bank of kigali credit review 2011

8/2/2019 Bank of Kigali Credit Review 2011

http://slidepdf.com/reader/full/bank-of-kigali-credit-review-2011 1/6

This document is confidential and issued for the information of clients only. It is subject to copyright and may not be reproduced in whole or

Bank of Kigali Limited Rwanda Bank Analysis December 2011

Financial data:(US$’m Comparative)

31/12/09 31/12/10

RwF/US$ (avg.) 568.29 583.26

RwF/US$ (close) 571.24 594.45

Total assets 265.9 332.5

Tier I capital 32.5 41.6

Tier II capital ‐ 3.0

Liquid assets 114.0 123.5

Net advances 135.0 170.6

Operating18.3 21.2NPAT 9.3 10.6

Market cap† US$149.8m

Market share* 27.2%

† Market cap as at 9 November 2011.

* Based on banking industry total assets as at

31 December 2010.

Fundamentals:

Established in December 1966, Bank of Kigali Ltd (“BK” or “the Bank”) isa commercial bank, offering a widearray of products and services to largecorporates, small & medium sizeenterprises (“SMEs”) and theconsumer segment. The Bank wasinitially established as a joint venturewith Bank Belgolaise of Belgium. InJanuary 2007, the Government of Rwanda acquired Bank Belgolaise’sstake, taking the Government’s directstake to 66.3%, while a further 33.7%was held via the Social Security Fundof Rwanda. However, government hassince reduced its stake to 55%,following the success of an initial

public offering concluded in August2011. BK commenced trading on theRwanda Stock Exchange (“RSE”) on1 September 2011. GCR contacts:

Jennifer Mwerenga

[email protected]

+27 11 784-1771

Paul Greeff [email protected]

+27 11 784-1771

Website: www.globalratings.net

Rating rationale

The rating rationale is based on the following key factors:

The accorded ratings reflect BK’s established domestic franchisvalue, financial flexibility, improved financial performance andrisk appropriate capitalisation. These are, however, partly offset bythe uncertainties surrounding the continued stable economicenvironment.

Government support is considered likely, given that it is the majorshareholder and the fact that BK is the largest bank in Rwanda

with a 27% share of industry assets as at FYE10. Subsequent to FYE10, the government significantly reduced it

stake in the bank to 55% via an Initial Public Offering (“IPO”)concluded in August 2011. The IPO was part of a process byGovernment to dilute its stake, as well as shore up BK’s capita

base. The IPO, which was oversubscribed, raised RwF37.5bn(US$63m), of which RwF21bn was injected into the Bank.

The total risk weighted capital adequacy ratio amounted to 20.1%(FYE09: 17.4%) as at FYE10, increasing further to 20.5% as a1HF11, against a regulatory minimum of 15%.

Gross impaired loans grew by 35% to RwF9bn as at FYE10representing a slightly higher 7.7% (FYE09: 7.2%) of gross loansAlthough considered high, the gross NPLs ratio comparefavourably to the industry average of 11.3% as at FYE10. Arrearcoverage declined to 46% (F09: 57%), with net NPLs increasingto 4.8% (FYE09 3.7%) of net loans, although decreasing slightlyto 15.3% of capital. Cognisance must, however, be taken of the

potential lag in arrears following a period of rapid loan growth. NPBT grew by 16.7% to RwF8.7bn for F10, after contracting

9.7% in the previous year, although remaining below pre-crisislevels, with high bad debt charges and branch roll-out related costcontinuing to impact profitability.

As at FYE10, 75.8% of BK’s deposits had a maturity profile o

less than 1 month, compared to 16.7% of loans & advances. Tomanage the resultant mismatch, the Bank holds reserves in highlytradable instruments or money market placements, with liquidassets covering deposits by 48% (F09: 52%), which was welabove the prudential minimum of 20%. Proceeds from the IPOare further expected to underpin liquidity going forward.

