bank of kigali annual report 2010

Bank of Kigali Limited

“Trusted partner in wealth creation”

Bank of Kigali Limited Annual Report 2010

FinanciallyTransforming Lives

Inguzanyoihinduraubuzima

BANK OF KIGALI

Parcelle 6112, Avenue de la paix - Kigali (Rwanda)Tel:252 593100 / 252 593200, 252 788 143000

Fax: 575504 / 573461SWIFT: BKIGRWRW

Email: [email protected]: www.bk.rw

Designed by Emmanuel NTAKIRUTIMANA

2010 Annual Report 1

OUR VISIONBank of Kigali aspires to be the leading provider of most innovative financial solutions in the region.

OUR MISSIONOur mission is to be the leader in creating value for

our stakeholders by providing the best financial services to businesses and individual customers,

through motivated and professional staff.

OUR VALUES Customer focus

Resilience Integrity Quality Unique

Excellence

OUR MOTTO“Your Trusted Partner in Wealth Creation”

2010 Annual Report2

Five Year Performance Analysis.............................................................................................3

Value Added Statement..........................................................................................................4

A Message from the Chairman...............................................................................................5

Managing Director’s Report..................................................................................................8

Corporate Governance Report.............................................................................................12

Bank of Kigali Board Profile................................................................................................17

Executive Management Profile............................................................................................20

Corporate Social Responsibility Report...............................................................................24

Financial Statements............................................................................................................29

Page

Contents

2010 Annual Report2

FIVE YEAR PERFORMANCE ANALYSIS

PERFORMANCE & STATUTORY RATIOS 2006 2007 2008 2009 2010

Total Capital to total weighted assets 13.1% 14.1% 14.9% 17.4% 20.1%

NPLs to Gross loans 23.6% 19.4% 15.4% 8.4% 8.4%

Earning assets to total assets 81.0% 81.7% 82.5% 87.5% 79.2%

Return on average equity 30.7% 37.5% 39.4% 30.7% 24.4%

Cost to income 54.6% 39.5% 39.8% 44.1% 47.5%

7,000

6,000

5,000

4,000

2,000

1,000

3,000

2006 2007 2008 2009 2010

YEAR

5,654

4,266

2,963

5,287

6,179

Performance in Rwf millions 250,000

200,000

150,000

100,000

50,000

2006 2007 2008 2009 2010

YEAR

88,041

121,856 120,771

151,896

Total Assets in Rwf millions 197,677

120,000

100,000

80,000

60,000

40,000

20,000

2006 2007 2008 2009 2010

YEAR

Net Loans in Rwf millions

37,84148,659

72,09477,096

101,403

35,000

30,000

25,000

20,000

15,000

10,000

5,000

2006 2007 2008 2009 2010

YEAR

Shareholders Equity in Rwf millions

9,97512,803

15,89718,541

31,870


2010 Annual Report4

VALUE ADDED STATEMENTVALUE ADDED STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2010

2010 % 2009 %Value Added

Interest, commissions and other revenues 25,329,695 19,409,938

Interest paid to depositors and costs of other services 9,016,781 7,373,240

Wealth created 16,312,914 12,036,698

Distribution of wealth

Employees

Salaries, wages and other benefits 3,882,773 24% 2,267,457 19%

Government 4,713,776 29% 3,578,879 30%

Shareholders

Dividends paid to shareholders - 2,643,482 22%

Retentions to support future business growth 7,716,365 47% 3,546,880 29%

Retained surplus 6,178,582 2,643,482

Depreciation and amortisation 1,537,783 903,398

Wealth distributed 16,312,914 100% 12,036,698 100%

Corporate Tax

Value Added Tax

Withholding Tax

District Tax

Staff PAYE

2,502,810

2010

493,075

552,740

9,583

1,155,568

2,154,935

2009

312,961

315,198

7,427

788,358

TAXES PAID

“Your Trusted Partner in Wealth Creation”Bank of Kigali


Dear Shareholders of Bank of Kigali,

I am pleased to report that in 2010 your Bank performed

well. It continued on the path of profitable growth, as

Net Income grew by 16.9% to Rwf 6,179 million and as

Total Assets grew by 30.2% to Rwf 197,677 million.

The Rwandan banking sector as a whole had a good year in

2010, as the global macroeconomic conditions improved,

the Rwandan economy continued to grow and so did the

sector liquidity. In keeping with its leadership status, Bank

of Kigali led the banking sector growth in these relatively

benign conditions, increasing its market share by Total Assets

and Net Loans to 27.4% from 26.3% and 31.5% from 26.8%,

respectively.

Bank of Kigali’s strategy is to become a universal bank with

a ubiquitous branch network and modern, high-capacity

technology driven banking channels in order to maximize

shareholder value.

In 2010, Bank of Kigali made significant progress in its quest

to build a ubiquitous footprint in Rwanda, making banking

services available and within easy reach of the majority of

Rwandans. We have extended our branch network, adding

15 new branches, most of them outside Kigali. We continued

making significant investments in the modernisation of our

electronic banking channels. We upgraded our card processing

capabilities and achieved interoperability with the national

switch, grew our ATM footprint to 26 from 6, increased

merchants Points of Sale to 97 from 52 and launched SMS

banking.

A Message from the Chairman

In 2010, Bank of

Kigali made significant

progress in its quest

to build a ubiquitous

footprint in Rwanda,

making banking services

available and within

easy reach of the

majority of Rwandans”.

“Lado Gurgenidze, Chairman



2010 Annual Report6

These investments will bear fruit in 2011 and

beyond, as our electronic channels complement the

expanding branch footprint to enable us to serve

hundreds of thousands of previously un- or under-

banked individuals in the medium term.

We have made progress in many areas we

highlighted at the outset, when formulating our

new strategy. In 2010, we extended our lead as

the best capitalised bank in Rwanda, and laid the

groundwork for accessing capital markets in the

near future. We have begun expanding our product

range, although much remains to be done in this

area. We managed to maintain lending discipline,

even as our loan book grew rapidly in 2010, and are

now better equipped to aggressively manage credit

risks as we continue serving as the lender of choice

to Rwanda’s young corporate sector and seek to

step up retail lending.

I am very pleased to see the clients respond to our

efforts to be more accessible and relevant to their

everyday lives. In 2010, 19,420 new retail accounts

were opened at your Bank, bringing the total

number of retail accounts 60,025.

Building a ubiquitous footprint is not only about

bricks and mortar and investing in electronic delivery

channels. As your Bank’s reach and client base grow,

the personnel headcount must grow concurrently.

I wish to complement our management team for

capably handling the staff headcount expansion

in 2010 without compromising on the quality of

new recruits or letting the costs grow beyond a

reasonable level. Today, we are considerably closer

to our objective of being the employer of choice to

young Rwandan professionals than we were a year

ago.

The Board of Directors you have elected is now

stronger and more attuned to the challenge of

guiding the management through our current phase

of rapid growth and development than was the case

a year ago.

Your decision to support the Bank’s growth by voting

for a zero dividend payout from the 2010 profit is

a welcome sign of support and confidence in our

chosen growth strategy.

A loyal and growing client base, sufficient funding

to continue lending to our clients, rapidly improving

access to institutional funding sources, including

the stock market, dedicated and hard-working

staff, capable management and sound corporate

governance – these are the key ingredients of our

continued success in 2011 and beyond. Our exciting

journey continues, and I look forward to reporting

our sustained progress and achievement of certain

historical milestones in next year’s annual report.

Lado Gurgenidze

Chairman




Bank of Kigali Branch footprint


Head Office

Kimironko

Kacyiru

Kabuga

Nyabugogo

Kicukiro

The Manor

Remera

Town

Airport

SFB

RDB

Mille collines

Kigali Branches & Agences

10 Km0

U G A N D A TA

NZ

AN

IA

D.

R

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CO

NG

O

B U RU

N

D

I

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2010 Annual Report8

Introduction

I am pleased to report on the Bank’s sustained strong growth and financial performance in profitability, balance sheet and market share. The Bank’s focus on branch expansion, liquidity

management, credit risk management, continuous improvement in customer service and cost management has enabled us to continue building a sustainable business that efficiently serves our customers and their changing demands. This focus has enabled the Bank to grow its profit after tax by 16.9% and total assets by 30.2%.

Sustained strong market positioning

Bank of Kigali has continued to dominate the Rwandan banking sector. With total assets of Rwf 197,677 million, the Bank accounts for 27.4% of the total banking assets and maintains its leading market share position for total customer deposits and total net loans. Bank of Kigali accounts for 31.5% of total loans in the market. Of the overall growth of 12.4% in banking sector loans during the year, the Bank growth accounted for 71.0%. Our growth in loans was supported by strong deposit market share of 26%. The Bank’s profits for 2010 account for 56.5% of the total profits made by all the banks. “We managed to stay at the top because of customers’ confidence in our resilience, strong performance and excellent focus on customer needs”.

Review of our financial performance

In 2010, our Profit after tax increased by 16.9% to Rwf 6,179 million. This performance was mainly a result of high growth in our Total Operating Income of Rwf 21,147 million, up 32.2% from 2009. This growth was driven by a 19.3% growth in Net Interest Income which reached Rwf 12,389 million. The Bank’s Non-interest Income portion of operating income also performed well growing by 56.1% to Rwf 8,758 million. The biggest driver of this growth in non operating income was FX income which grew by 57.3% to reach Rwf 5,248 million. Net Income generated from fees and commission also grew by an impressive 68.0% and amounted to Rwf 2,819 million.

Total Operating Expenses grew by 56.1 % and reached Rwf 10,043 million mainly arising from our branch expansion strategy, which saw the branch network increase to 33 in 2010 from 18 in 2009. This was coupled with the restructuring of our organizational structure from a product driven structure to a customer driven structure. These initiatives have put pressure on our Cost/income ratio which grew from 44.1% to 47.5% in 2010.

Managing Director’s Report

We managed to stay at the

top because of customers’

confidence in our resilience, strong performance and excellent focus on customer needs”.

“James Gatera, Managing Director




Net Provisions for non performing loans increased by 62% to 2,424 million. However, we expect going forward the figure will be mitigated by the improved external and internal credit risk environment.

Our Balance sheet saw a considerable growth of 30.2% in 2010 reaching Rwf 197,677 million. This growth was supported by the increased lending which saw our net loans increased by 31.5% to Rwf 101,403 million.

On the liability side, the growth saw customer deposits reach Rwf 135,677 million, a growth of 24.2% from 2009. This growth was attributable to the branch expansion where I am happy to report that some of the new branches and agencies managed to outperform some of the more established branches in our network. Overall, the continued loyalty and confidence of our customers enabled us to consolidate our position as the market leader in the lending and deposits in the banking sector.

Shareholders are among our main stakeholders and creating value for them is an important part of our mission. I am pleased to announce that the Bank increased Shareholders’ Equity by 72% to Rwf 31,870 million from Rwf 18,541 million. Part of this increase was due to retention of the total profits made as shareholders decided to retain 100% of the profits to support the Bank’s growth strategies. The other part is attributable to the Revaluation Surplus arising from the revaluation of the Bank’s properties to reflect their fair value in line with the requirements of the International Financial Reporting Standards. With this shareholders’ equity the Bank was able to maintain its position as best capitalised bank in the market.

The Bank remains very strong in key parameters with the largest balance sheet among all banks on Rwf 197,677 million, capital base of Rwf 31,870 million and branch network of 33 across all the provinces in the country. This positions us favorably to take advantage of market opportunities and derive good value for our current and potential investors. The total capital to total risk weighted assets ratio rose from 17% to 20% whereas the liquidity ratio remained stable at 44% from 42% in 2009.

Risk Management and Compliance Our Risk Department undertook a review of the Bank’s policies to ensure that we can respond to changes in market conditions. The recent policy reviews include; Treasury and Investment Policy, Credit Risk Policy, Anti Money Laundering Policy and Know Your Customer (KYC) policies.

As part of our strategic plan, the Bank continues to enhance the risk management culture by investing in activities that increase education and awareness in risk management and compliance among our staff in order to reach the level of regional and international banks.

Credit risk remains the most significant risk to be managed. During the year, the Bank reengineered its approach to credit risk management to focus more on file and case management. In this regard files in performing and watch categories are actively managed by the corporate and retail relationship departments. Those in substandard and doubtful categories are actively managed by the Credit Risk Department. Files in loss category are managed by the legal services section with the assistance of outsourced legal services providers. In 2011, we expect the default rate to come down as a result of the gains expected from the market support given by the Government through the enactment and implementation of Mortgage Law, reorganization of the Land Registry and the Registrar General’s Office coupled with the establishment of commercial courts and the establishment of the Credit Reference Bureau.

Human capital development initiativesFocusing on the second pillar of our triple bottom line, people, we recognize that employees are our greatest asset. Bank of Kigali boasts a staff of over 450. We are committed to creating a working environment that develops and equips them with the skills and capabilities to serve our customers effectively.

In 2010, we continued to recruit staff for our new branches and to strengthen our existing departments. We continue to motivate our staff through attractive salary and non-salary benefits structures. Likewise the staff reciprocated through their contribution to our strong performance.

In order to enhance the skill base of our staff, the Bank signed a three year customer service training partnership with John Scholl, a renowned international customer service guru. A total of 296 were trained in customer service. 42 staff were trained in Credit Risk Management while 169 staff were trained in front office operations.

The total spend on training and development increased to Rwf 172 million up from Rwf 51 million in 2009.

Our products and Banking innovations During the year we focused on increasing our product and service offering for both corporate and retail banking customers in order to meet the needs of the wider population. Our biggest achievement was the launch of our SMS Banking product in March 2010 which gives



customers the ability to check their balances and order cheque books, in addition to making transactions such as purchase prepaid electricity, pay DSTV and Star Media together with transfer of funds between accounts. This product has been very popular with our customers as we continue to promote self service branch-less banking.

We improved our secure internet banking product, B-Web with which customers are now able to access their bank accounts, make transfers, print bank statements, order cheque books or give instructions to the Bank securely at the comfort of their offices and homes 24/7.

We also increased the number of ATMs to 26 in order to give our customers 24 hour access to their bank accounts. Our ATMs now accept VISA cards, in addition, to the local SIMTEL cards. In addition to our ATM, customers can access their accounts in more than 77 cash dispensers around the country because of our strategic partnership with SIMTEL, the national switch service provider.

These technology driven products also aim at reducing the footfall in our banking halls. At the same time they reduce the paper based customer requests as part of our contribution to the environment.

TechnologyWe have continued to invest in technological developments to meet our customer demands. In 2010, we upgraded our banking software from Delta 7 to Delta 9 which is more user friendly and facilitates more

enhanced risk management reporting. Furthermore, we are increasing our self service products by promoting Zipp cards which are prepaid cards that appeal to the lower income - brackets for the transfer of payments, microfinance loan repayments and receipt of salaries without necessarily incurring the high maintenance costs of bank accounts.

Benchmarking locally and internationallyAs we strive to provide our customers with the best service offering and deliver value to our stakeholders, we have received recognitions and awards that help to benchmark locally and internationally. Perhaps the most significant was the international credit rating carried out by Global Credit Rating Agency of South Africa. The Bank was rated A+ and A1 on the short term and long term debt respectively. The table below gives the other recognitions and awards received in 2010

Award Bestowed by

Banker of the Year 2009 and 2010

Financial Times - London

Best Bank in Rwanda in 2009 and 2010

Emeafinance

Golden Award for Quality and Business Prestige, 2010

Otherways Management and Consulting, France

Best Tax Payer of the Year 2002-2009

Rwanda Revenue Authority

Future aspirations for 2011

We hope to realize this promise by continuing to launch innovative self service products and services. We intend to bring existing and new products and services closer to our customers through continued branch expansion while reducing the cost of service delivery by investing in technology based delivery channels. In addition, we have dedicated more investment in training and development of our staff. We will also continue to review our processes to ensure that we are cost effective and efficient in our service delivery.

Our theme for 2011 will be to consolidate our gains made in realizing our customer service promise of always endeavoring to meet and exceed our customer expectations”.

“



2010 Annual Report10

Access to our financial product and service strategies in 2011Our plan is to enlarge the services we offer by increasing our ATMs and transforming SMS banking to full mobile banking which will further enable our customers to top-up airtime, make DSTV and Star Media payments and transfer funds between accounts. The Bank also expects our new prepaid Zipp Card to improve access to finance for the unbanked population of Rwanda.

Getting closer to the population through branch expansion

Our strategy since 2009 involves combating the low penetration of banking services in Rwanda. As indicated in the FINSCOPE research study in 2008, which was directed by the National Bank of Rwanda, the number of people who have access to financial services is still very low. We hope that our continued branch expansion especially in the rural areas will go a long way in addressing the gap. In addition to our 33 branches and agencies in 2010, we expect to launch another 12 in 2011.

Access to credit for the lower income groups of our population

The third pillar of the country’s Vision 2020 is “to develop a Private sector led economy”. Bank of Kigali is planning further investment towards lower income segments of the population. This will be achieved by developing savings and borrowing facilities that support private sector growth at the same time financially transforming lives of the low income earners mainly the women, youth and retired senior citizens of Rwanda.

