CHAIRMAN’S STATEMENT www.brd.rw 1 CHAIRMAN’S STATEMENT ACCRONYMS BRD - Development Bank of Rwanda RSSB - Rwanda Social Security Board MINECOFIN - Ministry of Finance and Economic Planning BNR - National Bank of Rwanda RPF - Rwanda Patriotic Front - Inkotanyi DFI - Development Finance Institution IFRS - International Financial Reporting Standards AADFI - Association of African Development Finance Institutions NISR - National Institute of Statistics of Rwanda PCGRS - Prudential Standards, Guidelines and Ratings System REB - Rwanda Education Board RDF - Rwanda Defence Forces PSF - Private Sector Federation ROI - Return On Investment EDPRS - Economic Development and Poverty Reduction Strategy UNILAK - University of Lay Adventists of Kigali SME - Small & Medium Enterprizes plc- public limited company 2 3 BRAND PROFILE BOD CHAIRMAN’S BRIEF PROFILE OF BRD STATEMENT Vision A world-class finance institution focused on accelerating Rwanda’s economic transformation CEO’S FEATURE ON THE BANK’S STATEMENT TURN AROUND 12 16 STRATEGIES Mission To be a trusted and strategic partner for Rwanda’s development by availing financing and advisory CORPORATE GOVERNANCE CHIEF FINANCE OFFICER'S services to impactful entrepreneurs in key priority CONTENTS 20 OVERVIEW 35 SUMMARY REPORT BRD sectors. Strategic themes RISK ASSESSMENT For the bank to achieve its transformational role in 42 REPORT 46 CSR REPORT CORPORATE Rwanda’s economy in the next five years, BRD will have four strategic themes: 1. Focused investments and growth 2. Strong partnerships SPECIAL FEATURE: Philosophy BRD 50 YEARS OF 3. Maximize development impact FINANCING FOR PICTORIAL 54 DEVELOPMENT IMPACT 90 4. Resource mobilization Core values 1. Pragmatic 2. Focused 102 FINANCIALS 3. Innovative 4. Engaged 5. Inclusive 4 5 BRD Annual Report | 2017 CHAIRMAN’S STATEMENT Our esteemed Stakeholders, on behalf of the Board of Directors and Management of the Development Bank of Rwanda (BRD), I want to thank you for your invaluable support that enabled us to successfully close the year 2017 which marked 50 years of our existence. This was a very difficult year for the Bank - 2017 was the second year of the new BRD strategy (2016-2020) on our journey to fully reposition as a development Bank. Clearly there are still many things we still need to learn and do before this critical transition is complete. We continue to face old and emerging risks that have affected our performance metrics and our ability to consistently comply with prudential requirements. The challenges are mainly a result of transiting into the new business model, a new regulatory regime and market driven conditions. Some of them include: Capitalization Our inability to secure in time additional capitalization (from 7 billion to 50 billion) as approved by the shareholders, limited our headroom to borrow and lend in 2017, this significantly constrained our business prospects in the year under review. On the brighter side, 2018 has started well. We are immensely grateful to the Government of Rwanda and Rwanda Social Security Board (RSSB) for their recent injection of Rwf 35 billion that will greatly assist the Bank to stabilize as it seeks additional capital injection elsewhere beyond Chairman’s 2018. Statement - Liquidity On behalf of the Board of Directors In our new business model, we ceased to be a deposit taking institution and thus largely depend on international borrowing and equity injection - this has Francis Mugisha created a currency mismatch, foreign exchange losses as well as a higher ‘net open position’, thereby affecting CHAIRMAN OF THE BOARD OF DIRECTORS capacity to borrow for on-lending again constrained by low capitalization. 6 7 BRD Annual Report | 2017 CHAIRMAN’S STATEMENT NEW REGULATIONS recover and restructure the client portfolio. In the new current and future challenges associated with changes We are also cognizant of the new potential risks that OUTLOOK FOR 2018 Adoption of IFRS 9 business model of the Bank we are dealing with an in the regulatory and market environment. As we make will emerge. We will fully implement the BNR new Unlike other Development Finance Institutions (DFIs), increasingly large ticket size, project complexity and progress in these efforts, reversals through recoveries regulation on corporate governance in its committee We look forward to 2018 with excitement and positive Notwithstanding that the Bank will continue we are regulated as a commercial Bank when not long lead times of projects to mature in their cash and turnarounds, will positively impact the bottom line structure, including a new IT Board Committee. energy to turnaround the fortunes of the Bank due to contributing to the development of the country, we all metrics apply to our business model. We finance flows and