Financial flexibility

The Bank is primarily funded via customer deposits, with access toadditional capital via the listing on the RSE. Further augmenting thefunding base, the Bank recently secured lines of credit from theAgence Française de Développement (“AFD”) for US$20m, AfricanDevelopment Bank (“AfDB”) for US$12m and the EuropeanInvestment Bank (“EIB”) for EUR5m for on-lending to SMEs

Security class Rating scale Currency Rating Rating outlook Expiry date

Long term National Rwandan Franc A+ Positive 12/2012Short term National Rwandan Franc A1



Business profile

Ownership

Government reduced its aggregate stake in BK to55% during F11 via an IPO which raised RwF37.5bn(US$62.5m). The offer included the sale of Government’s 20% stake (facilitating its partialdivesture) and a further 25% through a new shareissue (raising funding for BK’s expansion initiatives),

for a total of 300.3m shares. The oversubscribed IPOwas concluded in August 2011, with trading on theRSE commencing on 1 September 2011.Accordingly, RwF21bn of the proceeds was injectedinto the Bank with the balance allocated to NationalTreasury.

Table 1 below provides BK’s shareholding pre and post the IPO. Government remains the major shareholder with a 30% direct shareholding and 27%held via the Social Security Fund of Rwanda.Table 1: Shareholder’s rofile FYE10 Post IPO

% %Government of Rwanda 66.3 29.8

Social Security Fund of Rwanda 33.7 25.3

Other state owned entities 0.1 0.0

International institutional investors 18.0

Retail investors (East African Community) ‐ 16.9

Regional institutional investors ‐ 4.5

Local institutional investors ‐ 2.5

Employees & directors ‐ 1.1

Total 100.0 100.0

Source: BK.

Strategy & operations

Having primarily targeted the corporate and SMEmarkets in the past, BK’s strategy is now to grow itsretail presence. The Bank further intends to build on

its position as a leading SME player in the market. Alarge proportion of the Rwandan population,

particularly in rural areas, is financially excluded.Only an estimated 20% of the population has accessto formal banking products, with bank branchesconcentrated in Kigali. As part of a drive to enhance

banking penetration to consumers and SMEs inRwanda, BK has accelerated its national footprint inrecent years, opening 4 branches in 2008, 5 in 2009and a further 15 in 2010 (most of them outsideKigali). As at FYE10 the Bank had a total of 33

branches, with an additional 13 branches planned for

2011. In addition to branch expansion, BK has alsomade substantial investments in IT infrastructure tomodernise its processes, thus facilitating electronic

banking products, such as internet and mobile banking services. As at FYE10, the Bank had grownits ATM footprint to 26 from 6, and increasedmerchant Point of Sale Facilities to 97 from 52.

Corporate governance structure1

The Bank’s directorate, as at 31 December 2010,consisted of 8 independent non-executive directors,appointed by the shareholders on recommendation

from the Minister of Finance and approved by the

1Given the intricacies associated with good corporate governance (and

National Bank of Rwanda (“NBR”) as a regulatoryrequirement. The board composition is expected tochange following shareholder changes after the IPO.

In line with NBR’s corporate governance guidelinesfour board committees are in place, namely: Audit &Risk Management, Credit Risk Management, Asset &Liability Management (“ALCO”) and the

Nominations & Remuneration committees.

Financial reporting BK’s financial statements are prepared in accordancewith IFRS and in the manner required by theCompanies Act of Rwanda. Ernst & Young haveaudited the Bank’s annual financial statements for the

past 3 years, all of which were unqualified. Capitalrequirements are calculated using Central Bank guidelines, which are in line with Basel I. Given thata Basel III is under discussion internationally, it islikely that the Central Bank will delay this until therevised guidelines are finalised.

Operating environment Economic review

After contracting sharply to 4.1% in 2009, real GDPgrowth strengthened to an estimated 7.5% in 2010.Economic activity was boosted by governmentspending, strong growth in services (mainly telecom)improvements in financial services, higher commodity prices (coffee, tea and minerals) and arecovery in tourism.