By introducing the micro lending facilities to the low income customers, the Bank intends to shift the trend of borrowing from family and friends to borrowing from the Bank thereby bringing them into the formal banking sector. I would like to report that,

“we are on track to establishing and reinforcing lending to the lower income earners among our population which we believe shall go a long way in financially transforming the lives of under-banked population in Rwanda”.

Funding our growth strategies

As is the case with all banks across Rwanda and the region, the Bank’s long term loan assets are mainly funded by mobilized short term deposits. This results into increased maturity and interest rate risk of the Bank.

In addition, to the support given by the shareholders through the retention 100% of the 2010 profits, the Bank is seeking to raise additional capital through the issue of a 25% initial public offering in June 2011. We are also at advanced stages of negotiating long term credit lines with two international financial institutions. We believe that our growth strategies will be met through these long term funding initiatives and they will also help avoid the liquidity challenges faced by the banking sector in 2009 and 2010.

Conclusion and acknowledgement

We shall continue to engage in activities that improve efficiency of our business and maintain our customer service promise to meet and exceed our customer expectations.

I would like to thank our shareholders for their continued support to the business as demonstrated by the 100% retention of profits in 2010 and permission to raise capital through a 25% Initial Public Offering expected in June 2011. On behalf of Management and Staff, I would like to assure you that we will do everything possible to deliver decent returns on your investment.

Special gratitude goes to our loyal customers who have continued to entrust us with their business during the year. We recognize that you are the reason we are in business, and we value your self-assurance in Bank of Kigali and its management. I assure you of improved levels of service in 2011 and to ask you to continue to support the Bank in the year ahead so that together we can grow.

I would also like to thank the Board of Directors for working very closely with Management in order to realize the opportunities abound and to grow our business as we take humble investment steps towards attainment of the country’s Vision 2020. We appreciate your patience and wise counsel as well as support to drive this business to the next level. I am also grateful to all staff, without them this impressive performance would not have been possible. Their hard work, dedication and loyalty are invaluable in our pursuit of excellence in Rwanda’s financial sector and I am confident we will all strive to deliver in the same spirit in 2011 and beyond.

James GATERA, Managing Director





Corporate Governance Report

Bank of Kigali Board and Management are committed to achieving the highest standards of corporate

governance, corporate responsibility and risk management in directing and controlling the bank’s

business. The company pursues professional standards and norms in handling its business relationships.

In so doing, the Bank’s corporate governance structures and programmes are in compliance with the BNR

regulation 6/2008 on Corporate Governance, Rwanda’s Company Law, Banking Law and international best

practices.

The Bank’s strong market positioning and growth has been made possible by the high corporate governance

principles observed by all the stakeholders. Although the Bank is 100% owned by the Government and its

state owned enterprises, the strategic governance and direction of the Bank is entrusted to the Board of

Directors. The day to day management of the Bank on the other hand, is delegated to the Managing Director

who has, in turn, appointed a very experienced and highly qualified management team.

Shareholders’ responsibilities

In accordance with the Law Relating to Companies , shareholders have the primary role to appoint the board

of directors and the external auditors. This role is extended to holding the Board accountable and responsible

for efficient and effective governance. The responsibility of the shareholders is exercised through the annual

and extraordinary general meetings.

Shareholding Structure

The Shareholding Structure is as follows:

Name of Shareholder No. of Shares Shareholding %

Government of Rwanda 30,182 66.33

Social Security Fund of Rwanda (CSR) 15,313 33.66

Prime Holding 1 0.002

OCIR Café 1 0.002

OCIR Thé 1 0.002

National Post Office 1 0.002

RAMA (National Health Insurance Fund) 1 0.002

Total 45,500 100

Shareholdings are distributed as follows: Range No. of Shareholders No. of Shares % Shareholding

1-500 5 5 0.01

10001-50000 2 45,495 99.99

Total 7 45500 100




Board’s responsibilities

The Board of Directors is responsible for the governance of the Bank and for conducting its business and

operations with integrity and in accordance with the generally accepted corporate governance practices

based on transparency, accountability and responsibility.

Composition of the Board of Directors The Board of Directors is composed of eight independent non-executive directors who meet on quarterly

basis or more frequently as the business demands. The Board retains full responsibility for the direction and

control of the Bank as spelt in the Memorandum and Articles of Association, established board charter and

the corporate governance guidelines.

Directors are appointed by the Shareholders on recommendation from the Minister of Finance and Economic

Planning. In accordance with the company’s Memorandum and Articles of Association, their appointment

must then be ratified at the next Annual General Meeting (AGM). In 2010, two Board members Henry Gaperi

and Francois Nkulikiyimfura exited the Board to pursue other interests. Consequently, Caleb Rwamuganza

was appointed to the Board bringing to the board vast experience in Accounting and Finance from the public

sector.

The Directors are also approved by the National Bank of Rwanda as a regulatory requirement. The mix of

directors includes two non resident and independent directors with extensive expertise in international

banking practices. The six resident independent non-executive directors include a professional accountant,

a practicing lawyer, other private sector and government representatives with wide business acumen. All

directors have appropriate qualifications and experience to exercise direction and control of the Bank. Their

mix of skills and business experience is a major contribution to the proper functioning of the board and its

committees. Furthermore the independence and full participation of individual directors in decision making

has been instrumental in ensuring effective governance by the Board of Directors.

Board performance

The Board is the Bank’s apex corporate governance body while the Board Committees and the individual

directors are the leading authority in formulation of the Bank’s policies and procedures. Key policies and

procedures are in place and the strategic leadership is exercised through meetings attended as well as through

holding management accountable.

The Board receives detailed financial information and regular presentations from executives on the Bank’s

business performance. In addition, prior to each Board meeting, the Board receives all the necessary

information on the matters at hand. This enables the directors to make informed decisions on governance,

strategic, financial and operational issues under consideration.




Directors’ attendance in Board and Board Committee meetings

Structure Board Audit & Risk Committee

CreditCommittee

ALCO committee

Nominations &Remuneration Committee

Meetings held 4 4 12 4 2Members Attendance Attendance Attendance Attendance AttendanceLado GURGENIDZE 4/4 X X X X

Marc HOLTZMAN 3/4 X X x x

Caleb RWAMUGANZA 2/2 X X X X

Apollo NKUNDA 4/4 4/4 X X 2/2

Perrine MUKANKUSI 4/4 X X 4/4 2/2

Sudadi KAYITANA 4/4 4/4 12/12 X X

Alphonsine NIYIGENA 4/4 4/4 12/12 X X

Dativa MUKESHIMANA 4/4 2/4 X 4/4 X

Board Committees

In line with the BNR guidelines 06/2008 on corporate governance, four Board Committees are in place to support the board in performing its functions particularly in respect to Audit and Risk Management, Credit Risk Management, Asset and Liability Management and the Nominations and Remuneration Committee. Setting up and performance of board committees remains instrumental in reinforcing the performance of the Board and underpins its critical responsibilities. In this respect, the board committees have terms of reference which underscore the scope and context of their performance as approved by the board and corporate governance regulation.

Audit and Risk Committee

This is the principal Board Committee that comprises of four independent non executive board members. The Committee meets on quarterly basis or more frequently as its business demands. The mandate of the Audit and Risk Committee is to:

a) Oversee the Bank’s financial reporting policies and internal controls;

b) Review and make recommendations on management internal control programmes established to monitor compliance;

c) Appointment and review of the work of the external auditors;

d) Review of the work of the internal auditors;

e) Oversee the development of risk management policies and programmes;

f) Identify, monitor and control risk management within the Bank.

Credit Committee

The committee comprises of three independent non-executive directors. The committee meets on monthly basis or as required by the business demands.

The functions of the committee include appraisal and approval of credit applications. The Committee also monitors and reviews credit risk, non-performing assets and ensures adequate provisions are held against identifiable losses in accordance with BNR guidelines. Credit facilities in excess of Rwf 250 million require board review and approval through its Board Credit Committee.




Nominations and Remuneration CommitteeThe nominations and remuneration committee reviews and recommends the remuneration for directors based on the responsibilities allocated to them. The committee carries out regular reviews to ensure that directors are adequately compensated the for the time spent on the affairs of the Bank. The committee also approves the HR policies and remuneration of management and staff of the Bank. The committee meets once a year or more frequently as the business demands.

Assets-Liability Management Committee

The Board Asset-Liability Management Committee comprises of three independent non-executive directors. The Committee meets quarterly or more frequently as appropriate to monitor and manage the Bank’s balance sheet to ensure that various business risks such as liquidity, capital adequacy, market and currency risks are monitored and managed.

Management Committees

Management committees assist the Managing Director in the day to day implementation of the policies and management of business operations. The committees include;

Executive Management Committee

This committee comprises of the Managing Director, Chief Operating Officer, Chief Shared Services Officer and the heads of departments. The committee is charged with assisting the Managing Director in the implementation of the Bank Policies and strategies established by the Board. The committee meets on monthly basis.

Credit Committee

This committee comprises the Managing Director, Chief Operating Officer, Head of Credit, Head of Retail Banking and Head of Corporate Banking. It is charged with credit risk management, appraisal of loans and advances and other credit related matters. The committee meets on weekly basis.

Asset-Liability Committee The Bank has a Management Asset-Liability Committee (Management ALCO), which is chaired by the Bank’s Managing Director and comprises the Chief Operating Officer and includes Head of Retail, Head of Corporate Banking, Head of Risk and Compliance and Head of Finance and Budget. The committee meets on a daily basis as part of the Banks’ treasury, liquidity and balance sheet management.

Human Resources Committee

The Human Resources Committee which comprises all heads of departments, human resources manager and the legal services manager, is chaired by the Chief Shared Services Officer and is responsible for the implementation of the Bank’s human resources policies and directions. The committee recommends the recruitments, promotions, changes in compensation and other human resources operations. The committee meets once a month.

Procurement Committee

The procurement committee is chaired by the Chief Shared Services Officer and comprises the Heads of Human Resources and Administration, Information Systems and Technology, Administration Manager and Procurement Officer. It is responsible for handling the review and appraisal of all tenders and procurement of goods and services above Rwf 10 million and implementation of the Bank’s Procurement Policy and procedures.



2010 Annual Report16 2010 Annual Report16


Lado Gurgenidze is a career banker who after a decade spent at several investment banks in Eastern Europe and London returned to his native Georgia in 2004 and spearheaded, as Executive Chairman and CEO, a turnaround of Bank of Georgia (LSE: BGEO). During Lado’s three-year tenure, the bank’s total assets and net income grew 760% and 1,563%, respectively. As its market share grew from 18% to 34%, Bank of Georgia became the leading universal bank in Georgia and the region with market capitalisation exceeding US$900 million at the time of Lado’s departure (up from US$30 million at the time of his arrival).

In 2007-2008, Lado served as Prime Minister of Georgia, leading the Georgian economy through the final stage of free-market reforms, including tax reforms, financial services sector reform as well as aggressive privatisation and liberalisation policies.

Since he stepped down as Prime Minister, Lado has been a frequent public speaker on issues of economic liberty and free-market reforms in developing countries and co-chairs the Emory Center for Alternative Investments. In October 2009, he was invited to join, as Chairman, the board of Bank of Kigali, the largest bank in Rwanda.

In 2009, Lado co-founded Liberty Investments, an investment company focusing on financial services institutions in frontier markets with low corruption, low taxes and open economies. In September 2009, Liberty Investments announced the acquisition of a controlling equity interest in Liberty Bank, which has the largest client base in Georgia, serving some 1.3 million clients and a branch network of 231 branches.

He is a Georgian and British citizen and received his MBA from Goizueta Business School of Emory University in 1993, following undergraduate studies at Middlebury College and Tbilisi State University.

Sudadi S. KAYITANA, Director

Sudadi is a practising accountant with wide experience in finance and audit. He has served in public and private sector, and the international community organisations including UNDP with additional experience in the Insurance Industry.

He is a Chartered Accountant (ACCA), qualified professional of supply chain management and is a member of the Institute of Purchasing and Supply (MCIPS). He also holds an Associate degree in Accounting from the National University of Rwanda.

Bank of Kigali Board Profile

Lado GURGENIDZE, Chairman



Caleb RWAMUGANZA, Director

Caleb is Deputy Accountant General-Treasury Management, in the Ministry of Finance and Economic Planning (MINECOFIN). He has extensive experience in the area of Accounting and Finance and has served in MINECOFIN since 2005 in various capacities including as Technical Assistant to the Secretary to the Treasury. Prior to that, Caleb was Chief Accountant in the Office of the President.

Caleb acts as lead Negotiator on Government loans and manages execution of public debt obligations and implementation of debt related policy matters.

He holds a Master of Arts in Management and Finance from Southampton Solent University (UK) and Bachelor of Business Administration in Accounting from Nkumba University, Uganda.

Apollo M. NKUNDA, Director

Apollo is a practising lawyer, and a Partner with Trust Law Chambers. Apollo has over ten years experience in legal

practice from both the public and private sector. He specialises in Banking and Finance Law, Labour Law and Government procurement. Prior to joining the private sector, he was head of Legal Services of the National Tender board, now the Rwanda Procurement Authority.

Apollo holds a Master’s degree in Business and Trade law from Erasmus University Rotterdam, the Netherlands, and a Bachelors of Law from the National University of Rwanda.

He is a member of the Rwanda Bar Association, the East African Law Society, an associate member of the Chartered Institute of Purchasing and Supply, a founding member of the Centre for Arbitration and honorary counsel to the Kigali Golf Club.

Perrine MUKANKUSI, Director

Perrine is Economic Researcher in Prime Minister’s Office with wide experience in planning, monitoring and evaluation. Perrine held various responsibilities in the Ministry of Justice for over 10 years, and was Director for Planning in the same Ministry for over 5 years.

She has experience in coordination of Projects and programmes and performance reviews at policy and strategic levels.

Perrine holds a Master’s degree in Business Administration from School of Finance and Banking, and a Bachelor of Commerce degree from Kigali Institute of Technology and Management.



Marc HOLTZMAN, Director

Marc is Vice Chairman of Barclays Capital. Prior to joining Barclays Capital in August 2008, Marc served as Vice Chairman of ABN Amro Bank. He was also co-founder and President of MeesPierson EurAmerica and a Senior Adviser to Salomon Brothers, he lived and worked in Eastern Europe and Russia from September 1989 until October 1998.

Drawing on his early experience in helping develop Central Asia’s finance sector, Marc was appointed by Kazakhstan’s Prime Minister to serve on the Board of Trustees of The Almaty Regional Financial Centre. In addition, Marc serves as non-executive Chairman of Indus, a leading Indian oil and gas company listed on London’s AIM market and as Chairman of CSM Global Pharma. Marc is also a member of the Board of Prospect Global Resources, a US based natural resources and mining company.

Marc is widely recognized as a leading authority on economic and political developments in emerging markets. He also served as President of The University of Denver with approximately 10,000 students and as Colorado’s first Secretary of Technology. Marc draws on almost three decades of political and public service in the United States. He holds a Bachelor of Arts Degree in Economics from Lehigh University.

Alphonsine NIYIGENA, Director

Alphonsine is Chairperson of the Union Investments Corporation (UIC), Chairperson of Liberal professionals Chamber, one of the nine chambers of the Rwanda Private Sector Federation.

She serves as Board Member of Motor Guarantee Fund, Rwanda Institute of Administration and Management (RIAM) and Private Sector Federation of Rwanda.

Alphonsine is the Managing Director of WorldWide Initiatives SARL, a regional consulting firm registered in Rwanda and has conducted national and international consultancies as an independent consultant in the areas of finance, economic planning, and audit. Prior to joining the private sector, Alphonsine served in the Office of Auditor General for 5 years as senior auditor and team leader.

Alphonsine holds a Master’s Degree in Business Administration in Finance from Maastricht University, Netherlands.

Dativa MUKESHIMANA, Director

Dativa is the Executive Secretary for Duterimbere Asbl, a women Entrepreneurial institution which has experience in Micro Finance and Women Association in Rwanda. Dativa has vast experience in programme management and financing of NGOs, especially gender related programmes.

She has managed institutional finances including resource mobilization as well as human resources at operation and strategic levels.

Dativa holds a Bachelor’s degree in Economics majoring in Money and Banking from Kigali Independent University and Ms Project Management from CEPROMEC University, Bujumbura in partnership with the Inter University Centre of Development Studies of Craydon, Australia.



Executive Management ProfileJames Gatera has been the Managing Director of Bank of Kigali since 2007. During his tenure the Bank’s balance sheet has grown by 125% - CAGR of 18%, shareholders’ equity by 219% - CAGR of 34% and deposits by 85% - CAGR 13%. Through his stewardship the Bank has had sustained periods of profitability with PBT growing by 87% - CAGR of 13% and PAT by 108% - CAGR of 16%. The Bank has been internationally recognised as the ‘Best Bank in Rwanda’ by emeafinance and awarded the ‘Bank of the Year’ for Rwanda in 2009 and 2010 by the Financial Times of London. The Bank has also been rated A+/A1 by the Global Credit Rating Agency of South Africa. In 2011, the Bank was awarded a Golden Award for Quality and Business Prestige by Otherways Management and Consulting, France.

