70,951 (1,529,740)
(d) Fair values of fi nancial assets and liabilities
Investments securities available for sale and held for trading are measured at fair value. The fair values of the Bank’s other fi nancial as- sets and liabilities approximate the respective carrying amounts, due to the generally short periods to contractual re-pricing or maturity dates as set out above.
Fair value measurements for available for investment securities are considered by level of the following fair value measurement hierar- chy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1). • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices) (level 2). • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3).
The following table presents the Bank’s assets that are measured at fair value at 31 December 2013 and 2012. Level 1 Level 2 Level 3 Total balance Frw’000 Frw’000 Frw’000 Frw’000 At 31 December 2013 Available for sale securities - - 254,680 254,680 Held for trading securities - 798,419 - 798,419
798,419 254,680 1,053,099
54 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(d) Fair values of fi nancial assets and liabilities (continued) Level 1 Level 2 Level 3 Total balance Frw ’000 Frw ’000 Frw ’000 Frw ’000 At 31 December 2012 Available for sale securities - - 157,691 157,691 Held for trading securities - 1,195,733 - 1,195,733
- 1,195,733 157,691 1,353,424
The fair value of investment securities is determined using valuation techniques. In these techniques, fair values are estimated using models to estimate the present value of expected future cash fl ows or other valuation techniques, using inputs existing at the dates of the statement of fi nancial position. The Bank uses widely recognised valuation models for determining fair values of its investment securities.
(e) Capital management
The Bank’s objectives when managing capital, which is a broader concept than the ‘equity’ on the balance sheet, are:
• to comply with the capital requirements set by the National Bank of Rwanda; • to safeguard the Bank’s ability to continue as a going concern, so that it can continue to provide returns for shareholders and benefi ts for other stakeholders; • to maintain a strong capital base to support the development of its business.
The Bank’s regulator National Bank of Rwanda (BNR) sets and monitors capital requirements for the Bank as a whole. The parent company and individual banking operations are directly supervised by their local regulators.
In implementing current capital requirements, BNR, requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets.
The Bank’s regulatory capital consists only of Tier 1 capital, which includes ordinary share capital, retained earnings, revaluation reserves and statutory reserves.
The Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confi dence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security af- forded by a sound capital position.
The Bank’s Tier 1 capital expressed as a percentage of risk-weighted assets is set out on the next page. The regulatory capital met the minimum required ratio of 10% and the bank has complied with all externally imposed capital requirements throughout the period.
55 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
32.1 Financial Risk Management (Continued)
(e) Capital management (continued) 2013 2012 Frw’000 Frw’000
Ordinary share capital 5,000,000 5,000,000 Reserves: Retained earnings 11,811,407 9,102,658 Revaluation reserve - 18,308 Fair value reserve 135,252 67,360
Total tier 1 capital 16,946,659 14,188,326
Risk-weighted assets 71,641,273 63,295,481
Tier 1 capital expressed as a percentage of risk-weighted assets 23.6% 22.4%
32.2 Operational Risk The overall responsibility of managing Operational Risks - the risk arising from failed or inadequate internal processes, people, systems and external events - is vested with the Board of Directors. The Board through the Board Risk Committee, issues policies that guide management on appropriate practices of operational risk mitigation. An independent Risk Manager assures the Board Risk Committee of the implementation of the said policies.
The following are key measures that the bank undertakes in managing operational risk:
r business environment. r"QQSPQSJBUFTFHSFHBUJPOPGEVUJFT JODMVEJOHUIFJOEFQFOEFOUBVUIPSJTBUJPOPGUSBOTBDUJPOT r3FDPODJMJBUJPOBOENPOJUPSJOHPGUSBOTBDUJPOT r$PNQMJBODFXJUISFHVMBUPSZBOEPUIFSMFHBMSFRVJSFNFOUT r3FQPSUJOHPGPQFSBUJPOBMMPTTFTBOEFOTVSJOHBQQSPQSJBUFSFNFEJBMBDUJPOUPBWPJESFDVSSFODF r%FWFMPQNFOUBOEJNQMFNFOUBUJPOPG#VTJOFTT$POUJOVJUZBOE%isaster Recovery Plans r Training and professional development of employees to ensure they are well equipped to identify and mitigate operational risks in a timely manner. r&TUBCMJTINFOUPGFUIJDBMQSBDUJDFTBUCVTJOFTTBOEJOEJWJEVBMFNQMPyee’s level. r*NQMFNFOUBUJPOPG3JTLNJUJHBUJPOQBSBNFUFST JODMVEJOHJOTVSB
The entire operational risk management framework is subjected to periodic independent audits (internal) in order for the bank to obtain
are reviewed by the Board Audit Committee and recommendations made implemented in line with the agreed timeframe.