Macroeconomic indicators 2009 2010 2011f

Real GDP growth (annual % change) 4.1 7.5 7.0

Inflation (annual average) 10.3 2.3 3.9Current account balance (% of GDP) (7.3) (6.0) (5.2)

Fiscal/Budget balance (% of GDP) 0.3 0.4 (1.5)

Source: IMF World Economic Outlook September 2011

The average annual inflation rate was low at less than1% in 2010, due to unexpectedly low domestic food

prices and a generally benign external environment.The Rwandan Franc remained relatively stable,depreciating by only 4.1% against the US dollar during 2010. However, inflation has picked up sinceDecember 2010 to 4.5% in May 2011, reflectingrising global food and fuel prices. A real GDP growth

of 8.8% is projected for 2011. However, sustainingthe growth momentum would depend on securingfinancing for key growth catalytic investments, afavourable external environment, and a strongrecovery in credit to the private sector.

Banking sector overview

As at 31 December 2010, the Rwandan financialsector comprised of 8 commercial banks

2, 4

specialised institutions (including a microfinance

2 There has been significant foreign bank entry in recent years. Five of

the eight banks have majority foreign ownership. Three others have

minority foreign ownership i.e. Bank of Kigali (BK), Banque Populaire du

Rwanda (UBPR) and Commercial Bank of Rwanda (BCR). Government

holds a majority stake in BK. In 2010, the foreign share of assets stood at



bank, discount house, development bank and housing bank) and 104 microfinance institutions. Commercial banks dominate the sector accounting for roughly89% of total industry assets. Furthermore,commercial banks are highly concentrated with thefour largest banks accounting for over 65% of theindustry’s assets, loans and deposits. The table below

provides a snapshot of the most recent year’s key

performance metrics.Table 2: Industry indicators * (RwF’bn) 2009 2010

Total balance sheet assets 579 729Net loans & advances 291 326Customer deposit liabilities 425 542Paid up capital 54 57NPAT 4 13Ratios (%)Capital adequacy ratio 21.0 22.3

Gross NPLs / Gross Loans 13.1 11.3Provisions / NPLs 55.2 53.1ROaA 0.7 1.9ROaE 5.0 13.7Cost of deposits 2.4 2.4Liquid assets/total deposits 65.3 55.6

*Commercial banks. Source: NBR.

To improve market liquidity, ensure price stability,stimulate lending and maintain positive interest rates,the Monetary Policy Committee has gradually raisedthe Key Repo Rate to 7% as at November 2011, from6% in November 2010, 7% in June 2010, 7.5% inMarch 2010 and 9% in December 2009. The reserveratio was revised downwards from 8% to 5% inFebruary 2009. Bank lending rates in Rwanda remainhigh and fluctuated between 16.9% and 17.5% in2010, whilst deposit rates ranged between 6-8% in2010. Treasury-bill rates declined from 9% inJanuary to 7.3% in December 2010.

Competitive position

BK dominates the market increasing its market sharein terms of assets from roughly 26.3% as at FYE09 to27.4% as at FYE10, while deposit market shareremained stable at 26%.

Table 3: Peer analysis

(RWF’m)†BK UBPR Ecobank BCR

Total assets† 197 677 138.048 88 798 84.617Market share 27.2 19.0 12.2 11.7

Net customer loans 101,403 78,159 32,778 28,400Market share 31.1 24.2 10.1 8.7

Customer deposits 135,678 103.413 68,179 64,377

Market share 25.5 19.3 12.6 11.9Shareholders funds 31,870 19,359 9,417 10,829

Market share 31.9 19.8 8.6 11.4

Ratios (%)Capital/assets 16.1 14.5 10.6 13.5

ROaE 24.5 13.6 19.7 30.4ROaA 3.5 2.0 1.9 4.1

† Excluding contingencies. Source: BK & company financials.

Commercial banks are undertaking strategies toimprove their core deposit base by tapping into theretail sector, which could possibly lead to greater competition and have an impact on earnings. Table 3above provides an analysis of Rwanda’s 4 largest

banks as at 31 December 2010.