James has accumulated vast experience in Corporate Governance and currently serves as the Chairman of the Board of the National Post Office Service. He also serves as a Non-Executive director on various boards including; National Health Insurance Fund (RAMA), Rwanda Geology and Mines Authority (OGMR) and Magasins Generaux du Rwanda S.A. (MAGERWA). James is also a Non Executive Director of the Commonwealth Business Council (CBC).

James is often a key speaker in many international and African business forums. He has addressed the CBC on increasing Access to Finance in Africa. James is also a regular participant in the East African Community and recently chaired a round table at the African Investment Forum on Public Private Partnerships for Infrastructural Development.

James holds a Bachelor of Arts degree majoring in Psychology from Simon Fraser University-Canada and Bachelor of Commerce from National University of Lesotho.

Lawson NAIBO, Chief Operating officer

James GATERA, Managing Director

Lawson is the Chief Operating Officer. He has been with the Bank since 2009. He has wide experience in Strategic Management processes, Financial Advisory, Corporate Governance, Risk Management and Compliance Advisory gained from over 15 years post qualification experience previously in CFC Bank Group. Immediately prior to joining the Bank, Lawson was an Associate Director specialising in Transaction Services at KPMG East Africa.

Mr. Naibo is a qualified business strategy and financial services advisor and holds MBA in Strategic Management and BSc in Financial Services. He is also a Certified Public Accountant and Chartered Banker and certified trainer in Corporate Governance.

Louis has been with the Bank for over 30 years. He has served in various capacities including a range of management positions.

Mr Rugerinyange holds a Bachelor’s Degree in Economics from the National University of Rwanda. Prior to holding his new role as CSSO, Louis was the head of Administration and HR and was responsible for the growth in staff and branch network.

Louis RUGERINYANGE, Chief Shared Service Officer


Flora is the head of Human Resources and Administration Department. She has been with the Bank since 2008. Prior to joining the Bank, she worked in the telecommunication industry with about ten years of experience.

Flora has been responsible for growth in branch network and staff since 2008 and she was a focal point in managing the consultants charged with organisational reforms in 2009. She is also responsible for the growth of the branch infrastructure which has seen the Bank’s branch network grow from 14 in 2008 to 33 in 2010. She has overseen the Bank’s strategic human resources restructuring from a product driven structure to a customer focused structure. In addition she has overseen the supply and demand side of the Bank’s human capital with staff complement of 284 in 2008 to 457 in 2010.

Flora holds a Bachelor’s degree in Business Administration with specialisation in Human Resources from Kigali Institute of Science, Technology and Management (KIST).

Adolphe is the Head of Retail Banking, and has been in the Bank for over 10 years. Adolphe held various responsibilities in the Bank including; Branches management, Corporate Banking and Operations Departments. Prior to joining the Bank, he worked in the banking industry in Burundi.

Adolphe is a holder of a Bachelor’s degree in Economics from the University of Bujumbura in Burundi.

Adolphe NGUNGA, Head of Retail Banking

John has been the Head of Finance and Budget Department since 2009. John brings in a wealth of experience from the financial sector. He served as a financial consultant and Audit Manager in Ernst and Young Uganda and the United Kingdom respectively.

John is responsible for overseeing the development and implementation of the Bank’s strategic and statutory financial reporting information systems since 2009.

John holds a Bachelors degree in Business Administration from Makerere University-Uganda and an MBA-Accounting & Finance from Oxford Brookes University, UK. He is also a member of the Association of Certified Chartered Accountants –UK (ACCA). John BUGUNYA,

Head of Finance & Budget

Frances is the Head of Corporate Affairs department. She joined the Bank in 2009 with 10 years of experience in Public Services Management. She has served as a Non-Executive Director on the Board of Directors for various organisations, and is trained in Corporate Governance.

She has been instrumental in establishing professional company secretarial services and an inhouse legal counsel section at the Bank. In addition in her role as Head of Corporate Affairs she has overseen the development and implementation of the Corporate Social Reponsibility policy of the Bank.

Frances holds a Masters degree in Public Administration from the University of Liverpool, UK and Bachelor of Commerce degree from Kigali Institute of Science Technology and Management.

Frances IHOGOZA, Head of Corporate Affairs

Flora NSINGA, Head of HR & Administration


Yves is the Head of Risk and Compliance since early 2010. Yves brings to the Bank vast experience from the Banking sector after serving as a Bank examiner at the National Bank of Rwanda for ten years. Prior to joining the Bank, he held the position of Internal Control and Compliance in one of the commercial banks in Rwanda.

He holds a Bachelor’s degree in Economics from the National University of Rwanda.

Alex is the Head of Information and Communication Technology and has been with the Bank since 2009. Prior to joining the Bank, Alex was Head of the Applications Division, G7 and was charged with management of all software and application in place at the Rwanda Revenue Authority.

Alex has been responsible for the information, communication and technology development and advancements at the bank since 2009.

Alex holds a Bachelors degree in Technical Electro-mechanical Engineering and Information Technology, from the National University of Rwanda.

Alex NGABONZIZA, Head of ICT

Yves GATSIMBANYI,Head of Risk & Compliance

Martin is Head of Corporate Banking Department and has been with the Bank since 2009.

Martin has wide experience in Credit Analysis, Relationship Management, and corporate Banking gained from his service in management positions with the Rwandan Banking sector.

Martin holds a MBA in Finance from Maastricht School of Management in Netherlands and a Bachelor’s degree in management from the National University of Rwanda (NUR). Martin KANA MULISA,

Head of Corporate Banking

Innocent is the Head of Credit Risk and has been with the Bank since 2004. Innocent has wide experience in credit analysis and management which he gained from having worked with the Rwandan Banking sector for over seven years.

Innocent is a holder of a Bachelor’s degree in Economics from the National University of Rwanda.

Innocent MUSOMINARI, Head of Credit Department


Gerald heads Internal Audit and Control Department. He joined the Bank in 2009 and has over 10 years experience in Audit and Finance especially in the financial sector and telecommunication industry.

Gerard holds a Bachelor of Commerce degree from Makerere University-Uganda, and Bachelor of Accounting degree from Transkei University-Republic of South Africa. He is also a member of the Association of Certified Chartered Accountants – UK (ACCA) and Institute of Certified Public Accountants – Rwanda (ICPAR).

Gerald NYANGEZI, Head of Internal Audit


Bank of Kigali as a good corporate citizen

acknowledges that Corporate Social

Responsibility (CSR) is a necessity rather than

a choice. To this effect, the Bank pursues a robust

and consistent CSR strategy which ensures that the

it continues to have a positive impact on the welfare

of society.

Our Vision on the impact of CSR policy and strategy on the country’s social economic development

We believe that the country faces four major

challenges that need to be addressed if the country

is to achieve the Vision 2020 aspiration of becoming

a middle income country by 2020. These challenges

include; elimination of illiteracy through education,

eradication of diseases by promoting community

health, environmental sustainability and eradication

of poverty. The Bank’s CSR plan encompasses the areas

of education, health, environmental conservation

and poverty eradication as its major focus areas

in its CSR investment policy in the medium term.

Related projects are mainly implemented through

partnerships with civil society groups. In our 2009

report, we outlined a number of projects and social

orientations undertaken to realise the Bank’s CSR

policy. In the year under review, we sustained these

projects and initiated new ones some of which are

detailed below.

Our contribution towards environmental sustainability

At Bank of Kigali, we ensure environmental

sustainability and to a greater extent limit any social

disruptions resulting from both funded projects and

our business operations.

The Bank has a clear environment and social

policy that details its approaches to environmental

conservation within the provisions of the national

environment policy as well as the strategies to

reduce our carbon footprint in order to conserve

our environment.

Under its environment policy, the Bank has taken

deliberate steps to reduce paperwork produced

for its customers such as printed bank statements

by offering alternative technology driven services

such as SMS banking, internet banking and

e-statements.

Moreover on the supply side, the staff of Bank

of Kigali promotes environmental conservation

through tree planting and continued participation

in community work, Umuganda.

Mountain Gorilla Conservation

We are also passionate about the conservation and

protection of the world’s rare Mountain Gorillas.

Over the years, we have been active in joining other

Rwandans and the world at large in the annual

celebration of gorilla naming “Kwita Izina” through

direct participation and financial support for the

event. In 2010, the Bank was a Silver Sponsor of the

ceremony.

Our contribution towards elimination of of poverty through improving access to our services

The Bank has an ambitious plan of improving

access to financial services especially in the rural

areas where majority of Rwandans live. On one

hand this is being done through the expansion of

Corporate Social Responsibility Report

Bank of Kigali

Corporate Social Responsibility Report “Your Trusted Partner in Wealth Creation”


branches where the Bank is acting as a catalyst in

spurring economic development within the locality

where the new branches will be located. On the

other hand, we are also developing products and

services aimed at the lower income groups. These

products and services include micro credit products

aimed at women groups, youth groups and retired

citizens with the aim of transforming these target

markets to higher income generating segments of

our business.

Partnership in Business Development

The Bank also partners with the Private Sector

Federation (PSF) which promotes our shared ideals of

economic development and spearheads promotion

of the country’s private sector. In 2010, Bank of

Kigali participated in funding the international trade

fair, organised by the PSF in Rwanda. In recognition

of our dedication to private sector development, the

Bank was honoured as the “Best Financial Exhibitor

and Silver Sponsor” at the 2010 Expo.

Education

We acknowledge that being a partner in education is

key to our role in social and economic development.

It is through the education systems that we are able

to tap the professional human capital required to

provide our products and services to our customers

now and in the future. It is therefore, imperative for

the Bank to respond to the national and global call

to support education especially for under privileged

children. This enables us to make our humble steps

towards the country’s achievement of the 2015

Millennium Development Goals and Vision 2020. We

therefore have sustained the education project that

we started in 2008, to provide scholarships for 200

students throughout their secondary education in

partnership with Imbuto Foundation, a reputable

Civil Society Organization in Rwanda.

Investing in Community Health

Bank of Kigali intends to continually strive to promote

community health. We believe that a healthy

community will be able to enhance our business

growth through increased productivity. We are

especially passionate about being part of the national

and global efforts to combat killer diseases especially

malaria and HIV/AIDS pandemics. In this respect, the

Bank has committed to a three year partnership with

the Global Fund through the Friends of Africa Initiative

running from 2011

to 2013. The funds

raised shall be used

to combat malaria

and HIV/AIDS in

Africa.

F u r t h e r m o r e ,

we contribute

financially to

two hospitals in

R w a n d a , K i n g

Faycal Hospital and

Central University

Hospital of Kigali

(CHUK).




Other social economic interventions

The 1994 Genocide commutation

Joining hands with all Rwandans and the International

Community, Bank of Kigali management and staff

commemorated the 16th year of the 1994 Genocide

against the Tutsi. A special commemoration is done

in memory of our former staff who perished during

the Genocide. This is done together with the families

of the former employees.

In order to support the economic well being of

genocide survivors, the Bank has provided 11

Fresian cows to the community of Bumbogo Sector

in Gasabo district.

In support of the Retired soldiers (Abadacogora Association)

In the spirit of Umuganda, we participated in

three projects together with retired soldiers in

Bugesera district. The first project involved the

building of decent shelter in line with the national

“Anti-nyakatsi” campaign. We also assisted the

association in the development of their gardens

so that they can produce their own food in order

to promote economic self sufficiency in the area.

Furthermore we also donated 43 goats to the

association and participated in constructing a shed

for these goats.




“As a good corporate citizen, we support the well being of

our neighborhoods and our communities at large”.

Supporting national “Anti–nyakakatsi” Campaign

In 2010, we further supported this campaign by

contributing financially towards the elimination of

grass thatched houses to promote decent housing

for communities.

Sports Enhancement

We also acknowledge the necessity of sports in

our community and we are very happy to extend

our support to sports and activities that promote

physical fitness for our staff and the society.

Our company football team-pictured below- has

won numerous competitions.

Conclusion

The Bank will continue to streamline the

corporate social responsibility policy in line

with the changing needs of our society. Our

mission includes continuous investment in our

community as an important part of our strategic

plan. Our approach will be to ‘do things right’

so as to create long term stakeholder value by

promoting sustainable initiatives in human capital

development and environmental conservation.

In order to achieve this we have put aside one

percent of our net operating revenue for CSR

activities. Our activities are principally through

strategic alliances with established organisations

working with the marginalised groups.

Bank of Kigali Team together with the Managing Director, James Gatera, after winning the annual Labour Day Competition.


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BANK OF KIGALI LIMITEDBANK INFORMATIONAS AT 31 DECEMBER 2010

PRINCIPAL PLACE OF BUSINESS

Bank of Kigali LimitedAvenue de la PaixP.O. Box 175 Kigali - Rwanda

REGISTERED OFFICE

Bank of Kigali LimitedAvenue de la PaixP.O. Box 175Kigali - Rwanda

LAWYERS

Mr. Emmanuel RukangiraP.O Box 3270Kigali – Rwanda

Mr. Athanase RutabingwaP.O. Box 6886Kigali - Rwanda

BANK SECRETARY

Frances IhogozaBank of Kigali BuildingAvenue de la PaixP.O. Box 175Kigali - Rwanda

BANK AUDITORS

Ernst & Young (Rwanda) SARLCertified Public AccountantsBank of Kigali BuildingAvenue de la PaixP.O. Box 3638Kigali - Rwanda

Financial Reports “Your Trusted Partner in Wealth Creation” “Your Trusted Partner in Wealth Creation”Bank of Kigali Bank of Kigali Financial Reports



BANK OF KIGALI LIMITEDREPORT OF THE DIRECTORSYEAR ENDED 31 DECEMBER 2010

The directors submit their report and the audited financial statements for the year ended 31 December 2010 which show the state of the Bank’s state of affairs.

1. PRINCIPAL ACTIVITY

The Bank offers commercial and retail banking services.

2. RESULTS

The results for the year are set out on page 36.

3. DIVIDEND

The directors do not recommend payment of dividend in respect of the year ended 31 December 2010 (2009: Rwf 2,643,482,000)

4. RESERVES

The reserves of the Bank are set out on page 38 and note 16.

5. DIRECTORS

The directors who served during the year and to the date of this report were:

Mr. Lado Gurgenidze - ChairmanMr. Sudadi KayitanaMr. Caleb Rwamuganza - Appointed on 02 September 2010Mr. Marc Holtzman Mr. Apollo Nkunda Mrs. Perrine Mukankusi Mrs. Alphonsine Niyigena Mrs. Dative MukeshimanaMr. Francois Nkulikiyimfura - Resigned on 02 September 2010

Mr. James Gatera - Managing Director

6. AUDITORS

Ernst & Young (Rwanda) SARL have expressed their willingness to continue in office.

By Order of the Board

………………………………….. 2011


BANK OF KIGALI LIMITEDSTATEMENT OF DIRECTORS’ RESPONSIBILITIESFOR THE YEAR ENDED 31 DECEMBER 2010

The Companies Act of Rwanda requires the directors to prepare financial statements for each financial year, which give a true and fair view of the state of affairs of the Bank as at the end of the financial year and of its operating results for that year. It also requires the directors to ensure the Bank keeps proper accounting records which disclose, with reasonable accuracy the financial position of the Bank. They are also responsible for safeguarding the assets of the Bank.

The directors accept responsibility for the annual financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgments and estimates in conformity with International Financial Reporting Standards and the requirements of the Companies Act of Rwanda. The directors are of the opinion that the financial statements give a true and fair view of the state of the financial affairs of the Bank and of its operating results. The directors further accept responsibility for the maintenance of accounting records which may be relied upon in the preparation of financial statements, as well as adequate systems of internal financial control.

Nothing has come to the attention of the directors to indicate that the Bank will not remain a going concern for at least the next twelve months from the date of this statement.

………………………................………Director

……………………................…………Director

………………………………Date




REPORT OF THE INDEPENDENT AUDITORS TO THE MEMBERS OFBANK OF KIGALI LIMITED

REPORT ON THE FINANCIAL STATEMENTS

We have audited the accompanying financial statements of Bank of Kigali Limited as set out on pages 35 to 87, which comprise the statement of financial position as at 31 December 2010, the income statement, statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended and, a summary of significant accounting policies and other explanatory notes.

DIRECTORS’ RESPONSIBILITY FOR THE FINANCIAL STATEMENTS

The directors are responsible for the preparation and fair presentation of the financial statements in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Rwanda and Laws and Regulations governing Banks in Rwanda, and for such internal control as the directors determines necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Bank’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

OPINION

In our opinion, the financial statements give a true and fair view of the state of financial position of the Bank as at 31 December 2010, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards and in the manner required by the Companies Act of Rwanda and Laws and Regulations governing Banks in Rwanda.


REPORT OF THE INDEPENDENT AUDITORS (Continued)TO THE MEMBERS OFBANK OF KIGALI LIMITED

REPORT ON OTHER LEGAL AND REGULATORY REQUIREMENTS

The Companies Act of Rwanda which was promulgated on 27 April 2009 requires that in carrying out our audit, we consider and report to you on the following matters. We confirm that: -

We have no relationship, interests and debts in the Bank;i)

We have obtained all the information and explanations which to the best of our knowledge and belief were ii) necessary for the purpose of our audit;

In our opinion, proper books of account have been kept by the Bank, so far as appears from our examination of iii) those books;

We have communicated to you through the management letter, internal control weaknesses identified in the iv) course of our audit including our recommendations with regard to those matters.