56 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
32.3 Environmental and Social Risk
&OWJSPONFOUBMBOETPDJBMSJTLTBSFUIFSJTLTUIBUUIFCBOLDPVMECFBSUIFDPOTFRVFODFTPGTPDJPFOWJSPONFOUBMGBMMPVUPGUSBOTBDUJPOT Such risks could arise from failure of the bank to assess the impacts of activities (of both the bank and its clients) which could hurt the environment or have negative social impact.
5IF#BOLJTBXBSFUIBUJUIBTBSFTQPOTJCJMJUZUPFOTVSFUIBUJUTJOUFSOBMQSBDUJDFBOEJUTMFOEJOHBDUJWJUJFTEPOPUIBWFOFHBUJWF&OWJSPONFOUBM BOE 4PDJBM JNQBDUT BOE JT UIVT DPNNJUUFE UP FOTVSF UIBU TVDI SJTLT BSF TVGàDJFOUMZ NBOBHFE UISPVHI JUT &OWJSPONFOUBM BOE 4PDJBM .BOBHFNFOUQPMJDZBOECZBEPQUJOHUIFDPVOUSZT-BCPVSBOE&OWJSPONFOUMBXT5IF#BOLBMTPBEIFSFTUPJOUFSOBUJPOBMCFTUQSBDUJDF *'$ 1FSGPSNBODFTUBOEBSETBOE*-0TUBOEBSETBTSBUJàFEHZUIF3XBOEB(PWFSONFOU "O&OWJSPONFOUBM"OE4PDJBM.BOBHFNFOU4ZTUFNJT CFJOHQVUJOQMBDFUPFOTVSFEVFEJMJHFODFBOENPOJUPSJOHPGUIF&OWJSPONFOUBMBOE4PDJBMSJTLJTEPOFFGàDJFOUMZ$PNQMJBODFUPUIFTFMBXT is monitored by the compliance function.
32.4 Compliance And Regulatory Risk
Compliance and regulatory risk includes the risk of bearing the consequences of non-compliance with regulatory requirements. The compliance function is responsible for establishing and maintaining an appropriate framework of Bank compliance policies and procedures. Compliance with such policies and procedures is the responsibility of all Managers.
33 Segment information
Operating segments are reported in accordance with the internal reporting provided to the Managing Director (the chief operating decision-maker), who is responsible for allocating resources to the reportable segments and assessing their performance. All operating segments used by the Bank meet the defi nition of a reportable segment under IFRS 8.
The bank is organised into fi ve operating segments based on products and services as follows:
i. Retail banking - incorporating private banking services, private customer current accounts, savings, deposits, consumer loans and mortgages ii. Corporate banking - incorporating direct debit facilities, current accounts, deposits, overdrafts , loans and other credit facilities . iii. SME banking - incorporating direct debit facilities, current accounts, deposits, overdrafts, loans and other credit facilities. iv. Treasury management – incorporating trading, investment products and overnight lending services. v. Other segments - incorporating the fi nance department and other central functions.
As the bank’s segment operations are all fi nancial with a majority of revenues deriving from interest and the Managing Director relies primarily on net interest revenue to assess the performance of the segment, the total interest income and expense for all reportable segments is presented on a net basis.
There were no changes in the reportable segments during the year.
57 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
33 Segment information (continued)
The revenue from external parties reported to the Managing Director is measured in a manner consistent with that in the statement of comprehensive income.
There are no material items of income or expense between the business segments.
The bank’s management reporting is based on a measure of operating profi t comprising net interest income, loan impairment charges, net fee and commission income, other income and non-interest expenses. This measurement basis excludes the effects of non-recurring expenditure from the operating profi t.
The information provided about each segment is based on the internal reports about segment profi t or loss, assets and other information, which are regularly reviewed by the Managing Director.
Segment assets and liabilities comprise operating assets and liabilities but exclude items such as taxation.