Financial flexibilityLikelihood of support

With Government holding a majority stake together

broadening access to banking products in Rwanda,Government support is highly likely. Furthermore,BK’s size and market presence poses significantsystemic risk should the institution fail.

Funding

Total funding (excluding equity) grew by 23.9%(FYE09: 16.7%) to RwF154.6bn as at FYE10, on the

back of successful liability mobilisation initiatives.

Table 4: Funding baseBy type

F09 F10RWF'm % RWF'm %

Deposits from banks 15,104 12.1 18,921 12.2

Due to local banks 4,543 3.6 9,302 7.5

Term deposits 8,061 6.5 9,324 7.5

Finance borrowings 2,500 2.0 295 0.2

Customer deposits 109,483 87.9 135,678 87.8

Demand accounts 76,261 61.2 97,437 63.0

Term accounts 29,916 24.0 33,180 21.5

Other accounts 3,306 2.7 5,061 3.3

Total 124,587 100.0 154,598 100.0

Maturity profile

< 1 month 93,077 74.7 117,219 75.81‐3 months 9,627 7.7 6,315 4.1

3‐6 months 9,493 7.6 17,134 11.1

6‐12 months 10,676 8.6 13,801 8.9

> 1 year 1,714 1.4 130 0.1

Total 124,587 100.0 154,598 100.0

Source: AFS.

Deposits from corporates, constituted a higher 56%of the book as at FYE10, while retail depositsreflected a slight increase to 27%. Deposits are fairlydiversified, with the 20 largest depositorsrepresenting 22.4% of the book as at FYE10, whilethe single largest depositor accounted for 6%.

Table 5: Customer deposits F09 F10

deposits by segment* % %

Retail 25.4% 26.8%Corporates 53.6% 56.4%

SMEs 11.1% 8.4%

Non Business Associations (NBAs) 9.8% 8.3%

Total 100.0% 100.0%

*As a percentage of total customer deposits. Source: BK.

Deposits remain primarily short dated, with 76% maturing within one month. The paucity of long-dated term deposits in the country has limited theBank’s ability to build a stable pool of fixed ratefunding. However, as part of its efforts to mobiliselong-term financing for the real economy, BK

successfully raised additional capital via the IPO. Inaddition, the Bank has a 7 year off-shore facility for EUR5m with the EIB, and recently signed a 10 year facility for US$20m with the AFD as well as a 10year facility for US$12m with AfDB to provide longterm financing to the private sector.

Shareholders funds

Supported by retained earnings (RwF6bn), reserves(RwF13.5bn) and property revaluations (RwF7bn),BK’s total capital & reserves increased by 72%(FYE09: 17%) to RwF32bn as at FYE10.Resultantly, the ratio of total capital/assets increased

to 16.1%, from 12.2% previously. The total risk weighted capital adequacy ratio increased by asmaller margin to 20 1% from 17 4% as at FYE09



II capital. In order to sustain BK’s liquidity positionand support growth strategy, no dividend was

proposed for F10. Shown below is a snapshot of the bank’s regulatory capital (note all ratios are wellabove statutory thresholds).

Table 6: Regulatory capital F09 F10RwF'm RwF'm

Tier I capital (primary) 18,541 24,719

Tier II capital (secondary) ‐ 1,788Eligible capital 18,541 26,507

Total risk wei hted assets RWA 106 506 131 992

Key capitalisation ratios

Core capital : RWA 17.4% 18.7%Statutory requirement 10% 10%

Eligible capital : RWA 17.4% 20.1%Statutory requirement 10% 15%

Source: AFS.

Risk management

Credit risk

Total assets (including contingencies) grew by 26%(FYE09: 19.9 %) to RwF223bn as at FYE10. Therewas a notable increase (187%) in fixed assets, whichconstituted a higher 8.2% (FYE09: 3.6%) of totalassets as at FYE10, on the back of propertyrevaluations. Liquid assets accounted for a lower 37% (FYE09: 43%) of total assets as at FYE10, dueto a comparatively lower (13%) growth.