GEOFFREY BYAMUGISHAFOR ERNST & YOUNG (RWANDA) SARLKIGALI

…………………………………………..2011




BANK OF KIGALI LIMITEDSTATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010

Note 2010 2009

ASSETS Rwf ‘000 Rwf ‘000

Cash in hand 3 6,881,845 4,623,520

Cash balances with the National Bank of Rwanda 4 22,562,505 19,099,158

Due from banks 5 38,452,178 28,754,599

Loans and advances to customers 6 101,402,657 77,095,866

Financial investments – held-to-maturity 7 5,224,395 12,312,906

Financial investments – available-for-sale 8 268,375 315,108

Other assets 9 4,390,670 3,277,799

Intangible assets 10 180,604 16,892

Property and equipment 11 18,313,417 6,375,155

TOTAL ASSETS 197,676,646 151,871,003

LIABILITIES AND EQUITYCustomer deposits 12 135,677,746 109,482,804

Due to banks 13 18,920,636 15,103,987

Tax payable 24 496,815 1,036,637

Other payables 14 6,841,125 4,388,591

Dividend payable - 2,643,482

Deferred tax 24 3,870,437 674,739

TOTAL LIABILITIES 165,806,759 133,330,240

EQUITYShare capitalRevaluation Surplus

1516

5,005,0007,150,542

5,005,000-

Reserves 16 13,535,763 10,892,282

Retained earnings 16 6,178,582 2,643,481

TOTAL EQUITY 31,869,887 18,540,763

TOTAL LIABILITIES AND EQUITY 197,676,646 151,871,003

These financial statements were approved by the Board of Directors on ……………………………….……. 2011 and signed on its behalf by:-

…………….....................….……… Director

…………….....................….……… Director


BANK OF KIGALI LIMITEDSTATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2010

Note 2010 2009

Rwf ‘000 Rwf ‘000

Interest and similar income 17 16,571,730 13,798,240Interest and similar expense 18 ( 4,182,666 ) ( 3,409,474 )

Net interest income 12,389,064 10,388,766

Net fee and commission income 19 2,819,041 1,677,749

Foreign exchange gains 20 5,247,543 3,335,299Other income 21 691,381 598,649

Total operating income 21,147,029 16,000,463

Impairment loss on financial assets 6(e) ( 2,376,281 ) ( 1,500,046 )Impairment loss on financial assets 8 (b) ( 46,733 ) -

Net operating income 18,724,015 14,500,417

Personnel expenses 22 ( 5,038,341 ) ( 3,055,815 )Depreciation and amortization ( 1,537,783 ) ( 903,398 )Operating expenses 23 ( 3,466,499 ) ( 3,099,306 )

Total operating expenses ( 10,042,623 ) ( 7,058,519 )

Profit before taxation 8,681,392 7,441,898

Income tax expense 24 ( 2,502,810 ) ( 2,154,935 )

Profit for the year 6,178,582 5,286,963

Earnings per share:

Basic and diluted earnings per share 25 136 116




BANK OF KIGALI LIMITEDSTATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2010

Note 2010 2009

Rwf ‘000 Rwf ‘000


Other comprehensive income

Revaluation of Buildings 16 (a) 7,150,542 -

Total comprehensive income net of taxes 13,329,124 5,286,963


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BANK OF KIGALI LIMITEDSTATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2010

Note 2010 2009Rwf ‘000 Rwf ‘000

OPERATING ACTIVITIESProfit before taxation 8,681,392 7,441,898

Adjustment for:

Depreciation 1,357,181 886,506Amortisation of intangible assets 180,602 16,892Dividends received ( 10,477 ) -Provisions on equity investments 46,733 -Cash flows generated from operating activities before changes in working capital

10,255,431 8,345,296

Loans and advances to customers (24,306,791) (5,001,642)Other assets (1,112,872) (58,907)Customer deposits 26,194,942 15,644,325Other accounts payable 2,452,533 2,265,484

Cash flows generated from operations 13,483,243 21,194,556

Income taxes paid 24 (a) (2,911,451) (2,031,627)

Net cash flows from operating activities 10,571,797 19,162,929

INVESTING ACTIVITIESBuy/ (Sale) of investments Held to Maturity 7,088,511 (7,818,323)Dividends received 10,477 -Purchase of property and equipment (3,080,383) (1,703,109)Purchase of intangible assets (344,313) (20,715)

Net cash flows used in investing activities 3,674,292 (9,542,147)

FINANCING ACTIVITIESDividends paid (2,643,482) -

Net cash flows used in financing activities (2,643,482) -

Net increase in cash and cash equivalents 11,602,602 9,620,782Cash and cash equivalents at 01 January 37,373,290 27,752,508

Cash and cash equivalents at 31 December 26 48,975,892 37,373,290


BANK OF KIGALI LIMITEDNOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2010

1. CORPORATE INFORMATION

Bank of Kigali Limited is a financial institution licensed to provide corporate and retail banking services to corporate, small and medium size enterprises and retail customers in various parts of Rwanda.

The Bank is a limited liability company incorporated and domiciled in Rwanda.

The financial statements for the year ended 31 December 2010 were authorised for issue in accordance with a resolution of the directors on 28 March 2011.

2. ACCOUNTING POLICIES

2.1. Basis of preparation

The financial statements have been prepared on a historical cost basis, except for certain financial instruments that have been measured at fair value. The financial statements are presented in Rwandan Francs (Rwf) and all values are rounded to the nearest thousand (Rwf ‘000) except when otherwise indicated.

Statement of compliance

The financial statements of the Bank have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

Presentation of financial statements

The bank presents its statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the statement of financial position date (current) and more than 12 months after the statement of financial position date (non- current) is presented in note 31.

2.2. Changes in accounting policy and disclosures

New and amended standards and interpretations

The accounting policies adopted are consistent with those of the previous financial year.Amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Bank.

IFSR2 Share- based payment: Group Cash-settled Share-based Payment transactions effective 1 January 2010•

IFRS 3 Business Combinations (Revised) AND IAS 27 Consolidated and Separate Financial Statements (Amended) •

effective 1 July 2009, including consequential amendments to IFRS 2, IFRS 5, IFRS 7, IAS7, IAS 21, IAS 28, IAS 31 and

IAS 39.

IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items effective 1 July 2009•

IFRIC 17 Distribution of Non – Cash Assets to Owners effective 1 July 2009•

IFRIC 18, ‘Transfers of assets from customers’•

Improvements to IFRSs (May 2008)•

Improvements to IFRSs (April 2009)•





2. ACCOUNTING POLICIES (continued) 2.2. Changes in accounting policy and disclosures (continued)

The adoption of the standards or interpretations is described below:

IFRS 2 Share-based Payment (Revised)

The IASB issued an amendment to IFRS 2 that clarified the scope and the accounting for Bank cash-settled share-based payment transactions. The standard is not relevant to the Bank and did not impact on the financial position or performance of the Bank.

IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended)

IFRS 3 (Revised) introduces significant changes in the accounting for business combinations occurring after becoming effective. Changes affect the valuation of non-controlling interest, the accounting for transaction costs, the initial recognition and subsequent measurement of a contingent consideration and business combinations achieved in stages. These changes will impact the amount of goodwill recognised, the reported results in the period that an acquisition occurs and future reported results.

IAS 27 (Amended) requires that a change in the ownership interest of a subsidiary (without loss of control) is accounted for as a transaction with owners in their capacity as owners. Therefore, such transactions will no longer give rise to goodwill, nor will it give rise to a gain or loss. Furthermore, the amended standard changes the accounting for losses incurred by the subsidiary as well as the loss of control of a subsidiary. The changes by IFRS 3 (Revised) and IAS 27 (Amended) affect acquisitions or loss of control of subsidiaries and transactions with non-controlling interests after 1 January 2010.

The change in accounting policy was early adopted in 2009 and applied to the acquisition of the controlling interest in Kingdom Securities Limited.

IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items

The amendment clarifies that an entity is permitted to designate a portion of the fair value changes or cash flow variability of a financial instrument as a hedged item. This also covers the designation of inflation as a hedged risk or portion in particular situations. The Bank has concluded that the amendment will have no impact on the financial position or performance of the Bank, as the Bank has not entered into any such hedges.

IFRIC 17 Distribution of Non-cash Assets to Owners

This interpretation provides guidance on accounting for arrangements whereby an entity distributes non-cash assets to shareholders either as a distribution of reserves or as dividends. The interpretation has no effect on either, the financial position nor performance of the Bank.

IFRIC 18, Transfers of assets from customers

IFRIC 18 was issued in January 2009. It clarifies how to account for transfers of items of property, plant and equipment by entities that receive such transfers from their customers. The interpretation also applies to agreements in which an entity receives cash from a customer when that amount of cash must be used only to construct or acquire an item of property, plant and equipment, and the entity must then use that item to provide the customer with ongoing access to supply of goods and/or services. The Bank is not impacted by applying IFRIC 18.

Improvements to IFRSs

In May 2008 and April 2009, the IASB issued omnibus of amendments to its standards, primarily with a view to removing inconsistencies and clarifying wording. There are separate transitional provisions for each standard. The adoption of the following amendments where relevant resulted in changes to accounting policies but did not have any impact on the financial position or performance of the Bank.



2. ACCOUNTING POLICIES (continued)

2.2. Changes in accounting policy and disclosures (continued)

Issued in May 2008IFRS 5 Non-current Assets Held for Sale and Discontinued Operations: clarifies that when a subsidiary is •classified as held for sale, all its assets and liabilities are classified as held for sale, even when the entity remains a non-controlling interest after the sale transaction. The amendment is applied prospectively and has no impact on the financial position nor financial performance of the Bank.

Issued in April 2009IFRS 5 • Non-current Assets Held for Sale and Discontinued Operations: clarifies that the disclosures required in respect of non-current assets and disposal Banks classified as held for sale or discontinued operations are only those set out in IFRS 5. The disclosure requirements of other IFRSs only apply if specifically required for such non-current assets or discontinued operations. The standard is not relevant to the Bank and did not impact on the financial position or performance of the Bank.IFRS 8 Operating Segments: clarifies that segment assets and liabilities need only be reported when those •assets and liabilities are included in measures that are used by the chief operating decision maker. As the Bank’s chief operating decision maker does review segment assets and liabilities, the Bank has continued to disclose this information in Note 5.IAS 7 Statement of Cash Flows: States that only expenditure that results in recognising an asset can be classified •as a cash flow from investing activities. This amendment will impact amongst others, the presentation in the statement of cash flows of the contingent consideration on the business combination completed in 2010 upon cash settlement.IAS 36 Impairment of Assets: The amendment clarifies that the largest unit permitted for allocating goodwill, •acquired in a business combination, is the operating segment as defined in IFRS 8 before aggregation for reporting purposes. The amendment has no impact on the Bank as the annual impairment test is performed before aggregation.

Other amendments resulting from Improvements to IFRSs to the following standards did not have any impact on the accounting policies, financial position or performance of the Bank:

Issued in April 2009 IFRS 2 Share-based Payment• IAS 1 Presentation of Financial Statements• IAS 17 Leases• IAS 34 Interim Financial Reporting• IAS 38 Intangible Assets• IAS 39 Financial Instruments: Recognition and Measurement• IFRIC 9 Reassessment of Embedded Derivatives• IFRIC 16 Hedge of a Net Investment in a Foreign Operation•

Standards issued but not yet effective

The following standards have been issued but are not yet effective up to issuance of the Bank’s financial statements. The Bank intends to adopt them when they become effective.

IAS 24 Related Party Disclosures (Amendment)

The amended standard is effective for annual periods beginning on or after 1 January 2011. It clarified the definition of a related party to simplify the identification of such relationships and to eliminate inconsistencies in its application. The revised standard introduces a partial exemption of disclosure requirements for government related entities. The Bank does not expect any impact on its financial position or performance.






2.2. Changes in accounting policy and disclosures (continued)

Standards issued but not yet effective (continued)

IAS 32 Financial Instruments: Presentation – Classification of rights issues

The amendment to IAS 32 is effective for annual periods beginning on of after 1 February 2010 and amended the definition of a financial liability in order to classify rights issues (and certain options or warrants) as equity instruments in cases where such rights are given pro rata to all the existing owners of the same class of an entity’s non derivative equity instruments or to acquire a fixed number of the entity’s own equity instruments for a fixed amount in any currency. This amendment will have no impact on the Bank after initial application.

IFRS 9 Financial instruments: Classification and measurement

IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets and liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2013. In subsequent phases, the Board will address impairment and hedge accounting. The completion of this project is expected to complete in mid 2011. The adoption of the first phase of IFRS 9 will primarily have an effect on the classification and measurement of the Bank’s financial assets. The Bank is currently assessing the impact of adopting IFRS 9, however, the impact of adoption depends on the assets held by the Bank at the date of adoption, and it is not practical to quantify the effect.

IFRIC 14 Prepayments of minimum funding requirements (amendment)

The amendment to IFRIC 14 is effective for annual periods beginning on or after 1 January 2011 with retrospective application. The amendment provides guidance on assessing the recoverable amount of a net pension asset. The amendment permits an entity to treat the prepayment of a minimum funding requirement as an asset. The amendment is expected to have no impact on the financial statements of the Bank.

IFRIC 19 Extinguishing Financial Liabilities with Equity instruments

IFRIC 19 is effective for annual periods beginning on or after 1 July 2010. The interpretation clarifies that equity instruments issued to a creator to extinguish a financial liability qualify as consideration period. The equity instruments issued are measured at their fair value. In case this cannot be reliably measured, they are measured at the fair value of the liability extinguished. Any gain or loss is recognised immediately in profit or loss. The adoption of this interpretation will have no effect on the financial statements of the Bank.


BANK OF KIGALI LIMITEDNOTES TO THE FINANCIAL STATEMENTS (continued)FOR THE YEAR ENDED 31 DECEMBER 2010


Improvements to IFRS (Issued in May 2010)

The IASB issued improvements to IFRSs, an omnibus of amendments to its IFRS standards. The amendments have not

been adopted as they became effective for annual periods beginning on or after either 1 July 2010 or 1 January 2011. The

amendments are listed below.

IFRS 3 Business Combinations•

IFRS 7 Financial Instruments: Disclosures•

IAS 1 Presentation of Financial Statements•

IAS 27 Consolidated and Separate Financial Statements•

IFRIC 13 Customer Loyalty Programmes•

The Bank, however, expects no impact from the adoption of the amendments on its financial position or performance.




BANK OF KIGALI LIMITEDNOTES TO THE FINANCIAL STATEMENTS (continued) FOR THE YEAR ENDED 31 DECEMBER 2010


2.3. Summary of Significant Accounting Policies

(a) Significant accounting judgments, estimates and assumptions

In the process of applying the Bank’s accounting policies, management has exercised judgment and estimates in determining the amounts recognised in the financial statements. The most significant uses of judgment and estimates are as follows:

Going concern

The Bank’s management has made an assessment of the Bank’s ability to continue as a going concern and is satisfied that the Bank has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis.

Fair value of financial instruments

Where the fair values of financial assets and financial liabilities recorded on the statement of financial position cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are derived from observable market data where possible, but where observable market data are not available, judgment is required to establish fair values. The judgments include considerations of liquidity and model inputs such as volatility for longer dated derivatives and discount rates, prepayment rates and default rate assumptions for asset backed securities.

Impairment losses on loans and advances

The Bank reviews its individually significant loans and advances at each statement of financial position date to assess whether an impairment loss should be recorded in profit or loss. In particular, judgment by management is required in the estimation of the amount and timing of future cash flows when determining the impairment loss. In estimating these cash flows, the Bank makes judgments about the borrower’s financial situation and the net realisable value of collateral. These estimates are based on assumptions about a number of factors and actual results may differ, resulting in future changes to the allowance.

Loans and advances that have been assessed individually and found not to be impaired and all individually insignificant loans and advances are then assessed collectively, in groups of assets with similar risk characteristics, to determine whether provision should be made due to incurred loss events for which there is objective evidence but whose effects are not yet evident. The collective assessment takes account of data from the loan portfolio (such as credit quality, levels of arrears, credit utilisation, loan to collateral ratios etc.), concentrations of risks and economic data (including levels of unemployment, real estate prices indices, country risk and the performance of different individual groups).




2.3. Summary of Significant Accounting Policies (continued)

(a) Significant accounting judgments, estimates and assumptions (continued)

Impairment losses on loans and advances (continued)

In addition to the measurement of impairment losses on loans and advances in accordance with International Financial Reporting Standards as set out above, the Bank is also required by the National Bank of Rwanda (NBR) Instruction No. 03/2000 to estimate losses on loans and advances as follows:

(i) A specific provision for those loans and advances considered to be non-performing based on criteria and classification of such loans and advances established by the National Bank of Rwanda.