The segment information provided to the Managing Director for the reportable segments for the year ended 31 December 2013 is as follows:
At 31 December 2013 Retail Corporate SME Treasury Other Total banking banking banking management segments Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000
Net interest income 2,488,977 1,576,331 2,336,403 2,759,936 (119,222) 9,042,425 Net fee and commission income 729,483 876,331 490,392 - 208,812 2,305,018 Other income - - 222,493 - 97,964 320,457 Net Forex exchange income - - - 5,214,700 - 5,214,700 Net impairment recoveries on loans - - - - 421,070 421,070 Employee benefi ts expense - - - - (5,755,046) (5,755,046) Depreciation and amortisation expense - - - - (870,316) (870,316) General and administrative expenses - - - - (3,710,424) (3,710,424)
Operating profi t 3,218,460 2,452,662 3,049,288 7,974,636 (9,727,162) 6,967,884
Total assets 19,152,176 30,975,225 16,143,193 54,949,404 4,583,781 125,803,779
Total liabilities 17,431,964 70,083,816 6,907,082 - 12,634,258 107,057,120
Equity - - - - 18,746,659 18,746,659
58 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
33 Segment Information (Continued) Retail Corporate SME Treasury Other At 31 December 2012 banking banking banking management segments Total Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000 Frw ’000
Net interest income 1,750,943 2,063,010 1,954,037 2,330,325 (322,921) 7,775,394 Net fee and commission income 759,158 909,129 443,181 - 260,489 2,371,957 Other income - - 228,033 - 371,324 599,357 Net Forex exchange income - - - 5,032,236 - 5,032,236 Net impairment recoveries on loans - - - - 623,038 623,038 Employee benefi ts expense - - - - (5,601,927) (5,601,927) Depreciation and amortisation expense - - - - (979,705) (979,705) General and administrative expenses - - - - (3,598,631) (3,598,631)
Operating profi t 2,510,101 2,972,139 2,625,251 7,362,561 (9,248,333) 6,221,719
Total assets 15,271,778 25,265,775 12,586,086 51,464,161 5,582,945 110,170,745
Total liabilities 16,911,287 59,377,024 8,435,472 - 9,987,038 94,710,821
Equity - - - - 15,459,924 15,459,924
34 Critical accounting estimates and judgements in applying accounting policies
The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next fi nancial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.
(a) Impairment losses on loans and advances
The Bank reviews its loan portfolios to assess impairment at least on a quarterly basis. In determining whether an impairment loss should be recorded in the income statement, the bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash fl ows from a portfolio of loans before the decrease can be identifi ed with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash fl ows. The methodology and assumptions used for estimating both the amount and timing of future cash fl ows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.
59 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
34 Critical accounting estimates and judgements in applying accounting policies (continued)
(b) Fair value of fi nancial instruments
The fair values of fi nancial instruments that are not quoted in active markets are determined by using valuation techniques. Where valuation techniques (for example, models) are used to determine fair values, they are validated and periodically reviewed by qualifi ed personnel independent of the area that created them. All models are certifi ed before they are used, and models are calibrated to ensure that outputs refl ect actual data and comparative market prices. To the extent practical, models use only observable data, however areas such as credit risk (both own and counterparty), volatilities and correlations require management to make estimates. Changes in assumptions about these factors could affect reported fair value of fi nancial instruments.
(c) Tax expenses
Judgement is required in determining the Bank’s provision for tax expenses. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Bank recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the fi nal tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the income tax and deferred tax provisions in the period in which such determination is made.
35 Summary of signifi cant accounting policies
The principal accounting policies adopted in the preparation of these fi nancial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.
(a) Basis of preparation
The fi nancial statements are prepared in compliance with International Financial Reporting Standards (IFRS). The measurement basis applied is the historical cost basis, except where otherwise stated in the accounting policies below. The fi nancial statements are presented in Rwandan Francs (Frw), rounded to the nearest thousand.
The preparation of fi nancial statements in conformity with IFRS requires the use of estimates and assumptions. It also requires management to exercise its judgement in the process of applying the Bank’s accounting policies. The areas involving a higher degree of judgement or complexity, or where assumptions and estimates are signifi cant to the fi nancial statements, are disclosed in Note 34 above.