Table 7: Asset mixF09 F10

RwF'm % RwF'm %

Cash & liquid assets 65,105 36.7 73,389 33.0

Cash 4,624 2.6 6,882 3.1

Balances with central bank 19,099 10.8 22,563 10.1

Balances with local banks 98 0.1 251 0.1

Balances with foreign banks 28,657 16.2 38,201 17.2

Government securities 12,628 7.1 5,493 2.5

Customer advances 77,096 43.5 101,403 45.6

Fixed assets 6,375 3.6 18,313 8.2

Other assets 3,295 1.9 4,571 2.1

Contingencies 25,475 14.4 24,938 11.2

Total 177,346 100.0 222,614 100.0

Source: AFS.

Exposure to credit risk, without taking into accountany collateral held or any other credit enhancements,amounted to a lower 87% of total assets as at FYE10.Table 8: Credit risk F09 F10exposure RwF'm % RwF'm %Interbank lacements 47 854 27.0 61 015 27.4Balances with central bank 19 099 10.8 22 563 10.1Balances with local banks 98 0.1 251 0.1Balances with foreign banks 28,657 16.2 38,201 17.2

Customer advances 77,096 43.5 101,403 45.6

Local currency 76,806 43.3 100,963 45.4Foreign currency 290 0.2 440 0.2Other instruments 12,628 7.1 5,493 2.5

Treasury bills 12,628 7.1 5,493 2.5Contin encies 25 475 14.4 24 938 11.2 Acce tances & letters o 12 267 6.9 8 710 3.9Guarantees 12,242 6.9 15,360 6.9Other 966 0.5 868 0.4

Total credit risk 163,053 91.9 192,848 86.6Total assets 177,346 100.0 222,614 100.0

Source: AFS.

The decline follows a 57% decrease in the Treasury bill portfolio to 2.5% (FYE09: 7.1%) of total assets.Excluding government securities and Central Bank

balances (considered risk free), the credit risk

exposure remained relatively stable at 74%.Placements are predominantly with correspondentbanks, which have high credit ratings and are

Loan portfolio

Accelerating from a growth of 7% as at FYE09, netloans & advances grew by 32% to RwF101bn as atFYE10, which was well above the industry averageof 12%. The increase was supported by strong depositgrowth and improving macro-economic conditions.The loan/deposit ratio at 75% was well above theindustry average of roughly 60% as at FYE10, thus

raising BK’s risk profile. With a client base whichremains predominantly wholesale, loans to corporatesaccounted for 80% of the book (FYE09: 83%).Table 9: Gross loan book characteristics (as at year end F10)

By sector (%):Manufacturing 10.9 Transport & comm. 7.0Construction 29.2 Commerce & & hotels 45.8Others 7.1By product (%):Corporates Retail

Capital expenditure 41.4 Mortgages 9.5Commercial Mortgages 17.2 Consumer Loans 7.8Working capital 14.1 Overdrafts 1.9Overdrafts 7.7 Other 0.4By maturity (%): By segment (%):< 1 month 16.6 Corporate 58.7

1‐3 months 5.0 SMEs 19.5

3‐6 months 2.3 NBAs 2.26‐12 months 5.0 Retail 19.61‐5 years 36.6

> 5 years 34.4

Source: AFS

Corporate lending is concentrated to the commerce,restaurant & hotels and the construction sectors,while a large share of retail lending also goes tomortgages and salary-backed loans. With the loan

book skewed towards the real estate sector, 71% of the loan portfolio had a maturity profile of over 12months, up from 62% in F09. The large concentration

of credit in a specific economic sector makes BK vulnerable to adverse developments in that sector. Interms of size, the loan portfolio is fairly diversified,with the largest 20 loans accounting for roughly 31%of total gross loans (106% of capital). The singlelargest exposure accounted for 4.5% of total loans(15% of capital) as at FYE10. The exposures werewell within prudential guidelines which limitexposures to a single borrower to 25% of capital.