The Bank has made provisions for impairment in accordance with the National Bank of Rwanda Instruction No. 03/2000 as follows:

Class Minimum provisions required

Normal (between 31-60 days) 0%Watch list (between 61- 90 days) 0%Substandard (between 90-180 days) 20%Doubtful (between 180-360 days) 50%Loss (over 360 days) 100%

In addition to the arrears period, banks must follow subjective criteria in arriving at the classification attributable to the assets.

Impairment of available-for-sale investments

The Bank reviews its debt securities classified as available-for-sale investments at each reporting date to assess whether they are impaired. This requires similar judgment as applied to the individual assessment of loans and advances.

The Bank also records impairment charges on available-for-sale equity investments when there has been a significant or prolonged decline in the fair value below their cost. The determination of what is ‘significant’ or ‘prolonged’ requires judgment. In making this judgment, the Bank evaluates, among other factors, historical share price movements and duration and extent to which the fair value of an investment is less than its cost.

Deferred tax assets

Deferred tax assets are recognised in respect of tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and level of future taxable profits, together with future tax planning strategies.







(b) Financial instruments – initial recognition and subsequent measurement

(i) Date of recognition All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Bank becomes

a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

(ii) Initial measurement of financial instruments The classification of financial instruments at initial recognition depends on the purpose and the management’s

intention for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value plus transaction costs, except in the case of financial assets and financial liabilities recorded at fair value through profit or loss.

(iii) Derivatives recorded at fair value through profit or loss The Bank uses derivatives such as interest rate swaps and futures, credit default swaps, cross currency swaps,

forward foreign exchange contracts and options on interest rates, foreign currencies and equities. Derivatives are recorded at fair value and carried as assets when their fair value is positive and as liabilities when their fair value is negative. Changes in the fair value of derivatives are included in profit or loss.

Derivatives embedded in other financial instruments, such as the conversion option in an acquired convertible bond, are treated as separate derivatives and recorded at fair value if their economic characteristics and risks are not closely related to those of the host contract, and the host contract is not itself held-for-trading or designated at fair value through profit or loss. The embedded derivatives separated from the host are carried at fair value in the trading portfolio with changes in fair value recognised in profit or loss.

As at 31 December 2010, the Bank did not have derivatives recorded at fair values through profit or loss.

(iv) Financial assets or financial liabilities held-for-trading Financial assets or financial liabilities held-for-trading are recorded in the statement of financial position at

fair value. Changes in fair value are recognised in other operating income. Interest and dividend income or expense is recorded in net operating income according to the terms of the contract, or when the right to the payment has been established.

Included in this classification are debt securities, equities and short positions and customer loans which have been acquired principally for the purpose of selling or repurchasing in the near term.

As at 31 December 2010, the Bank had no financial assets and liabilities held-for-trading.

(v) Financial assets and financial liabilities designated at fair value through profit or loss Financial assets and financial liabilities classified in this category are those that have been designated by

management on initial recognition. Management may only designate an instrument at fair value through profit or loss upon initial recognition when the following criteria are met, and designation is determined on an instrument by instrument basis:

The designation eliminates or significantly reduces the inconsistent treatment that would otherwise arise •from measuring the assets or liabilities or recognising gains or losses on them on a different basis; or





(b) Financial instruments – initial recognition and subsequent measurement (continued)

(v) Financial assets and financial liabilities designated at fair value through profit or loss (Continued)

The assets and liabilities are part of a group of financial assets, financial liabilities or both which are managed •and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or

The financial instrument contains one or more embedded derivatives which significantly modify the cash •flows that otherwise would be required by the contract.

Financial assets and financial liabilities at fair value through profit or loss are recorded in the statement of financial position at fair value. Changes in fair value are recorded in profit or loss. Interest earned or incurred is accrued in ‘Interest and similar income’ or ‘Interest and similar expense’, respectively, using the effective interest rate (EIR), while dividend income is recorded in ‘Other income’ when the right to the payment has been established.

Included in this classification are loans and advances to customers which are economically hedged by credit derivatives and do not qualify for hedge accounting, as well as notes issued which are managed on a fair value basis.

(vi) Available-for-sale financial investments

Available-for-sale investments include equity and debt securities. Equity investments classified as available-for sale are those which are neither classified as held-for-trading nor designated at fair value through profit or loss. Debt securities in this category are those which are intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity or in response to changes in the market conditions.

After initial measurement, available-for-sale financial investments are subsequently measured at fair value. Unrealised gains and losses are recognised directly in other comprehensive Income and accumulated in equity. When the investment is disposed of, the cummulative gain or loss previously recognised in equity is recognised through other comprehensive income into profit or loss in ‘Other income’. Where the Bank holds more than one investment in the same security they are deemed to be disposed of on a first-in first-out basis. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the EIR. Dividends earned whilst holding available-for sale financial investments are recognised in profit or loss as ‘Other income’ when the right of the payment has been established. The losses arising from impairment of such investments are recognised in profit or loss in ‘Impairment loss on financial assets and removed from the ‘Available-for-sale reserve’. Impairment losses on equity investments are not reversed through profit or loss; increases in their fair value after impairment are recognized directly in other comprehensive income.

The Bank’s available for sale investments as at 31 December 2010 are disclosed in note 8.

(vii) Held-to-maturity financial investments

Held-to-maturity financial investments are non-derivative financial assets with fixed or determinable payments and fixed maturities, which the Bank has the intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortised cost using the EIR, less impairment. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are an integral part of the EIR. The amortisation is included in ‘Interest and similar income’ in profit and loss. The losses arising from impairment of such investments are recognised in profit or loss line ‘Impairment loss on financial assets’.

If the Bank were to sell or reclassify more than an insignificant amount of held-to-maturity investments before maturity (other than in certain specific circumstances), the entire category would be tainted and would have to be reclassified as available-for-sale. Furthermore, the Bank would be prohibited from classifying any financial asset as held to maturity during the following two years.

The Bank’s held to maturity financial investments as at 31 December 2010 are disclosed in note 7.








(viii) Due from banks and loans and advances to customers

Due from banks include ‘Cash balances with the National Bank of Rwanda’ and ‘Placements and balances with other banking institutions’. Due from banks and ‘Loans and advances to customers’, include non-derivative financial assets with fixed or determinable payments that are not quoted in an active market, other than:

Those that the Bank intends to sell immediately or in the near term and those that the Bank upon initial recognition designates at fair value through profit or loss;

Those that the Bank, upon initial recognition, designates as available-for-sale; or

Those for which the Bank may not recover substantially all of its initial investment, other than because of credit deterioration.

After initial measurement, amounts due from banks and ‘Loans and advances to customers’ are subsequently measured at amortised cost using the EIR, less allowance for impairment.

Amortised cost is calculated by taking into account any discount or premium on acquisition and fees and costs that are an integral part of the EIR. The amortisation is included in ‘Interest and similar income’ in profit or loss. The losses arising from impairment are recognised in profit or loss in ‘Impairment loss on financial assets’.

The Bank may enter into certain lending commitments where the loan, on drawdown, is expected to be classified as held-for-trading because the intent is to sell the loans in the short term. These commitments to lend are recorded as derivatives and measured at fair value through profit or loss.

Where the loan, on drawdown, is expected to be retained by the Bank, and not sold in the short term, the commitment is recorded only when the commitment is an onerous contract and it is likely to give rise to a loss (for example, due to a counterparty credit event).

(ix) Customer deposits and deposits and balances with other banks and financial institutions

Financial instruments or their components issued by the Bank, which are not designated at fair value through profit or loss, are classified as liabilities under ‘Customer deposits’ and ‘deposits and balances with other banks and financial institutions, where the substance of the contractual arrangement results in the Bank having an obligation either to deliver cash or another financial asset to the holder, or to satisfy the obligation other than by the exchange of a fixed amount of cash or another financial asset for a fixed number of own equity shares.

After initial measurement, debt issued and other borrowings are subsequently measured at amortised cost using the EIR. Amortised cost is calculated by taking into account any discount or premium on the issue and costs that are an integral part of the EIR.

A compound financial instrument which contains both a liability and an equity component is separated at the issue date. A portion of the net proceeds of the instrument is allocated to the debt component on the date of issue based on its fair value (which is generally determined based on the quoted market prices for similar debt instruments). The equity component is assigned the residual amount after deducting from the fair value of the instrument as a whole the amount separately determined for the debt component. The value of any derivative features (such as a call option) embedded in the compound financial instrument other than the equity component is included in the debt component.






(x) Reclassification of financial assets

Effective from 1 July 2008, the Bank may reclassify, in certain circumstances, non-derivative financial assets out of the ‘Held-for-trading’ category and into the ‘Available-for-sale’, ‘Loans and receivables’, or ’Held-to-maturity’ categories. From this date it may also reclassify, in certain circumstances, financial instruments out of the ‘Available-for-sale’ category and into the ’Loans and receivables’ category. Reclassifications are recorded at fair value at the date of reclassification, which becomes the new amortised cost.

The Bank may reclassify a non-derivative trading asset out of the ‘Held-for-trading’ category and into the ‘Loans and receivables’ category if it meets the definition of loans and receivables and the Bank has the intention and ability to hold the financial asset for the foreseeable future or until maturity. If a financial asset is reclassified, and if the Bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate.

For a financial asset reclassified out of the ’Available-for-sale’ category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the EIR. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the EIR. If the asset is subsequently determined to be impaired then the amount recorded in equity is recycled to income statement.

Reclassification is at the election of management, and is determined on an instrument by instrument basis. The Bank does not reclassify any financial instrument into the fair value through profit or loss category after initial recognition.

The Bank did not reclassify its financial assets during the year ended 31 December 2010.

(c) Derecognition of financial assets and financial liabilities

(i) Financial assets

A financial asset (or, where applicable a part of a financial asset or part of a group of similar financial assets) is derecognised when:

The rights to receive cash flows from the asset have expired; or•The Bank has transferred its rights to receive cash flows from the asset or has assumed an obligation •to pay the received cash flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either:

the Bank has transferred substantially all the risks and rewards of the asset, or•The Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has •transferred control of the asset.

When the Bank has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Bank’s continuing involvement in the asset. In that case, the Bank also recognises an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Bank has retained.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration that the Bank could be required to repay.







(c) Derecognition of financial assets and financial liabilities (continued)

(ii) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or cancelled or

expires. Where an existing financial liability is replaced by another from the same lender on substantially

different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognised in profit or loss.

(d) Repurchase and reverse repurchase agreements

Securities sold under agreements to repurchase at a specified future date are not derecognised from the statement of financial position as the Bank retains substantially all the risks and rewards of ownership. The corresponding cash received is recognised in the statement of financial position as an asset with a corresponding obligation to return it, including accrued interest as a liability, reflecting the transaction’s economic substance as a loan to the Bank. The difference between the sale and repurchase prices is treated as interest expense and is accrued over the life of agreement using the EIR. When the counterparty has the right to sell or repledge the securities.

Conversely, securities purchased under agreements to resell at a specified future date are not recognised in the statement of financial position. The consideration paid, including accrued interest, is recorded in the statement of financial position, reflecting the transaction’s economic substance as a loan by the Bank. The difference between the purchase and resale prices is recorded in ‘Net interest income’ and is accrued over the life of the agreement using the EIR. If securities purchased under agreement to resell are subsequently sold to third parties, the obligation to return the securities is recorded as a short sale within ‘Financial liabilities held-for-trading’ and measured at fair value with any gains or losses included in profit or loss.

(e) Securities lending and borrowing

Securities lending and borrowing transactions are usually collateralised by securities or cash. The transfer of the securities to counterparties is only reflected on the statement of financial position if the risks and rewards of ownership are also transferred. Cash advanced or received as collateral is recorded as an asset or liability.Securities borrowed are not recognised on the statement of financial position, unless they are then sold to third parties, in which case the obligation to return the securities is recorded as a trading liability and measured at fair value with any gains or losses included in profit or loss.

(f) Determination of fair value

The fair value for financial instruments traded in active markets at the statement of financial position date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs.

For all other financial instruments not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison to similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models.





(g) Impairment of financial assets

The Bank assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated.

Evidence of impairment may include indications that the borrower or a group of borrowers are experiencing significant financial difficulty, the probability that they will enter bankruptcy or other financial reorganisation, default or delinquency in interest or principal payments and where observable data indicates that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

(i) Financial assets carried at amortised cost

For financial assets carried at amortised cost (such as placements and balances with other banking institutions, loans and advances to customers as well as held-to-maturity investments), the Bank first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, it includes the asset in a group of financial 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.

If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the assets’s carrying amount and the present value of estimated future cash flows (excluding future expected credit losses that have not yet been incurred). The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognised in profit or loss. Interest income continues to be accrued on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of ‘Interest and similar income’. Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced by adjusting the allowance account. If a future write-off is later recovered, the recovery is credited to the ’Impairment loss on financial assets.

The present value of the estimated future cash flows is discounted at the financial asset’s original EIR. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current EIR. If the Bank has reclassified trading assets to loans and advances, the discount rate for measuring any impairment loss is the new EIR (Refer Note 2.3(b)(x) above) determined at the reclassification date. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purpose of a collective evaluation of impairment, financial assets are grouped on the basis of the Bank’s internal credit grading system, that considers credit risk characteristics such as asset type, industry, geographical location, collateral type, past-due status and other relevant factors.







(g) Impairment of financial assets (continued)

(i) Financial assets carried at amortised cost (continued)

Future cash flows on a group of financial assets that are collectively evaluated for impairment are estimated on the basis of historical loss experience for assets with credit risk characteristics similar to those in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions 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 flows reflect, and are directionally consistent with, changes in related observable data from year to year (such as changes in unemployment rates, property prices, commodity prices, payment status, or other factors that are indicative of incurred losses in the group and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience.

See Note 6 for an analysis of impairment allowance on loans and advances.

(ii) Available-for-sale financial investments

For available-for-sale financial investments, the Bank assess at each reporting date whether there is objective evidence that an investment is impaired.

In the case of debt instruments classified as available-for-sale, the Bank assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortised cost. However, the amount recorded for impairment is the cummulative loss measured as the difference between the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss. Future interest income is based on the reduced carrying amount and is accrued using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss. The interest income is recorded as part of ‘Interest and similar income’. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through profit or loss.

In the case of equity investments classified as available-for-sale, objective evidence would also include a ‘significant’ or ‘prolonged’ decline in the fair value of the investment below its cost. The Bank treats ‘significant’ generally as 20% and ‘prolonged’ as greater than 6 months. Where there is evidence of impairment, the cummulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in profit or loss - is removed from equity and recognised in profit or loss. Impairment losses on equity investments are not reversed through profit or loss; increases in the fair value after impairment are recognised directly in other comprehensive income.

(iii) Renegotiated loans

Where possible, the Bank seeks to restructure loans rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loan conditions. Once the terms have been renegotiated any impairment is measured using the original EIR as calculated before the modification of terms and the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original EIR.





(h) Offsetting financial instruments

Financial assets and financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross in statement of financial position.

(i) Leasing

The determination of whether an arrangement is a lease, or it contains a lease, is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

Bank as a lessee

Leases which do not transfer to the Bank substantially all the risks and benefits incidental to ownership of the leased items are operating leases. Operating lease payments are recognised as an expense in profit or loss on a straight line basis over the lease term. Contingent rental payable are recognised as an expense in the period in which they are incurred.

Bank as a lessor

Leases where the Bank does not transfer substantially all the risk and benefits of ownership of the asset are classified as operating leases. Initial direct costs incurred in negotiating operating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income.

Contingent rents are recognised as revenue in the period in which they are earned.

(j) Recognition of income and expenses

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised.

Interest and similar income and expense(i)

For all financial instruments measured at amortised cost, interest bearing financial assets classified as available-for-sale and financial instruments designated at fair value through profit or loss, interest income or expense is recorded using the EIR, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The calculation takes into account all contractual terms of the financial instrument (for example, prepayment options) and includes any fees or incremental costs that are directly attributable to the instrument and are an integral part of the EIR, but not future credit losses.

The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original EIR and the change in carrying amount is recorded as ’Other income’. However, for a reclassified financial asset (see Note 2.3 (b)(x)) for which the Bank subsequently increases its estimates of future cash receipts as a result of increased recoverability of those cash receipts, the effect of that increase is recognised as an adjustment to the EIR from the date of the change in estimate.

Once the recorded value of a financial asset or a group of similar financial assets has been reduced due to an impairment loss, interest income continues to be recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.






2.3 Summary of Significant Accounting Policies (continued)

(j) Recognition of income and expenses (continued) (ii) Fee and commission income (continued)

The Bank earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories:

Fee income earned from services that are provided over a certain period of time •

Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees.Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the EIR on the loan. When it is unlikely that a loan will be drawn down, the loan commitment fees are recognised over the commitment period on a straight line basis.

Fee income from providing transaction services•

Fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction. Fees or components of fees that are linked to a certain performance are recognised after fulfilling the corresponding criteria.

(iii) Dividend income

Dividend income is recognised when the Bank’s right to receive the payment is established.