Changes in accounting policy and disclosures
(a) New and amended standards adopted by the Bank
The following standards have been adopted by the bank for the fi rst time for the fi nancial year beginning on or after 1 January 2013 and have a material impact on the bank:
Amendment to IAS 1, ‘Financial statement presentation’ regarding other comprehensive income. The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially reclassifi able to profi t or loss subsequently (reclassifi cation adjustments).
60 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary Of Signifi cant Accounting Policies (Continued) (a) Basis of preparation (continued)
Changes in accounting policy and disclosures (continued)
(a) New and amended standards adopted by the Bank (continued)
Amendment to IFRS 7, ‘Financial instruments: Disclosures’, on asset and liability offseting. This amendment includes new disclosures to facilitate comparison between those entities that prepare IFRS fi nancial statements to those that prepare fi nancial statements in accordance with US GAAP.
IFRS 13, ‘Fair value measurement’, aims to improve consistency and reduce complexity by providing a precise defi nition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs.
(b) New standards and interpretations that are not yet effective and have not been early adopted
A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013, and have not been applied in preparing these fi nancial statements. None of these is expected to have a signifi cant effect on the fi nancial statements of the Bank, except the following set out below:
Amendments to IAS 36, ‘Impairment of assets’, on the recoverable amount disclosures for non-fi nancial assets. This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13. The amendment is not mandatory for the bank until 1 January 2014.
IFRS 9, ‘Financial instruments’, addresses the classifi cation, measurement and recognition of fi nancial assets and fi nancial liabilities. IFRS 9 was issued in November 2009 and October 2010. It replaces the parts of IAS 39 that relate to the classifi cation and measurement of fi nancial instruments. IFRS 9 requires fi nancial assets to be classifi ed into two measurement categories: those measured as at fair value and those measured at amortised cost. The determination is made at initial recognition.
The classifi cation depends on the entity’s business model for managing its fi nancial instruments and the contractual cash fl ow characteristics of the instrument. For fi nancial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for fi nancial liabilities, the part of a fair value change due to an entity’s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The bank is yet to assess IFRS 9’s full impact. The Bank will also consider the impact of the remaining phases of IFRS 9 when completed by the Board.
IFRIC 21, ‘Levies’, sets out the accounting for an obligation to pay a levy that is not income tax. The interpretation addresses what the obligating event is that gives rise to pay a levy and when should a liability be recognised. The Bank is not currently subjected to signifi cant levies so the impact on the Bank is not material.
There are no other IFRSs or IFRIC interpretations that are not yet effective that would be expected to have a material impact on the Bank.
61 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary Of Signifi cant Accounting Policies (Continued)
(b) Interest income and expense
Interest income and expense for all interest-bearing fi nancial instruments are recognised within ‘interest income’ or ‘interest expense’ in the statement of comprehensive income using the effective interest method.
The effective interest method is a method of calculating the amortised cost of a fi nancial asset or a fi nancial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the fi nancial instrument or, when appropriate, a shorter period to the net carrying amount of the fi nancial asset or fi nancial liability. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.
Once a fi nancial asset or a group of similar fi nancial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest that was used to discount the future cash fl ows for the purpose of measuring the impairment loss.
(c) Fees and commission income
Fees and commissions are generally recognised on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognised as an adjustment to the effective interest rate on the loan.
(d) Foreign currency translation
(i) Functional and presentation currency Items included in the fi nancial statements are measured using the currency of the primary economic environment in which the entity operates (the “functional currency”). The fi nancial statements are presented in Rwanda Francs (“Frw”) which is the Bank’s functional currency.
(ii) Transactions and balances
Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profi t and loss account.
62 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary Of Signifi cant Accounting Policies (Continued)
(e) Financial assets
The Bank classifi es its fi nancial assets into the following categories: fi nancial assets at fair value through profi t or loss; loans and advances; held-to-maturity fi nancial assets and available-for-sale fi nancial assets. Management determines the classifi cation of its fi nancial assets at initial recognition.
(i) Financial assets at fair value through profi t or loss
This category has two sub-categories: fi nancial assets held for trading, and those designated at fair value through profi t or loss at inception.
A fi nancial asset is classifi ed as held for trading if acquired principally for the purpose of selling in the short term. Derivatives are also categorised as held for trading. Financial assets are designated at fair value through profi t or loss when:
• doing so signifi cantly reduces or eliminates a measurement inconsistency; or
• they form part of a group of fi nancial assets that is managed and evaluated on a fair value basis in accordance with a documented risk management or investment strategy and reported to key management personnel on that basis.