Asset quality

Gross impaired loans grew by 35% to RwF9bn as atFYE10, representing 7.7% (FYE09: 7.2%) of gross

loans.

Table 10: Asset quality F09 F10RwF'm RwF'm

Gross advances 80,914 105,527Less interest in suspense (916) (973)

Total 79,998 104,553

Performing 74,229 96,524Non‐performing 6,685 9,003

Substandard 2,173 2,111Doubtful 1,218 2,561Loss 2,378 3,358Interest in suspense 916 973

Less : Provisions (3,818) (4,124)Individuall assessed 3 818 4 124

Net NPLs 2 867 4 879

Recoveries 2,609 3,698Write‐offs 2,359 2,111

Gross NPLs ratio (%)† 7.2 7.7Net NPL ratio (%) 3.7 4.8



Although considered high, the gross NPL ratio of 7.7% compares favourably to the industry average of 11.3% as at FYE10. A focus on bad debt recoverysaw a 41% increase in collections to RwF3.7bn. Thiswas enhanced by the recent establishment of specialised commercial courts, a credit reference

bureau, enactment of the Mortgage Law and thereorganisation of the Land Registry and the Registrar

General’s Office. Write-offs declined 11% toRwF2.1bn as at FYE10.

Provisions are made in line with the NBR Instruction No. 03/2000, as follows:

Normal 0% Doubtful 50%

Watch list 0% Loss 100%

Sub‐standard 20%

No general provision is therefore required, althoughhigher provisioning requirements are used inneighbouring countries. A number of regulations are

being revised, including the framework on minimum prudential standards, which is expected to incorporate

stricter loan classification and provisioning standards.Arrears coverage declined to 46% (F09: 57%),resulting in the net NPL ratio increasing to 4.8% of net loans (although decreasing slightly to 15.3% of capital).

Liquidity risk

From a systemic point of view, most emergingmarket banks tend to have a particularly pronouncednegative (contractual) short-term liquidity gap due tothe short-term nature of deposits, largely as a result of volatile interest rates, the lack of an extended savingsculture and low financial intermediation. For BK,liquidity risk is further exacerbated by the wholesalenature of deposits, which can be volatile.

A liquidity gap analysis reflects large cumulativegaps in all maturity buckets as at FYE10. The gapwas equivalent to 112% (F09: 140%) of capital for maturities up to 1 month. Liquidity risk is partlyameliorated through maintaining a liquid balancesheet, with liquid assets amounting to 37% of totalassets as at FYE10 (FYE09: 43%) as lendingactivities picked up. The liquidity ratio was wellabove the prudential minimum of 20%, although well

below the industry average of 56% as at FYE10.Financial performance

A 5-year financial synopsis is reflected at the back of this report and is briefly discussed below.

After contracting by 9.7% in the previous period, dueto sharp increases in impairment charges and cost of funds, NPBT grew by 16.7% in F10, which wasslightly below (2%) budget. The improved

performance was driven by strong advances growth,significant growth in fee income and gains on foreignexchange trading. Net interest income grew by 19%

in F10 (F09: 8.3%), albeit contributing a lower 59%(F09: 65%) of total operating income. Non-interestincome (mainly fees & commissions and foreign

higher 41% of total operating income. Gains onforeign exchange dealings, which can be volatile,grew by 56% to account for a higher 25% (F09: 21%)of total operating income. Overall total operatingincome grew by 32% (F09: 13%) to R wF21bn.

Table 11: Income statement Actual Budget VarianceF10 F10 %

Interest income 16,572 16,969 (2.3)Interest expense (4,183) (4,176) 0.2Net interest income 12,389 12,793 (3.2)

Fees & commission income 2,819 3,368 (16.3)Trading Income 5,201 5,440 (4.4)Other Income 691 ‐ n.a.Total operating income 21,100 21,601 (2.3)

Bad debt charge (2,376) (1,470) 61.7Operating expenditure (10,043) (11,274) (10.9)

NPBT 8,681 8,857 (2.0)

Source: AFS & management.