impact. These potentially impactful projects, in the next two years. an elaborate plan put in place with strong stakeholder forecast more challenges in the fiscal year 2018 as we startups with varying complexities across sectors – would otherwise have no other recourse other than We wish to highlight the following: OFFICIAL CELEBRATIONS OF GOLDEN JUBILEE collaborations. The Board is committed to support adapt to the ‘International Financial and being regulated as a commercial Bank in many BRD given the weak ‘equity’ and nascent long-term debt Management to implement the essential strategies to Reporting Standard (IFRS) 9’ that comes into effect cases hinder our ability market options currently available within our economy. Investment approvals: We are delighted to reach 50 years of BRD’s existence fast-track improvement in performance, appropriately starting 1 st January 2018. It is expected to have a to invest in the risky areas that often require longer Many start well, and in areas greatly beneficial to the (on 5th August 2017) - a journey of resilience and mitigate risk and deliver results. The revised strategy huge impact on how the Bank accounts for credit gestation periods but form part of our mandate. The economy, but new risks emerge in their implementation Due to the reorganization, we were ambitious in fast- sustained growth where the Bank has made a major will come with an institutional balanced scorecard and losses as well as provisioning for bad debts in the latter sometimes creates cash flow challenges in – requiring additional restructuring along the way and tracking investments in the priority sectors of the contribution to Rwanda’s economic development. The hold each other accountable. Some of the areas we will portfolio. This will be a significant challenge for BRD the initial stages of these complex startups. In 2017, the innevitable economy. However, faced with liquidity constraints in projects the BRD has financed, especially in the last focus on include: with a DFI mandate in comparison to commercial the tightening of asset classification rules between provisioning. We have concluded that we have to go 2017, the Bank slowed down on investment approvals. 20 years are visible and impactul. This will for us be bank operations, which have adequate collateral and ‘subjective and objective’ as promulgated by our beyond the traditional monitoring role of a lender and The focus shifted to improving the quality of our loan a period of renewed determination to do more in the People, processes, and systems shorter loan tenors. The same period will also see Regulator has compelled the Bank to aggressively be active in ‘turnaround’ efforts through a coordinated book, fundraising and capitalization efforts. pursuit of a vibrant private sector as the engine of our the implementation of BASEL II/III, where new capital provide for projects we know will succeed, but only in multi-stakeholder collaboration. We have made economy. The year ahead will see massive investments and roll- buffers have been introduced and market risk and the long term. From 2018, both Basel II/III and IFRS 9 institutional arrangements to rapidly establish this Improved efficiency management of student loans out of the new core banking system, upgrade of IT operational risk requirements are considered in the will have an additional impact on our performance. capability in the Bank. and bursaries IMPACT ASSESSMENT OF 50-YEARS OF BRD’S Infrastructure, staff development, and strengthening asset risk weighting. This might require additional FINANCING INTERVENTIONS of our monitoring and evaluation systems to commitments from shareholders to allow the Bank to REVIEW OF 2017 PERFORMANCE We are happy to report that the Bank has eliminated enhance impact assessment of the Bank’s financing meet these new requirements. Macro conditions and concentration in the hospitality the persistent delays encountered in disbursement Looking back at the past five decades, our financing interventions. We shall also invest in a ‘turnaround’ sector As we mark the completion of the second year in of students’ bursaries over the previous years. We interventions have greatly contributed to a visible capability to support our portfolio ‘ahead’ of challenges. Comprehensive risk management adoption and implementation of the Bank’s new have invested in automation of the processes and development impact particularly in terms of Increased investments Our clients, especially in the hospitality sector, have strategy 2016-2020, it is important to look back to procedures that streamlined operations which led to employment creation (mainly for women and youth); As the Bank intensified contributions to financing To appropriately position BRD to respond to these generally struggled