(ii) Loans, advances and receivables
Loans and advances are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market, other than:
• those classifi ed as held for trading and those that the Bank on initial recognition designates as at fair value through profi t and loss; • those that the Bank upon initial recognition designates as available-for-sale; or • those for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration.
Loans and advances to customers, cash and other placements with the National Bank of Rwanda and other banks and other receivables are classifi ed under this category.
(iii) Held-to maturity
Held-to-maturity fi nancial assets are non-derivative fi nancial assets with fi xed or determinable payments and fi xed maturities that management has the positive intention and ability to hold to maturity. Were the Bank to sell more than an insignifi cant amount of held- to-maturity assets, the entire category would have to be reclassifi ed as available for sale.
(iv) Available-for-sale
Available-for-sale assets are non-derivatives that are either designated in this category or not classifi ed in any other categories.
63 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary Of Signifi cant Accounting Policies (Continued) (e) Financial assets (continued) Recognition and measurement
Purchases and sales of fi nancial assets are recognised on the trade date, which is the date on which the Bank commits to purchase or sell the asset. Financial assets are initially recognised at fair value, plus transaction costs for all fi nancial assets not carried at fair value through profi t or loss. Financial assets carried at fair value through profi t or loss are initially recognised at fair value, and transaction costs are expensed in the statement of comprehensive income. Financial assets are derecognised when the rights to receive cash fl ows from the fi nancial assets have expired or have been transferred and the Bank has transferred substantially all risks and rewards of ownership. Available-for-sale fi nancial assets and fi nancial assets at fair value through profi t or loss are subsequently carried at fair value. Loans and receivables and held-to-maturity fi nancial assets are subsequently carried at amortised cost using the effective interest method.
Gains or losses arising from changes in the fair value of the ‘fi nancial assets at fair value through profi t or loss’ category are included in the statement of comprehensive income in the period in which they arise. Changes in the fair value of monetary and non-monetary securities classifi ed as available-for-sale are recognised in other comprehensive income. When securities classifi ed as available-for- sale are sold or impaired, the accumulated fair value adjustments are included in the statement of comprehensive income as ‘’gains and losses from investment securities’’.
Determination of fair value
For fi nancial assets traded in active markets, the determination of fair values is based on quoted market prices or dealer price quo- tations. A fi nancial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occur- ring market transactions on an arm’s length basis. If the above criteria are not met, the market is regarded as being inactive. Indica- tors that a market is inactive are when there is a wide bid-offer spread or signifi cant increase in the bid-offer spread or there are few recent transactions. The Bank did not hold any fi nancial assets quoted in an active market during the year
For all other fi nancial instruments, fair value is determined using valuation techniques. In these techniques, fair values are estimated from observable data in respect of similar fi nancial instruments, using models to estimate the present value of expected future cash fl ows or other valuation techniques, using inputs existing at the dates of the statement of fi nancial position. The Bank uses widely recognised valuation models for determining fair values of its available for sale government securities.
(f) Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.
64 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary of signifi cant accounting policies (continued)
(g) Impairment of fi nancial assets
The Bank assesses at each balance sheet date whether there is objective evidence that a fi nancial asset or a group of fi nancial assets is impaired. A fi nancial asset or a group of fi nancial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash fl ows of the fi nancial asset or group of fi nancial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:
(a) signifi cant fi nancial diffi culty of the issuer or obligor; (b) a breach of contract, such as a default or delinquency in interest or principal payments; (c) the lender, for economic or legal reasons relating to the borrower’s fi nancial diffi culty, granting to the borrower a concession that the lender would not otherwise consider; (d) it becomes probable that the borrower will enter bankruptcy or other fi nancial reorganisation; (e) the disappearance of an active market for that fi nancial asset because of fi nancial diffi culties; or (f) observable data indicating that there is a measurable decrease in the estimated future cash fl ows from a portfolio of fi nancial assets since the initial recognition of those assets, although the decrease cannot yet be identifi ed with the individual fi nancial assets in the portfolio, including: (i) adverse changes in the payment status of borrowers in the portfolio; and (ii) national or local economic conditions that correlate with defaults on the assets in the portfolio.