A more than proportionate growth in operating costssaw the cost ratio climb to 48% from 44% in F09.Driven mainly by branch roll-out, increased headcount and training costs, operating expenses grew by42% (F09: 24%) to R wF10bn. The bad debt chargeincreased from 9.4% to 11.3% of total operatingincome. Overall, profitability indicators weakened,with the ROaE and ROaA ratios declining to 24.5%and 3.5%, although remaining well above theindustry average of 13.7% and 1.9% respectively.

Future prospects

The actual unaudited results for the 6 months to June2011, together with the F11 budget, are reflected inTable 12 below.

Table 12: Income Actual Actual Budget % of

statement IHF10 1HF11 FYE11 budget

Interest income 7,515 9,912 23,231 42.7

Interest expense (1,960) (2,530) (5,124) 49.4Net interest income 5,555 7,382 18,107 40.8

Other Income 4,099 6,106 10,203 59.8

Total operating 9,654 13,488 28,310 47.6

Bad debt charge (1,721) (1,145) (1,400) 81.8

Operating (4,727) (6,597) (15,910) 41.5

NPBT 3,207 5,747 11,000 52.2

Selected balance sheet indicators

Cash & liquid assets 70,525 107,540 75,459 142.5

Loans & advances 89,151 110,299 153,990 71.6

Customer deposits 125,838 176,135 173,066 101.8

Bank deposits 15,341 16,857 12,307 137.0

Shareholders funds 20,751 34,759 56,735 61.3

Total assets 174,901 245,466 256,393 95.7

* Income statement annualised. Source: BK.

BK’s interim results were well ahead of expectations,with a NPBT of RwF5.7bn, and 79% up from 1HF10.The performance was driven by net interest incomecontributing 55% of total operating income, (IHF10:58%). Buoyed by deposit growth, the Bank’s asset

base registered a 40% growth to RwF246bn as at1HF11 year on year. Looking ahead, BK will focuson growing low cost and stable funding, low cost

products and channels to penetrate the un-banked,loan growth and branch and ATM network expansionon the back of an enhanced funding base followingthe IPO and lines of credit. BK will also continue tofocus on prudent risk management, quality servicedelivery and product development in an attempt toi ffi i l l



Year end: 31 December

Income Statement Analysis 2006 2007 2008 2009 2010

Interest income 7,202 8,720 11,452 13,798 16,572 Interest expense (1,046) (1,735) (1,860) (3,409) (4,183) Net interest income 6,155 6,985 9,592 10,389 12,389

Fees & commisisions 906 980 1,176 1,678 2,819 Trading income 1,995 3,166 2,585 3,335 5,201 Other income - - 821 599 691 Total operating income 9,056 11,131 14,174 16,000 21,100

Impairment charge 194 (536) (255) (1,500) (2,376) Operating expenditure (4,629) (4,394) (5,673) (7,059) (10,043) Exceptional items - - - - -

Net profit before tax 4,621 6,201 8,246 7,442 8,681 Tax (1,658) (1,935) (2,591) (2,155) (2,503) Net profit after tax 2,963 4,266 5,654 5,287 6,179

Other after-tax income / (expenses) - - - - - Net income 2,963 4,266 5,654 5,287 6,179

Balance Sheet Analysis

Subscribed capital 1,500 5,005 5,005 5,005 5,005 Reserves (incl. net income for the year) 8,475 7,798 10,892 13,536 26,865 Preference shares - - - - - Hybrid capital (incl. eligible portion of subordinated term debt - - - - - Minority interest - - - - - Less: Intangible assets - - - - - Total capital and reserves 9,975 12,803 15,897 18,541 31,870

Bank borrowings (incl. deposits, placements & REPOs) 4,147 4,525 7,299 15,104 18,921 Customer deposits 69,027 101,853 93,838 107,769 135,548 Other borrowings - - - - - Short-term funding (< 1 year) 73,174 106,378 101,138 122,873 154,468