(k) Cash and cash equivalentsCash and cash equivalents as referred to in the statement of cash flows comprises cash on hand, current accounts with National Bank of Rwanda, and amounts due from banks and government securities on demand or with an original maturity of three months or less.

(l) Property and equipment

Buildings are measured at fair value less accumulated depreciation on buildings and impairment losses recognised after the date of the revaluation. Valuations are performed frequently to ensure that the fair value of a revalued asset does not differ materially from its carrying amount. Any revaluation surplus is recognised in other comprehensive income and accumulated in the asset revaluation reserve in equity, except to the extent that it reverses a revaluation decrease of the same asset previously recognised in profit or loss, in which case the increase is recognised in profit or loss. A revaluation deficit is recognised in profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred from the asset revaluation reserve to retained earnings.

All other property and equipment (including equipment under operating leases where the Bank is the lessor) is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates.





Property and equipment (continued)

Depreciation is calculated using the reducing balance method to write down the cost of property and equipment to their residual values over their estimated useful lives. The estimated useful lives are as follows:

Buildings 5%

Furniture, fittings and equipment 25%

Motor vehicles 25%

Computer equipment 50%

Freehold land is not depreciated as it is deemed to have an indefinite life.

Property and equipment is derecognised on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is recognised in ‘Other income’ in profit or loss in the year the asset is derecognised. The assets residual values, useful lives and methods of depreciation are reviewed at each financial year end, and adjusted prospectively if appropriate.

(m) Intangible Assets

The Bank’s intangible assets include the value of computer software. An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Bank.

Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses.

The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in profit or loss in the expense category consistent with the function of the intangible asset. Amortisation is calculated using the reducing balance method to write down the cost of intangible assets to their residual values over their estimated useful lives at 2 years.

(n) Impairment of non-financial assets

The Bank assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs to sell and its value in use. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. These calculations are corroborated by valuation multiples, quoted share prices for publicly traded subsidiaries or other available fair value indicators.







(n) Impairment of non-financial assets (continued)

For assets excluding goodwill, an assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the Bank estimates the asset’s or CGU’s recoverable amount. A previously recognised impairment loss is reversed only if there has been a change in the assumptions used to determine the asset’s recoverable amount since the last impairment loss was recognised. The reversal is limited so that the carrying amount of the asset does not exceed its recoverable amount, nor exceeds the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior years. Such reversal is recognised in profit or loss.

Impairment losses relating to goodwill cannot be reversed in future periods.

(o) Financial guarantees

In the ordinary course of business, the Bank gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within ‘Other payables) at fair value, being the premium received. Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially recognised less, when appropriate, cummulative amortisation recognised in profit or loss, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee.

Any increase in the liability relating to financial guarantees is recorded in profit or loss. The premium received is recognised in profit or loss in ‘Net fees and commission income’ on a straight line basis over the life of the guarantee.

(p) Statutory defined contribution pension schemeThe Bank contributes to a statutory defined contribution pension scheme, the Caisse Sociale du Rwanda (CSR). Contributions are determined by local statute and are currently limited to 5% of an employee’s basic salary. The Bank’s CSR contributions are charged to profit or loss in the period to which they relate.

(q) ProvisionsProvisions are recognised when the Bank has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. The expense relating to any provision is presented in profit or loss net of any reimbursement.

(r) Taxes

(i) Current tax

Current tax assets and liabilities for the current and prior years are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

(ii) Deferred tax

Deferred tax is provided on temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognised for all taxable temporary differences, except:

Where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and





(r) Taxes

(ii) Deferred tax (continued)

In respect of taxable temporary differences associated with investments in subsidiaries, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets are recognised for all deductible temporary differences, carry forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised except:

Where the deferred tax asset relating to the deductible temporary difference arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; and

In respect of deductible temporary differences associated with investments in subsidiaries, deferred tax assets are recognised only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred tax asset to be utilised. Unrecognised deferred tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date.

Current tax and deferred tax relating to items recognised directly in other comprehensive income or equity are also recognised in other comprehensive income or equity and not in profit or loss.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same taxation authority.

(s) Dividends on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Bank.

Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.

(t) Operating Segments

The Bank’s Chief operating decision maker does not review segment assets and liabilities; the Bank has not disclosed this information.







(u) Foreign currency translation

The financial statements are presented in Rwandan Franc (Rwf).

Transactions in foreign currencies are initially recorded at the functional currency rate of exchange ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the functional currency rate of exchange at the reporting date. All differences arising on non-trading activities are taken to ‘Other operating income’ in the statement of other comprehensive income, with the exception of differences on foreign currency borrowings that provide an effective hedge against a net investment in a foreign entity. These differences are taken directly to equity until the disposal of the net investment, at which time they are recognised in profit or loss. Tax charges and credits attributable to exchange differences on those borrowings are also recorded in equity.



3. CASH IN HAND 2010 2009

Rwf ‘000 Rwf ‘000

Cash in foreign currencies 4,402,749 2,917,830

Cash in local currency 2,479,096 1,705,690

6,881,845 4,623,520

4. DUE FROM NATIONAL BANK OF RWANDA

Balances in Repos 16,229,323 15,700,004Balances in current accounts 6,333,182 3,399,154

22,562,505 19,099,158

5. DUE FROM BANKSDue from local banks 250,876 97,531

Due from correspondent banks 36,288,465 2,025,808

Short term Investments in foreign banks 1,912,836 26,631,260

38,452,178 28,754,599

6. LOANS AND ADVANCES TO CUSTOMERS

Net loans and advancesa)

Gross loans and advances 105,526,673 80,913,907

Less: Allowance for impairment losses (Note 6 (b)) (4,124,016) (3,818,041)

101,402,657 77,095,866b) Impairment allowance for loans and advances to customers

Impairment allowance on loans and advances (Note 6 (d)) 3,198,058 2,932,503

Interest accrued on impaired loans and advances 925,958 885,538

4,124,016 3,818,041

c) Impaired loans and advances

Impaired loans and advances 9,003,141 6,685,247

Non performing loans and advances on which interest has been suspended amount to Rwf 9,003 million (2009: Rwf 6,685 million). Interest income continues to be accrued on the account balances based on the original effective interest rate but it is suspended.





6. LOANS AND ADVANCES TO CUSTOMERS (continued)2010 2009

Rwf ‘000 Rwf ‘000

d) Impairment allowance for loans and advances

At 1 January 2,932,503 3,791,537

Impairment losses on loans and advances 6,074,342 4,108,897

Recoveries (3,698,061) (2,608,851)

Amounts written off (2,110,726) (2,359,080)

At 31 December 3,198,058 2,932,503

e) Impairment losses for the year

Impairment losses on loans and advances (6,074,342) (4,108,897)

Recoveries on non performing loans 3,698,061 2,608,851

Charge for the year (2,376,281) (1,500,046)

Impairment is carried out by individual assessment. There were no repossessions and collaterals held are not considered in impairment assessment.

Treasury Bills 1,443,672 3,647,644

Treasury bonds 3,780,723 8,665,262

5,224,395 12,312,906

Treasury bills and treasury bonds are debt securities issued by the Government of Rwanda and are classified as held-to-maturity.

The Bank’s investments in treasury bills and government bonds are carried at amortised cost.

7. FINANCIAL INVESTMENTS – HELD-TO-MATURITY


2010 2009Rwf ‘000 Rwf ‘000

a) Investments in unlisted sharesBanque Rwandaise de Développement S.A 21,975 21,975Banque de l’Habitat du Rwanda S.A 75,000 75,000Banque de Développement des Etats de Grands Lacs S.A 5,000 5,000Magasins Généraux du Rwanda S.A 5,000 5,000Société des Transports Internationaux 20,000 20,000King Faycal Hospital 46,733 46,733Société Interbancaire de Monétique et de Télécompensation 166,400 166,400

340,108 340,108Impairment loss (Note 8 (b)) (71,733) (25,000)

268,375 315,108

b) Impairment loss for available for sale investments At 1 January 25,000 25,000Charge for the year 46,733 -

71,733 25,000

The available-for-sale Investment (unquoted equity) is recorded at cost since there is no active market for these investments.

Available-for-sale financial assets are valued using models which sometimes only incorporates data observable in the market and at other time use both observable and non-observable data. The non-observable inputs to the models include assumptions regarding the future financial performance of the investee, its risk profile, and economic assumptions regarding the industry and geographical jurisdiction in which the investee operates.

9. OTHER ASSETS

Prepayments and other receivables 2,803,092 570,801Clearing effects and accounts in transit 1,582,133 2,689,870Staff salary advances 5,445 17,128

4,390,670 3,277,799

COSTAt 1 January 134,822 114,107Additions 344,314 20,715

At 31 December 479,136 134,822AMORTISATIONAt 1 January 117,930 101,038Charge for the year 180,602 16,892

At 31 December 298,532 117,930NET BOOK VALUE 180,604 16,892

Intangible assets represent computer software in use at the Bank.



10. INTANGIBLES ASSETS

8. FINANCIAL INVESTMENTS –AVAILABLE-FOR-SALE INVESTMENTS



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12. CUSTOMER DEPOSITS 2010 2009Rwf ’000 Rwf ’000

Demand deposits 97,436,848 76,261,072Term deposits 33,179,653 29,916,046Current accounts and other customer deposits 5,061,245 3,305,686

135,677,746 109,482,804

13. DUE TO BANKS

Due to local banks 9,302,163 4,543,444Term deposits 9,323,670 8,060,543Finance borrowings 294,803 2,500,000

18,920,636 15,103,987

14. OTHER PAYABLES

Other payables to the government 214,481 216,656Social security remittances 68,816 55,676Other creditors 30,742 25,973Transitory accounts 6,527,086 4,090,286

6,841,125 4,388,591

15. SHARE CAPITALAuthorised share capital:

45,500 ordinary shares of Rwf 110,000 each 5,005,000 5,005,000

Issued and fully paid:

45,500 ordinary shares of Rwf 110,000 each 5,005,000 5,005,000

16. RESERVES AND RETAINED EARNINGS(a) Revaluation of Property and Equipment

Buildings 10,215,060 -Deferred tax (note 24(b)) (3,064,518) -

7,150,542 -

Revaluation reserve represents an increase in carrying value of buildings that were revalued in year 2010. The revaluation was carried out by Archus SARL qualified valuers who are registered with the National Bank of Rwanda.



16. RESERVES AND RETAINED EARNINGS (Continued)(b) Reserves

2010 2009Rwf’000 Rwf’000

Legal reserves 2,800,890 2,272,254

Special reserves 2,886,124 2,357,488

Other reserves 7,848,749 6,254,489

13,535,763 10,892,282

(c) Retained earnings


The Bank transfers 20% of its profit after tax to special reserves. (10% legal reserves and 10 % special reserves) Other reserves represent amounts transferred from retained earnings to reserves that may be decided by the General Assembly.

17. INTEREST INCOME

Interest on ordinary accounts with banks 12,019 67,140Interest received from pension, borrowings and other debtors 920,027 555,955Income from transactions with other banks 24,611 26,775Interest on overdrawn accounts 1,966,020 2,753,111Interest on overdrafts 2,878,594 2,205,933Interest on equipment loans 891,336 630,343Interest on consumer loans 1,392,333 1,001,433Interest on mortgage loans 4,691,951 3,360,263Interest on other loans to customers 2,880,673 2,398,864Interest on financing commitments 178,379 191,384Interest on assets held to maturity 735,787 607,039

16,571,730 13,798,240

18. INTEREST EXPENSE

Interest on transactions with other banks 307,981 141,760

Interest on current accounts 132,834 97,982

Interest on fixed deposits 3,741,851 3,169,732

4,182,666 3,409,474





19. FEES AND COMMISSIONS INCOME2010 2009

Rwf’000 Rwf’000

Commissions on operation of accounts 315,431 216,827Commissions on payment facilities 930,897 768,181Commissions on loan service 781,235 134,891Other fees from services 247,693 217,723Commissions received from financing commitments 3,175 2,535Commissions received from guarantees commitments 540,610 337,592

2,819,041 1,677,749

20. FOREIGN EXCHANGE GAINS

Gain on foreign exchange dealings 5,247,543 3,335,299

21. OTHER INCOME

Other income from banking activities 203,212 225,284Dividend received 10,477 -Gain on disposal of fixed assets 271 -Rental income 212,556 202,671Other non banking income 264,865 170,694

691,381 598,649

22. PERSONNEL EXPENSES

Salaries and wages 4,412,454 2,677,626Social security contribution 289,936 142,801Other staff costs 335,951 235,388

5,038,341 3,055,815

23. OPERATING EXPENSESGeneral operating expenses 3,181,085 3,028,047Audit fees 45,657 31,075Directors emoluments 239,757 40,184

3,466,499 3,099,306



24. TAXES 2010 2009

Rwf ‘000 Rwf ‘000a) Corporate Tax

Statement of financial position:

Balance brought forward 1,036,637 1,032,867Charge for the year 2,371,630 2,171,445Over provision in prior year - (136,048)Paid during the year (2,911,451) (2,031,627)

Tax payable 496,817 1,036,637

Statement of comprehensive income:

Current tax at 30% on the taxable profit for the year 2,371,630 2,171,445Overprovision in prior year - (136,048)Deferred tax expense 131,180 119,538

Income tax expense 2,502,810 2,154,935

Reconciliation of the total tax charge:

Accounting profit before tax 8,681,392 7,441,898

At statutory income tax rate of 30% (2010: 30%) 2,604,417 2,232,569Income not subjected to tax 131,180 (346,067)Tax effect on non deductable expenses 103,349 268,433Reversal of tax overprovision (336,136) -

2,502,810 2,154,935

b) Deferred tax

The following table shows deferred tax recorded on the statement of financial position in other assets and other liabilities and changes recorded in the income tax expense:

Deferred tax liabilities

Profit or loss Deferred tax liabilities

Profit or loss

2010 2010 2009 2009Rwf ‘000 Rwf ‘000 Rwf ‘000 Rwf ‘000

Capital allowances 805,919 131,180 674,739 119,538

Revaluation of assets-property 3 ,064,518 - - -

3,870,437 131,180 674,739 119,538

The revaluation surplus was accounted for through other comprehensive income in the statement of comprehensive income.





25. EARNINGS PER SHARE

Earnings per share is calculated on the Profit after tax of Rwf 6,179 million (2009: Rwf 5,287 million) and on the total number of shares in issue during the year. Basic and diluted earnings per share are the same since the Bank did not issue any potentially dilutive instruments.

2010 2009

Rwf’000 Rwf’000

Profit for the year 6,178,582 5,286,963Number of ordinary shares 45,500 45,500Earnings per share;Basic earnings per share

136 116

Diluted earnings per share 136 116

26. CASH AND CASH EQUIVALENTS

For the purposes of the statement of cash flows, cash and cash equivalents comprise of the following balance sheet accounts.

Cash in hand due from banks 6,881,845 4,623,520 Due from National Bank of Rwanda 22,562,505 19,099,158Due from banks 38,452,178 28,754,599 Due to banks ( 18,920,636) ( 15,103,987)

48,975,892 37,373,290

27. CONTINGENT LIABILITIES

a) Letters of creditAcceptances and Letters of Credit issued 8,709,523 12,266,876

Guarantee Commitments issued 15,360,031 12,241,776

Other commitments not recognised in the statement of financial position 868,072 966,416

24,937,626 25,475,068

The contingent liabilities represent transactions entered into in the normal course of business and are represented by counter indemnities or cash securities from customers for the same amount. Letters of credit, guarantee and acceptance commit the Bank to make payments on behalf of the customers in the event of a specific act, generally relating to the import and export of goods. Guarantees and letters of credit carry the same credit risk as loans.

b) Legal cases

The Bank is also party to various legal proceedings from default customers for a total amount of Rwf 5,950 million (2009: Rwf 1,423 million). Having regarded the legal advice received, and in all circumstances, the management is of the opinion that these legal proceedings will not give rise to liabilities, which in aggregate, would otherwise have material effect on these financial statements.



28. CAPITAL COMMITMENTS

There were no capital commitments at the reporting date.

29. RELATED PARTY TRANSACTIONS

(a) Transactions with Key management personnel of the bank

The bank enters into transactions, arrangements and agreements involving directors, senior management and their related concerns in the ordinary course of business at commercial interest and commission rates.

The following table provides the total amount of transactions, which have been entered into with related parties for the relevant financial year.

Key management personnel of the bank

Maximum balance during the year 2010

Balance as at 31 December

2010

Income 2010

Maximum balance during the year 2009


2009

Income 2009

Rwf’000 Rwf’000 Rwf’000 Rwf’000 Rwf’000 Rwf’000

Residential mortgages 59,093 58,093 2,860 70,301 70,301 3,178

Other loans 40,000 40,000 792 - - -

Transactions with other related parties

In addition to transactions with key management, the bank enters into transactions with entities with significant influence over the bank. The following table shows the outstanding balance and the corresponding interest during the year.