(i) Assets carried at amortised cost
The Bank fi rst assesses whether objective evidence of impairment exists individually for fi nancial assets that are individually signifi cant, and individually or collectively for fi nancial assets that are not individually signifi cant. If the Bank determines that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, it includes the asset in a group of fi nancial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial instrument’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in the profi t and loss account. If a loan or held-to-maturity asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price.
The calculation of the present value of the estimated future cash fl ows of a collateralised fi nancial asset refl ects the cash fl ows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
65 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary of signifi cant accounting policies (continued)
(g) Impairment of fi nancial assets (continued)
For the purposes of a collective evaluation of impairment, fi nancial assets are grouped on the basis of similar credit risk characteristics (i.e. on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash fl ows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.
Future cash fl ows in a group of fi nancial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash fl ows of the assets and historical loss experience for assets with credit risk characteristics similar to those in the Bank. Historical loss experience is adjusted on the basis of current observable data to refl ect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not exist currently.
Estimates of changes in future cash fl ows for groups of assets should refl ect and be directionally consistent with changes in related observable data from period to period (e.g. changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash fl ows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.
When a loan is uncollectible, it is written off against the related provision for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to loans and advances to customers are classifi ed in loan impairment charges whilst impairment charges relating to investment securities are classifi ed in ‘Net gains/ (losses) on investment securities’. Subsequent recoveries of amounts previously written off decrease the amount of the provision for loan impairment in the statement of comprehensive income.
If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in the statement of comprehensive income.
(iii) Renegotiated loans
Loans that are either subject to collective impairment assessment or individually signifi cant and whose terms have been renegotiated are no longer considered to be past due but are treated as new loans. In subsequent years, the renegotiated terms apply in determining whether the asset is considered to be past due.
66 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued) 35 Summary of signifi cant accounting policies (continued)
(h) Property and equipment
All property, plant and equipment are stated at historical cost less depreciation. Historical cost includes expenditure that is direct ly attributable to the acquisition of the items.
Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefi ts associated with the item will fl ow to the Bank and the cost of the item can be measured reliably. The carrying amount of the replaced part is derecognised. All other repairs and maintenance are charged to the income statement during the fi nancial period in which they are incurred.
Freehold land is not depreciated. Depreciation on other assets is calculated on the straight line basis to allocate their cost less their residual values over their estimated useful lives, as follows:
Buildings - 5% Electronic data processing equipment - 15% Fixtures, fi ttings and equipment - 15 % Motor vehicles - 25% Computer equipment - 33.3%
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
The Bank assesses at each reporting date whether there is any indication that any item of property and equipment is impaired. If any such indication exists, the Bank estimates the recoverable amount of the relevant assets. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifi able cash fl ows (cash-generating units).
Gains and losses on disposal of property and equipment are determined by reference to their carrying amount and are taken into account in determining profi t.
67 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary of signifi cant accounting policies (continued)
(i) Intangible assets
Acquired computer software licences are capitalised on the basis of the costs incurred to acquire and bring to use the specifi c software. These costs are amortised over their estimated useful lives (three years).
Costs associated with maintaining computer software programmes are recognised as an expense as incurred. Development costs that are directly attributable to the design and testing of identifi able and unique software products controlled by the Bank, are recognised as intangible assets, when the following criteria have been met:
• It is technically feasible to complete the software product so that it will be available for use; • Management intends to complete the software product and use it; • There is an ability to use the software product; • It can be demonstrated how the software product will generate probable future economic benefi ts; • Adequate technical, fi nancial and other resources to complete the development and to use or sell the software product are available; and • The expenditure attributable to the software product during its development can be reliably measured.
Directly attributable costs that are capitalised as part of the software product include the software development employee costs and an appropriate portion of relevant overheads.
Other development expenditures that do not meet these criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.
Computer software development costs recognised as assets are amortised over their estimated useful lives, not exceeding fi ve years.
(j) Income tax
The tax expense for the period comprises current and deferred income tax. Tax is recognised in the profi t and loss account except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case the tax is also recognised in other comprehensive income or directly in equity respectively.
Current income tax is the amount of income tax payable on the taxable profi t for the year determined in accordance with the Rwandan Income Tax Act.
Deferred income tax is provided in full, using the liability method, for all temporary differences arising between the tax bases of assets and liabilities and their carrying values for fi nancial reporting purposes. However, if the deferred income tax arises from the initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profi t or loss, it is not accounted for. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted at the balance sheet date and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent that it is probable that future taxable profi ts will be available against which temporary differences can be utilised.