Bank borrowings (incl. deposits, placements & REPOs) - - -

Customer deposits - 1,714 130 Other borrowings - - - - -

Other funding (> 1 year) - - - 1,714 130

Payables/Deferred liabilities 4,552 3,322 3,736 8,743 11,208 Other liabilities 4,552 3,322 3,736 8,743 11,208

Total capital and liabilities 87,701 122,503 120,771 151,871 197,677

Cash in hand 4,702 4,967 3,817 4,624 6,882 Balances with central bank 5,119 10,067 6,184 19,099 22,563 Fixed assets 3,500 5,217 5,559 6,375 18,313 Receivables/Deferred assets (incl. zero rate loans 2,051 4,139 3,232 3,295 4,571 Non-earnings assets 15,371 24,390 18,792 33,393 52,329

Loans & advances (net of provisions) 37,841 48,659 72,094 77,096 101,403 Bank placements 18,250 23,199 25,051 28,755 38,452 Marketable/Trading securities 16,063 26,079 4,835 12,628 5,493

Investments 176 176 - - -

Investments in subsidiaries/associates - - - - -

Total earning assets 72,330 98,112 101,980 118,478 145,348

Total assets 87,701 122,503 120,771 151,871 197,677 Contingencies - - 27,129 25,475 24,938

Ratio Analysis (%)

Capitalisation

Internal capital generation 29.7 33.3 35.6 28.5 19.4

Total capital / Net advances + net equity invest. + guarantees 26.2 26.2 17.6 20.7 28.9

Total capital / Total assets 11.4 10.5 13.2 12.2 16.1

Liquidity ‡

Net advances / Customer deposits 54.8 47.8 76.8 70.4 74.7

Net advances / Customer deposits + other short-term funding 51.7 45.7 71.3 61.9 65.6

Net advances / Total funding (excl. equity portion) 51.7 45.7 71.3 61.9 65.6

Liquid & trading assets / Total assets ‡ 50.3 52.5 33.0 42.9 37.1

Liquid & trading assets / Total short-term funding ‡ 60.3 60.5 39.4 53.0 47.5Liquid & trading assets / Total funding (excl. equity portion) ‡ 60.3 60.5 39.4 52.3 47.5

Asset quality

Total loan loss reserves / Gross advances 10.2 (7.1) 4.8 3.6 3.0

Bad debt charge (income statement) / Gross advances (avg.) n.a. 1.2 0.4 2.0 2.6

Bad debt charge (income statement) / Total operating income (2.1) 4.8 1.8 9.4 11.3

Profitability

Net income / Total capital (avg.) n.a. 37.5 39.4 30.7 24.5

Net income / Total assets (avg.) n.a. 4.1 4.6 3.9 3.5Net interest margin n.a. 7.8 9.1 9.0 9.1

Non-interest income / Total operating income 32.0 37.3 32.3 35.1 41.3

Non-interest income / Total operating expenses (or burden ratio) 62.7 94.4 80.8 79.5 86.7

Cost ratio 51.1 39.5 40.0 44.1 47.6

OEaA (or overhead ratio) n.a. 4.2 4.7 5.2 5.7

ROaE n.a. 37.5 39.4 30.7 24.5

ROaA n.a. 4.1 4.6 3.9 3.5

Nominal growth indicators

Total assets n.a. 39.7 (1.4) 25.8 30.2

Net advances n.a. 28.6 48.2 6.9 31.5

Shareholders funds n.a. 28.3 24.2 16.6 71.9

Total capital and reserves n.a. 28.3 24.2 16.6 71.9

Customer deposits n.a. 47.6 (7.9) 16.7 23.9

Total funding (excl. equity portion) n.a. 45.4 (4.9) 23.2 24.1

Net income n.a. 44.0 32.5 (6.5) 16.9

‡ Please note that for these ratios, liquid assets exclude the statutory reserve balance

Bank of Kigali Limited(Rwanda Francs in millions except as noted)

bank of kigali credit review 2011

Documents