Amount owed by related parties Amount owed to related parties

Interest from related

parties

Interest to related

parties


Maximum balance during the year


Income

Rwf’000 Rwf’000 Rwf’000 Rwf’000 Rwf’000 Rwf’000

Entities with significant influence over the bank2010 - - - 12,646,706 10,989,035 1,040,2722009 - - - 9,507,157 9,507,157 518,125

(b) Due from employees and directors2010 2009

Rwf’000 Rwf’000

Loans and advances to employees 1,846,315 1,096,678Loans and advances to directors and their associates 107,973 88,234

1,954,288 1,184,912

Loans and advances are advanced to employees at an interest rate of 7%. Loans to directors are advanced at arms length in the ordinary course of business and are adequately secured.





29. RELATED PARTY TRANSACTIONS (continued)

(c) Due to employees and directors 2010 2009

Rwf’000 Rwf’000

Deposits by directors and shareholders 11,798,303 10,150,702

Directors and key management remunerationKey management compensation 412,593 533,170Directors emoluments 239,757 40,184

652,350 573,354

The members of the Board of Directors are listed on page 17. The key management comprise of Managing Director, Chief Operations Officer and Chief Shared Services officer.

30. CAPITAL

The Bank maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the Bank’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision (BIS rules/ratios) and adopted by the National Bank of Rwanda in supervising the Bank.

The Bank always complies in full with all its externally imposed capital requirements.

Capital Management The primary objectives of the Bank’s capital management policy are to ensure that the Bank complies with externally imposed capital requirements and that the Bank maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholder value.

The Bank manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. No changes yet have been made in the objectives, policies and processes from the previous years. However, it is under constant scrutiny of the Board.

Regulatory capitalThe Bank’s capital adequacy ratio as 31 December was as follows:

Actual 2010 Required 2010 Actual 2009 Required 2009

Rwf’000 Rwf’000 Rwf’000 Rwf’000

Tier 1 Capital 24,719,345 19,798,758 18,540,763 10,650,617

Tier 2 Capital 1,787,636 - - -

Total Capital 26,506,981 19,798,758 18,540,763 10,650,617



30. CAPITAL (Continued)2010 2009

Rwf’000 Rwf’000

Total risk weighted assets 131,991,717 106,506,172Tier 1 capital ratio 18.7% 17.4%Tier 2 capital ratio 20.1% 17.4%

Regulatory capital consists of Tier 1 capital, which comprises share capital, share premium, retained earnings including current year profit, foreign currency translation and non-controlling interests less accrued dividends, net long positions in own shares and goodwill. Certain adjustments are made to IFRS-based results and reserves as required by Article 2 (VIII) Regulation Number 11/2009 on Capital Adequacy Requirements of National Bank of Rwanda (BNR). The other component of regulatory capital is Tier 2 capital, which includes 25% of revaluation reserves.The National Bank of Rwanda (BNR) sets and monitors capital requirements for the banking industry as a whole. The BNR has set among other measures, the rules and ratios to monitor adequacy of a bank’s capital. A prescribed minimum percentage on Capital to total risk-weighted credit exposure is required by the BNR to all Banks operating in Rwanda.The Bank’s regulatory capital is a ratio of the following components:

Capital: This comprises of capital which is permanently and freely available to absorb losses without the bank •being obliged to cease trading.

Credit Exposures : This is comprised of Total Risk weighted assets (to account for difference in degree of riskiness) •made up of On and Off Balance sheet exposures

31. RISK MANAGEMENT

IntroductionRisk is inherent in the Bank’s activities but is managed through a process of ongoing identification, measurement and monitoring, subject to risk limits and other controls. This process of risk management is critical to the Bank’s continuing profitability and each individual within the Bank is accountable for the risk exposures relating to his or her responsibilities. The Bank is exposed to credit risk, liquidity risk and market risk, the later being subdivided into trading and non trading risks. It is also subject to various operating risks.

The independent risk control process does not include business risks such as changes in the environment, technology and industry. The Bank’s policy is to monitor those business risks through the Bank’s strategic planning process.

Risk management structureThe Board of directors is responsible for the overall risk management approach and for approving the risk management strategies and principles. The Board has appointed the Risk Management subcommittee which has the responsibility to monitor the overall risk process within the BankThe risk committee has the overall responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits. The Risk committee is responsible for managing risk decisions and monitoring risk levels and reports on a weekly basis to the Risk Management subcommittee of the Board.

The risk department is responsible for implementing and maintaining risk related procedures to ensure an independent control process is maintained. The unit works closely with the risk committee to ensure that procedures are compliant with overall framework

The Risk department is responsible for monitoring compliance with risk principles and limits across the Bank. It is also responsible for the independent control of risks, including monitoring the risk of exposures against limits and the assessment of risks of new products and structured transactions. The department also ensures the complete capture of risks in measurement and reporting systems. Exceptions are reported on a daily basis, where necessary to the risk committee takes the relevant actions to address exceptions and any areas of weakness.





31. RISK MANAGEMENT (continued)

Risk management structure (Continued)

Bank Treasury is responsible for managing the Bank’s assets and liabilities and the overall financial structure. It is also primarily responsible for the funding and liquidity risks of the Bank.

The Bank’s policy is that risk management processes throughout the Bank are audited annually by the internal audit function, which examines both the adequacy of the procedures and the Bank’s compliance with the procedures. Internal audit discusses the results of all assessments with management, and report its findings and recommendations to the audit committee

Risk measurement and reporting systemsThe Bank’s risks are measured using a method which reflects both the expected loss likely to arise in normal circumstances and unexpected losses, which are an estimate of the ultimate actual loss based on statistical models. The models make use of probabilities derived from historical experience, adjusted to reflect the economic environment. The Bank also runs worst case scenarios that would arise in the event that extreme events which are unlikely to occur do, in fact occur.

Monitoring and controlling risks is primarily performed based on limits established by the Bank. These limits reflect the business strategy and market environment of the Bank as well as the level of risk that the Bank is willing to accept, with additional emphasis on selected industries. In addition, the Bank’s policy is to measure and monitor the overall risk bearing capacity in relation to the aggregate risk exposures across all risk types and activities.Information compiled from all the businesses is examined and processed in order to analyse, control and identify risks on a timely basis. This information is presented and explained to the Board of Directors, the risk committee and the head of each business division. On a monthly basis detailed reporting of industry, consumer and geographical risks takes place. Senior management assesses the appropriateness of the allowances for credit losses on a monthly basis. The Board receives a comprehensive risk report once a quarter which is designed to provide all necessary information to assess and conclude on the risks of the Bank

A daily briefing is given to the Managing Director and all other relevant members of the Bank on the utilisation of market limits, proprietary investments and liquidity plus any other risk developments.

Excessive risk concentrationConcentration arises when a number of counterparties are engaged in similar business activities, or activities in the same geographical region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations indicate the relative sensitivity of the Bank’s performance to developments affecting a particular industry or geographical location.

And in order to avoid excessive concentrations of risk, the Bank’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly. Selective hedging is used within the Bank to manage risk concentrations at both the relationship and industry levels.

(a) Credit riskCredit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Bank’s loans and advances to customers and other banks and investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure.

Risk Management Department is responsible for independently reviewing all limit applications and making recommendations to the Management Credit Committee and the Board Credit Committee, in terms of authority limits.




(a) Credit risk (Continued)

Management of credit risk

The Board Credit Committee owns the credit policy and are responsible for reviewing the policy at least once in a year, ensuring it remains current.

The Board of Directors is responsible for approving and periodically reviewing the credit risk strategy of the Bank, significant underwriting initiatives as defined in the Credit Policy Limits, and significant credit risk policies.

Executive management is responsible for implementing Credit Policy and recommending amendments to the Board Credit Committee. On an annual basis, Management presents to the Board Credit Committee its annual Credit Strategy outlining:

i) Review of current portfolio, distribution, profitability and quality;ii) Target markets;iii) A review of economic environment and willingness to trade with various economic sector;iv) Its credit appetite;v) Aggregate loan for the Bank as a proportion of total assets;vi) Financial statements budgets

The Board is responsible for approving the Credit Risk Strategy.

The Risk Management Committee is responsible for monitoring credit and ensuring compliance with limits and that credit risk exposure do not expose undue threat on capital and compound risks. Internal audits are carried out annually and ensure compliance with authority limits, origination and documentary requirements, regulatory guidelines, other internal procedures and policies.

Once exposures are booked into the statement of financial position, the following credit risk attributes are monitored by lending department in the various business lines, and independently by Risk Management Department at least monthly:

i) Adherence to limits;ii) Portfolio diversification by industry sector, product type and business line;iii) Level of significant credit concentration and compliance to prudential lending limits;iv) Maturity distribution of portfolio;v) Past-due status and level of Non Performing Loans;vi) Portfolio risk grading profile;vii) Lending authority breaches.

Exposure to credit riskLoans and advances to customers

2010 2009 Rwf ‘000 Rwf ‘000

Non performing loansClass 3: Substandard 2,111,176 2,172,954Class 4: Doubtful 2,560,639 1,218,008Class 5: Loss 3,357,989 2,378,006Interest in suspense 973,337 916,279

Non performing loan portfolio 9,003,141 6,685,247Allowance for impairment (4,124,016) (3,818,041)

Carrying amount 4,879,125 2,867,206






(a) Credit risk (Continued)

Loans and advances classified as 3, 4 and 5 in the Banks’ internal credit risk grading system are non performing. These are advances for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreements. Specific provisions are made on these classes.Loans and advances classified as 1 and 2 are performing loans. According to the National Bank of Rwanda guidelines, no specific provisions for these loans are required.

Less than 30 days 31-90 days Total

2010 2010 2010Rwf’000 Rwf’000 Rwf’000

Overdrafts 9,924,515 326,283 10,250,798Treasury loans 12,965,997 1,755,726 14,721,723Equipment loans 13,374,794 4,963,202 18,337,996Consumer loans 11,801,230 970,992 12,772,222Mortgage loans 25,696,140 1,044,016 26,673,156Other loans to clients 11,427,204 790,749 12,217,953Receivables in transit 1,281,352 268,332 1,549,684

Total 86,404,232 10,119,300 96,523,532

Aging analysis of past due but not impaired loans by class of financial assets

Less than 30 days 31-90 days Total

2009 2009 2009Rwf’000 Rwf’000 Rwf’000

Overdrafts 2,971,247 482,719 3,453,966Treasury loans 12,336,190 2,131,253 14,467,443Equipment loans 6,189,577 1,844,773 8,034,350Consumer loans 17,311,798 2,766,249 20,078,046Mortgage loans 22,769,601 5,130,570 27,900,171Other loans to clients - - -Receivables in transit - 294,683 294,683

Total 61,578,413 12,650,247 74,228,660

(b) Liquidity risk

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities.

Management of liquidity risk

Assets and Liabilities Management Committee are charged with the responsibility of managing liquidity risk. They delegate the responsibility for daily management of funding requirements to the Head of Finance and Treasury.

Management attempts to achieve a balance between the need to provide for liquidity and achieve profitability. The bank maintains a statutory deposit with the National Bank of Rwanda equal to 5% of customer deposits.



(b) Liquidity risk (Continued)

The Bank has put in place a liquidity risk policy that, at least:Identifies who is responsible for measuring liquidity risk within the Bank;•The frequency of internal reporting;•Define how senior management monitors liquidity;•Desired sources of liquidity and appropriate funding structure.•

The Bank has adequate procedures and systems for monitoring liquidity. As such, the Bank:

Clearly allocates responsibility for measuring and reporting liquidity;•Assets and Liabilities Committees maintain Management Information system that can produce •accurate liquidity reports promptly;Regularly reports on the level of liquid assets and funding requirements through appropriate reports •to the Management and Board.

Exposure to liquidity risk

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to total liquid liabilities.

Details of the reported Bank ratio of net liquid assets to total liquid liabilities at the reporting date and during the reporting year were as follows:

2010 2009Rwf’000 Rwf’000

Total liquid assets 67,896,528 52,477,277Total liquid liabilities 154,598,382 124,586,791Liquidity ratio 44% 42%Minimum liquidity ratio required 20% 20%

Advances to deposits ratios

Year end 78.0% 74.4%

Maximum 79.9% 91.9%

Minimum 74.1% 71.1%

Average 77.3% 79.1%

The bank stresses the importance of current accounts and savings accounts as sources of funds to finance lending to customers. They are monitored using the advances to deposit ratio, which compares loans and advances to customers as a percentage of core customer current and savings accounts, together with term funding with a remaining term to maturity in excess of one year. Loans to customers that are part of reverse repurchase arrangements, and where the bank receives securities which are deemed to be liquid, are excluded from the advances to deposit ratio



31. RISK MANAGEMENT (Continued)


Advances to deposits ratios

Year end 78.0% 74.4%

Maximum 79.9% 91.9%

Minimum 74.1% 71.1%

Average 77.3% 79.1%


2010 2009

Year end 44% 42%

Maximum 51% 52%

Minimum 44% 41%

Average 48% 47%

Net liquid assets to customer liabilities ratios


(b) Liquidity risk (continued)

Net liquid assets are liquid assets less all funds maturing in the next 90 days from wholesale market sources and from individual customers. The bank defines liquid assets for the purpose of the liquidity ratio as cash balances, short-term interbank deposits and highly rated debt securities available for immediate sale and for which a liquid market exists.



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4,27

717

7,01

51,

742,

662

711,

436

-5,

224,

395

Inve

stm

ent w

ith o

ther

ban

ks38

,452

,178

--

--

-38

,452

,178

Net

adv

ance

s to

cus

tom

ers

16,8

29,4

645,

105,

790

2,31

6,27

25,

068,

121

37,1

54,7

6434

,928

,246

101,

402,

657

Oth

er in

vest

men

ts-

--

--

268,

375

268,

375

Oth

er a

sset

s4,

390,

670

--

--

-4,

390,

670

Prop

erty

and

equ

ipm

ents

-

-

-

-

-

18,4

94,0

2118

,494

,021

Tota

l ass

ets

as a

t 31

Dec

embe

r 20

1089

,175

,667

7,64

0,06

7,

2,4

93,2

876,

810,

783

37,8

66,2

0053

,690

,642

197,

676,

646

Liab

ilitie

s

Dep

osits

and

bal

ance

s w

ith o

ther

ban

ks10

,611

,246

2,71

8,20

03,

564,

790

2,02

6,40

0-

-18

,920

,636

Cust

omer

dep

osits

106,

607,

290

3,59

6,58

713

,569

,471

11,7

74,3

8813

0,01

0-

135,

677,

746

Tax

liabi

lities

-49

6,81

5-

--

-49

6,81

5O

ther

acc

ount

s pa

yabl

e 7

,647

,043

-

-

-

766,

130

2,2

98,3

89 1

0,71

1,56

2

Tota

l lia

biliti

es a

s at 3

1 De

cem

ber 2

010

124,

865,

579

6,81

1,60

217

,134

,261

13,8

00,7

88

896

,140

2,2

98,3

8916

5,80

2,64

9O

wne

r’s e

quity

as a

t 31

Dece

mbe

r 201

0-

--

--

31,8

69,8

8731

,869

,887

Mat

urity

Gap

for 2

009

(35,

689,

912)

828,

465

(14,

640,

974)

(6,9

90,0

05)

36,9

70,0

6019

,522

,366

-

Off

stat

emen

t of fi

nanc

ial p

ositi

on g

ap 2

009

Neg

ative

Gap

Posi

tive

Gap

Neg

ative

Gap

Neg

ative

Gap

Posi

tive

Gap

Posi

tive

Gap

-


31.

RIS

K M

ANAG

EMEN

T (C

ontin

ued)

(b)

Liqu

idity

risk

(con

tinue

d)

The

mat

urity

ris

k pr

ofile

of t

he b

ank

as a

t 31

Dec

embe

r 20

09 w

as a

s fo

llow

s

Up

to o

ne

mon

th1-

3 m

onth

s3-

6 m

onth

s6-

12

mon

ths

1-5

year

sO

ver 5

ye

ars

Tota

l

Asse

tsRw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0

Cash

and

bal

ance

s w

ith B

NR

23,7

22,6

78-

--

--

23,7

22,6

78

Inve

stm

ent i

n G

over

nmen

t bon

ds1,

633,

570

4,89

1,12

269

4,08

81,

328,

319

3,76

5,80

7-

12,3

12,9

06

Inve

stm

ent w

ith o

ther

ban

ks28

,754

,599

--

--

-28

,754

,599

Net

adv

ance

s to

cus

tom

ers

17,4

11,4

232,

249,

739

3,24

3,48

26,

661,

809

33,0

99,3

9514

,430

,018

77,0

95,8

66

Oth

er in

vest

men

ts-

--

--

315,

108

315,

108

Oth

er a

sset

s3,

277,

799

--

--

-3,

277,

799

Prop

erty

and

equ

ipm

ents

-

-

-

-

-

6,

392,

047

6

,392

,047

Tota

l ass

ets

as a

t 31

Dec

embe

r 20

0974

,800

,069

7,14

0,86

1,3,

937,

570

7,99

0,12

836

,865

,202

21,1

37,1

7315

1,87

1,00

3

Liab

ilitie

s

Dep

osits

and

bal

ance

s w

ith o

ther

ban

ks8,

168,

986

1,00

5,00

12,

000,

000

3,93

0,00

0-

-15

,103

,987

Cust

omer

dep

osits

84,9

07,7

598,

621,

652

7,49

3,37

86,

746,

157

1,71

3,85

8-

109,

482,

804

Tax

liabi

lities

--

1,03

6,63

7-

--

1,03

6,63

7

Oth

er a

ccou

nts

paya

ble

7

,706

,812

-

-

-

-

-

7

,706

,812

Tota

l lia

biliti

es a

s at 3

1 De

cem

ber 2

009

100,

783,

557

9,62

6,65

310

,530

,015

10,6

76,1

571,

713,

858

-13

3,33

0,24

0O

wne

r’s e

quity

as a

t 31

Dece

mbe

r 200

9-

--

--

18,5

40,7

6318

,540

,763

Mat

urity

Gap

for 2

009

(25,

983,

488)

(2,4

85,7

92)

(6,5

92,4

45)

(2,6

86,0

29)

35,1

51,3

44 2

,596

,410

-O

ff st

atem

ent o

f fina

ncia

l pos

ition

gap

200

9N

egati

ve G

apN

egati

ve G

apN

egati

ve G

apN

egati

ve G

apPo

sitiv

e G

apPo

sitiv

e G

ap

-

BANK

OF K

IGAL

I LIM

ITED

NOTE

S TO

THE

FINA

NCIA

L STA

TEM

ENTS

(con

tinue

d)FO

R TH

E YE

AR E

NDED

31

DECE

MBE

R 20

10



(c) Market risk

Market risk is the risk that fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and equity prices.