68 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary of signifi cant accounting policies (continued) (k) Leases
Leases in which a signifi cant portion of the risks and rewards of ownership are retained by the lessor are classifi ed as operating leases by the lessee. All other leases are classifi ed as fi nance leases by the lessee.
(i) With the Bank as lessee
Payments made under operating leases are charged to the statement of comprehensive income on a straight-line basis over the period of the lease.
(ii) With the Bank as lessor
Leases of assets where the Bank has substantially all the risks and rewards of ownership are classifi ed as fi nance leases. Finance leases are capitalised at the lease’s commencement at the lower of the fair value of the leased property and the present value of the minimum lease payments. Each lease payment is allocated between the liability and fi nance charges so as to achieve a constant rate on the fi nance balance outstanding. The corresponding rental obligations, net of fi nance charges, are included in deposits from banks or deposits from customers depending on the counter party. The interest element of the fi nance cost is charged to the profi t and loss account over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The investment properties acquired under fi nance leases are measured subsequently at their fair value.
(j) Cash and cash equivalents
Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short term highly liquid investments with original maturities of three months or less, including: cash and non-restricted balances with the National Bank of Rwanda, Treasury and other eligible bills, and amounts due from other banks. Cash and cash equivalents excludes the cash reserve requirement held with the National Bank of Rwanda.
(m) Employee benefi ts
(i) Retirement benefi t obligations
The Bank and all its employees contribute to the Social Security Fund of Rwanda, which is a defi ned contribution scheme. A defi ned contribution plan is a retirement benefi t plan under which the Bank pays fi xed contributions into a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold suffi cient assets to pay all employees the benefi ts relating to employee service in the current and prior periods.
The Bank’s contributions to the defi ned contribution schemes are charged to the statement of comprehensive income in the year in which they fall due.
(ii) Other entitlements
The estimated monetary liability for employees’ accrued annual leave entitlement at the balance sheet date is recognised as an expense accrual.
69 I&M BANK (RWANDA) LIMITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31ST DECEMBER 2013
Notes (continued)
35 Summary of signifi cant accounting policies (continued)
(n) Deposits Deposits from customers are measured at amortised cost using the effective interest rate method.
(o) Share capital Ordinary shares are classifi ed as ‘share capital’ in equity. Any premium received over and above the par value of the shares is classifi ed as ‘share premium’ in equity.
(p) Dividends payable Dividends on ordinary shares are charged to equity in the period in which they are declared. Proposed dividends are shown as a separate component of equity until declared.
(q) Fiduciary activities The Bank commonly acts as trustees and in other fi duciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefi t plans and other institutions. These assets and income arising thereon are excluded from these fi nancial statements, as they are not assets of the Bank.
(r) Acceptances and letters of credit Acceptances and letters of credit are accounted for as off-balance sheet transactions and disclosed as contingent liabilities.
(s) Repossessed properties In certain circumstances, property is repossessed following the foreclosure on loans that are in default. Repossessed prop- erties are measured at the lower of carrying amount and fair value less costs to sell and reported within ‘Other assets’.
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70 IN OTHER NEWS
71 IN OTHER ACTIVITIES
SPORTS In 2013, I&M Bank Rwanda’s Football and Basketball Teams participated in the Association for the Promotion of Sports among The Workforce (ARPST) Tournament, both teams prevailed against KCB, Bralirwa, and Ecobank to make it to the Semi Final stages. Other tournament participants included BK, The Republican Guard and FINA Bank (now GTB). The I&M Sports teams are in training and hope to make it to the fi nals in 2014 and claim both trophies.
STAFF PARTY Held at the Serena Hotel in January, the 2013 Annual Staff Party brought together members of staff from all departments and branches countrywide as the bank (then as BCR) celebrated the end of another great year and got ready to take on a new year. The highlight of the night was the raffl e draw that had the lucky winners walking away with plane tickets to Dubai, Johannesburg, Nairobi and Entebbe.
In a continuation of a classic BCR tradition, I&M Bank Rwanda hosted the End of Year Children’s Party.... and they came in their multitudes!, over 170 kids of I&M Bank staff with their parents in tow showed up to the event held at Caiman for a day of fun games, facepainting, bouncy castles and a clown show.
72 wwww.imbank.com/rwanda