The most common market risk factors for the Bank are interest rates and foreign exchange rates.

Movements in market risk factors may result in adverse (or favourable) changes in the market value of an asset or commitment. The market risk of both individual financial instruments and portfolios of instruments can be a function of one, several, or all of these basic factors and, in many cases, can be significantly complex.

The Bank ensures that it adequately measures, monitors, and controls the market risks involved in its activities. Market risk is managed through the Asset and Liability Committee process for interest rate and foreign exchange risk related to asset/liability management activities. On a day-to-day basis, market risk exposures are independently reviewed and measured by the Finance department and Risk department, and appropriate management reports generated.

Interest risk exposure

The Bank is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. Interest margins may increase as a result of changes in the prevailing levels of market rates but may also decrease or create losses in the event that unexpected movements arise.

The Bank actively manages the interest rate sensitivity (the exposure of net interest income to interest rate movements),

Interest rate risk is measured by evaluating the potential effect on earnings of various interest rate shocks scenarios. Interest rate sensitivity is quantified by calculating the change in rate spread and net interest income between the scenarios over a 12 month holding period. The measurement of interest rate sensitivity is the percentage change in net interest income and rate spread calculated.

Asset and Liability Committee requires frequent reviews of scenarios to examine the impact of large interest rate movements. The interest sensitive risk profile of the Bank as at 31 December 2010 was as follows:





Inte

rest

sen

sitiv

ity ri

sk p

rofil

e at

31

Dec

embe

r 20

10U

p to

1

mon

th1

to 3

mon

ths

3 to

6

mon

ths

6 to

12

mon

ths

1 to

5 y

ears

Ove

r 5 y

ears

Non

-int

eres

t be

arin

gTo

tal

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Cash

and

bal

ance

s w

ith B

NR

16,2

29,3

23-

-

-

-

-13

,215

,027

29,4

44,3

50

Inve

stm

ent i

n G

over

nmen

t bon

ds-

-97

8,91

6

464

,756

3,33

9,72

844

0,99

5-

5,22

4,39

5

Inve

stm

ent w

ith o

ther

ban

ks1,

972,

284

-

-

-

-

-36

,479

,894

38,4

52,1

78

Net

adv

ance

s to

cus

tom

ers

--

-29

,123

,415

37,1

54,7

6430

,366

,685

4,75

7,79

410

1,40

2,65

7

Oth

er in

vest

men

ts-

--

-

--

2

68,3

75

268

,375

Oth

er a

sset

s-

--

-

-

-4,

390,

670

4,39

0,67

0

Prop

erty

and

equ

ipm

ents

-

-

-

-

-

-

18,4

94,0

21

18,4

94,0

21

Inte

rest

Sen

sitiv

e (IS

) ass

ets

as a

t 31

Dec

embe

r 18

,201

,607

-

978,

916

29,5

88,1

7140

,494

,492

30,8

07,6

80 7

7,60

5,78

119

7,67

6,64

6

Dep

osits

and

bal

ance

s fr

om o

ther

ban

ks2,

825,

542

--

1,2

50,0

006,

485,

000

-8,

360,

094

18,9

20,6

36

Cust

omer

term

dep

osits

1,96

2,43

71,

269,

227

4,78

7,88

425

,140

,981

19,1

25-

102,

498,

092

135,

677,

746

Tax

liabi

lities

-

-

-

-

--

496,

815

496,

815

Oth

er a

ccou

nts

paya

ble

-

-

-

-

-

-10

,711

,562

10,7

11,5

62

Inte

rest

Sen

sitive

(IS)

liab

ilitie

s as a

t 31

Dec

embe

r4,

787,

979

1,2

69,2

274,

787,

884

26,3

90,9

816,

504,

125

-

122,

066,

563

165,

806,

754

Ow

ner’s

equ

ity a

s at

31

Dec

embe

r

-

-

-

-

-

-31

,869

,887

31,8

69,8

87

Sens

itive

gap

as

31 D

ecem

ber

13,4

13,6

28(1

,269

,227

)(3

,808

,968

)3,

197,

190

33,9

90,3

6730

,807

,680

(44,

460,

782)

-

Cum

mul

ative

gap

% a

ge o

f IS

asse

ts to

IS L

iabi

lities

Asse

t/Li

abili

ty s

ensi

tivity

13,4

13,6

2838

0%As

set

12,1

44,4

01(0

%)

Liab

ility

8,33

5,43

3(2

0%)

Liab

ility

11,5

32,6

2311

2%As

set

45,5

22,9

9062

3%As

set

76,3

30,6

7010

0%As

set

31,8

69,8

87-

BANK

OF K

IGAL

I LIM

ITED

NOTE

S TO

THE

FINA

NCIA

L STA

TEM

ENTS

(con

tinue

d)FO

R TH

E YE

AR E

NDED

31

DECE

MBE

R 20

10

31.

RIS

K M

ANAG

EMEN

T (C

ontin

ued)

(c)

Mar

ket r

isk

(con

tinue

d)


Inte

rest

sen

sitiv

ity r

isk

profi

le (c

ontin

ued)

- at

31

Dec

embe

r 200

9

Up

to 1

m

onth

1 to

3

mon

ths

3 to

6 m

onth

s6

to 1

2 m

onth

s1

to 5

yea

rsO

ver 5

yea

rsN

on -i

nter

est

bear

ing

Tota

l

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Cash

and

bal

ance

s w

ith B

NR

15,7

00,0

04-

--

--

8,02

2,67

423

,722

,678

Inve

stm

ent i

n G

over

nmen

t bon

ds-

748,

488

3,12

0,80

276

1,67

47,

043,

247

638,

695

-12

,312

,906

Inve

stm

ent w

ith o

ther

ban

ks26

,688

,583

--

--

-2,

066,

016

28,7

54,5

99N

et a

dvan

ces

to c

usto

mer

s-

--

28,9

54,3

5323

,838

,320

24,3

03,1

93-

77,0

95,8

66O

ther

inve

stm

ents

--

--

--

315,

108

315,

108

Oth

er a

sset

s-

--

--

-3,

277,

799

3,27

7,79

9Pr

oper

ty a

nd e

quip

men

t

-

-

-

-

-

-

6,39

2,04

76,

392,

047

Inte

rest

Sen

sitiv

e as

sets

as

at 3

1 D

ecem

ber

42,3

88,5

8774

8,48

83,

120,

802

29,7

16,0

2730

,881

,567

24,9

41,8

8820

,073

,644

151,

871,

003

Dep

osits

and

bal

ance

s fr

om o

ther

ba

nks

2,82

5,54

2-

-1,

250,

001

6,48

5,00

0-

4,54

3,44

415

,103

,986

Cust

omer

term

dep

osits

3,49

4,31

21,

683,

477

5,11

2,67

717

,908

,722

1,71

3,85

8-

79,5

69,7

5810

9,48

2,80

5Ta

x lia

biliti

es-

--

--

-1,

036,

637

1,03

6,63

7O

ther

acc

ount

s pa

yabl

e

-

-

-

-

-

-

7

,706

,812

7

,706

,812

Inte

rest

Sen

sitiv

e lia

biliti

es a

s at

31

Dec

embe

r 200

96,

319,

854

1,68

3,47

75,

112,

677

19,1

58,7

238,

198,

858

-92

,856

,651

133,

330,

240

Ow

ner’s

equ

ity a

s at

31

Dec

embe

r-

--

--

-18

,540

,763

18,5

40,7

63Se

nsiti

ve g

ap a

s 31

Dec

embe

r36

,068

,733

(934

,989

)(1

,991

,875

)10

,557

,304

22,6

82,7

0924

,941

,888

(72,

783,

007)

-Cu

mm

ulati

ve g

ap%

age

of I

S as

sets

to IS

Lia

biliti

esAs

set/

Liab

ility

sen

sitiv

ity

36,0

68,7

3367

1%As

set

35,1

33,7

44(4

4%)

Liab

ility

33,1

41,8

69(6

1%)

Liab

ility

43,6

99,1

7315

5%As

set

66,3

81,8

8237

7%As

set

91,3

23,7

7010

0%As

set

-

BANK

OF K

IGAL

I LIM

ITED

NOTE

S TO

THE

FINA

NCIA

L STA

TEM

ENTS

(con

tinue

d)FO

R TH

E YE

AR E

NDED

31

DECE

MBE

R 20

10

31.

RIS

K M

ANAG

EMEN

T (C

ontin

ued)

(c)

Mar

ket r

isk

(con

tinue

d)




Interest rate sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, with all other variables held constant, on the Bank’s profit before tax (through the impact on floating rate borrowings). There is only an immaterial impact on the Bank’s equity.

2010 Increase/decrease in basis points Effect on profit before taxRwf ‘000

US$ +/- 10 (525,064)JPY +/- 10 45

CHF +/- 10 8,032GBP +/- 10 320,605EURO +/- 10 (172,637)Others +/- 10 4,193

2009 Increase/decrease in basis points Effect on profit before taxUS$ +/- 10 (568,582)JPY +/- 10 446CHF +/- 10 (2,018)GBP +/- 10 679EURO +/- 10 (24,748)Others +/- 10 2,183

Foreign currency exchange risk

The Bank records transactions in foreign currencies at the rates in effect at the date of the transaction. The Bank retranslates monetary assets and liabilities denominated in foreign currencies at the rates of exchange in effect at the statement of financial position date. All the gains or losses arising from the changes in the currency exchange rates are accounted for in profit and loss. The foreign currency sensitive risk profile of the Bank as at 31 December 2010 was as follows:



(c) Market risk (continued)


Fore

ign

curr

ency

ris

k at

31

Dec

embe

r 20

10

Rwf

USD

JPY

CHF

GB

PEU

RCA

DO

ther

sTo

tal

Asse

tsRw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0Rw

f ‘00

0

Cash

and

bal

ance

s w

ith B

NR

23,4

78,5

954,

800,

566

-65

,482

81,2

5199

9,95

518

,501

-29

,444

,350

Inve

stm

ent i

n G

over

nmen

t bon

ds5,

224,

395

--

--

--

-5,

224,

395

Inve

stm

ent w

ith o

ther

ban

ks11

6,72

426

,914

,867

502

139,

054

3,48

7,22

07,

739,

383

54,1

9623

338

,452

,178

Net

adv

ance

s to

cus

tom

ers

100,

962,

825

432,

530

-12

2,91

64,

359

15-

101,

402,

657

Oth

er in

vest

men

ts

2

68,3

75-

--

--

--

26

8,37

5

Oth

er a

sset

s3,

555,

057

434,

973

-10

106

400,

513

10-

4,39

0,66

9

Prop

erty

and

equ

ipm

ents

18,4

94,0

21

-

-

-

-

-

-

-

18,4

94,0

21

Tota

l ass

ets

152,

099,

992

32,5

82,9

36

502

204,

558

3,57

1,49

39,

144,

210

72,7

22

233

197,

676,

646

Liab

ilitie

s

Dep

osits

and

bal

ance

s fr

om o

ther

ban

ks15

,468

,687

947,

938

--

34,5

062,

458,

646

-10

,858

18,9

20,6

35

Cust

omer

term

dep

osits

96,7

08,8

4531

,650

,097

5656

,047

249,

580

7,01

1,46

91,

585

6713

5,67

7,74

6

Tax

liabi

lities

496,

815

--

--

--

-49

6,81

5

Oth

er a

ccou

nts

paya

ble

10,4

04,5

5729

3,62

5

-

-

3

0

13,

343

7

-10

,711

,562

Tota

l lia

biliti

es

123,

078,

904

32,8

91,6

60

56

56,0

4728

4,11

79,

483,

458

1,59

210

,925

165,

806,

759

Equi

tySh

are

capi

tal

5

,005

,000

--

--

--

5,

0005

,000

Rese

rves

20,6

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--

--

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6,17

8,58

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-

-

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-

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6,

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1,86

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287,

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(339

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(10,

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N

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BANK

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(con

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31.

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curr

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k a

t 31

Dec

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09

Rwf

USD

JPY

CHF

GBP

EUR

CAD

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sets

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000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

000

Rwf ‘

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and

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s w

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19,1

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BANK

OF K

IGAL

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NOTE

S TO

THE

FINA

NCIA

L STA

TEM

ENTS

(con

tinue

d)FO

R TH

E YE

AR E

NDED

31

DECE

MBE

R 20

10

31.

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K M

ANAG

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T (C

ontin

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(c)

Mar

ket r

isk

(con

tinue

d)


Foreign currency risk (Continued)

Foreign currency sensitivity

The following table demonstrates the sensitivity to a reasonably possible change in the exchange rates for the major currencies, with all other variables held constant, on the Bank’s profit before tax (due to changes in the fair value of monetary assets and liabilities) and the Bank’s equity (due to changes in the fair value of forward exchange contracts and net investment hedges). There is only an immaterial impact on the Bank’s equity.

2010 Increase/decrease in basis points Effect on profit before taxRwf ‘000

US$ +/- 10 (30,872)JPY +/- 10 45

CHF +/- 10 14,851GBP +/- 10 328,738EURO +/- 10 (33,925)Others +/- 10 6,044

2009US$ +/- 10 (129,571)JPY +/- 10 446CHF +/- 10 287GBP +/- 10 3,550EURO +/- 10 25,277Others +/- 10 3,717

(d) Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’s processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behavior. Operational risks arise from all of the Bank’s operations and are faced by all business units.

Risk management department is responsible for overseeing the development and implementation of policies and procedures, continuous assessments and control of operational risks, and reporting significant operational risks to Executive Management, heads of business units and staff. The department measures operational risk losses and ensure risks are consciously reduced through appropriate management interventions, policies, and functional controls.

An effective operational risk analysis involves an attempt to quantify the potential financial impact of operational risks on capital and financial performance. The risk management department has developed quantifiable means of tracking and reporting on all operational risks.

Operational risk loss data are collected regularly, and incorporated in risk management reports. Significant losses are communicated to the risk committees and they comprise any loss equal or greater than Rwf 10 million.









The solvency risk is the risk that the Bank will be unable to absorb losses with the available capital. As such, the Bank’s capital level defines the amount of solvency risk in the Bank where the potential losses in all risk positions are properly measured. The role of capital is to act as a buffer against future and unidentified losses that may be incurred.

The Board of Directors is responsible for making sure that the Bank’s capital is adequate for safe and sound operation. Fulfilling this responsibility entails monitoring and evaluating the capital adequacy positions on a regular basis and planning for future capital needs.

The Board ensures that:The Bank’s capital structures are appropriate for businesses;•The adequacy of capital cushion against risks by measurement and monitoring trends in regulatory •capital adequacy ratios;Determines capital structure and quality of capital. The capital structure may contain permanent •shareholders equity and revenue reserves, supplemented by other qualifying capital in terms of the banking regulations;The adequacy of capital to support the level of current and anticipated business activities;•The adequacy of reserves;•Access to further capital.•

The Bank maintains a Capital Adequacy Ratio of no less than 10% at any one time. The capital is adjusted to levels that match the valuation of risks.

(f) Legal and compliance risk

The compliance risk is the current and prospective risk to earnings or capital arising from violations of, or nonconformity with, laws, rules, and regulations, prescribed practices, internal policies, procedures, or ethical standards.

The Board and senior management recognise the consequences associated with non-compliance and devote sufficient resources to ensure that the Bank has an adequate compliance program, covering the legal and compliance issues associated with the Bank’s operations to this end.

Management is also responsible for instilling a compliance culture throughout the Bank.

32. COMPARATIVES

Where necessary, comparative figures have been adjusted to conform to changes in the current year.



(e) Capital/Solvency risk


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bank of kigali annual report 2010

Documents

annual report bank of

vision bank of kigali

bank of kigali board

universal bank

total assets

wealth creation value

services wealth

directors report