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BRD Is An Elephant Stuck In Mud: Will Kampeta Sayinzoga Get It Out?

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The December 2019 appointment of Kampeta Pitchette Sayinzoga as new CEO of Rwanda Development Bank (BRD) has left banking sector analysts saying that BRD has reputation of a bank with the highest turnover of CEOs.

Despite assurance from BRD management that the new changes are aligned to overall mandate of the bank within the new dispensation unfolding in the local banking sector, the move has left analysts thinking that the bank is caught up in a serious management challenge.

Analysts also say that the exit of Jack Nkusi Kayonga, the current CEO of Rwanda’s sovereign wealth fund, Agaciro Development Fund, from the position of BRD CEO in July 2013, seemed to have marked a major turning point in the bank’s fortunes.

Kampeta Sayinzoga’s replacement last month came after her predecessor, Eric Rutabana’s 2-year stint that mainly served to clean up the bank’s operations after Alex Kanyakole’s 4-year chaotic reign.

As a banking sector chief, Alex Kanyakole went into record as BRD CEO who would be arrested and arraigned in court for among other things for running down the bank and causing a loss worth over US$22 million.

Sayinzoga’s appointment coincided with the coming into force of new but radical policy by Rwanda’s central bank aimed at boosting sector capitalisation tremendously.

However, the high turnover of the BRD’s CEOs has left analysts thinking that the bank is caught up in a big management quagmire.

In this analysis, we point out the fact that as a major player in the market, BRD has for last 5 years been bogged down by its heavy management baggage while operating in a sector rapidly undergoing fundamental changes.

Despite BRD’s attempts at glossing over its activities for the last 5 years through a number of public relations stunts, reports from stakeholders have however presented depressing statistics.

For example, the auditor general’s annual reports that were discussed extensively in parliament for last 3 years indicate that BRD is a bank facing very serious management challenges.

In addition, the bank’s 2017 report showed that its profitability was eroded by almost 700%.

The bank’s operations were seriously eroded from profit of over US$4 million in 2016 to loss of over US$22 million highlighting an era of serious mismanagement.

Things became so bad for BRD in the wake of Kanyankole’s exit that its major shareholders, including the government of Rwanda and Rwanda Social Security Board (RSSB), had to make massive infusion of new round of shareholder funds to keep it afloat thereby preventing it from going under.

Reports indicate that an extra, but urgently needed US$22 million, had to be injected into the bank to make it technically solvent.

That is how Eric Rutabana’s mandate started off in December 2017; on a very low note all the way to December 2019, when he was replaced by Kampeta Sayizonga.

It is too early to pass any kind of management judgement on Rutabana’s time at BRD.

However, it is known widely within the local bank circles that his tenure was marked by rounds of significant management realignment.

BRD struggled to re-enter profitability territory as New Year 2020 beckoned.

Sayinzoga has a huge task before her, given complex management challenges facing BRD.

She joins a coveted list of one of very few women CEOs in the local banking sector. She follows in the footsteps of trail blazers like Dr Dianne Karusisi of Bank of Kigali (BK).

Dr. Karusisi has done what amounts to feats in the entire economy by being at helm of BK as it became the first bank  to clock  US$1 billion in valuation recently.

With the new appointment, Sayinzoga is expected to be the biggest turnaround artist in the local banking sector.

Question is; why does BRD need a turnaround artist as CEO?

For starters, analysts say, unlike BK and other major players of its league, BRD is still in the deep slumber of long-gone analogue banking days.

BRD management is yet to wake up to the new thinking taking the sector by storm known as Fintech.

Front runners in the banking sector like BK with a 30% commanding market-share have used Fintech to their own strategic market advantage.

Secondly, when one looks at its catalogue of activities in last 5 years, BRD is clearly traditional in its model of sourcing and funding projects in the economy. BRD is yet to make a mark into newly blossoming creative sector taking shape in Rwanda fronted by the youth. This includes media and corporate communications, entertainment and showbiz, authentic fashion and ICT among others.

For Rwanda to effectively tackle youth unemployment, bankers like BRD need to urgently move into Rwanda’s creative sector as it now forms an important segment of made in Rwanda initiative.

Thirdly, it has not escaped observers that steering BRD as Rwanda’s only DFI to profitability is not going to an easy feat for Sayinzoga. Rwanda’s banking sector average return on capital stands at 9% according BNR. This measure of performance is much lower when we compare what other jurisdictions in the region are achieving.

Banking sector in other countries are clocking double digits return on capital, meaning that it is going to be a very steep climb for Sayinzoga and her team at BRD as they settle into their job.

Fourthly, analysts are also pointing to BRD’s highly politicised mandate of carrying various strategic investments in the local economy as forming another layer of challenge for the new team.

Political interference in BRD is entrenched to disturbing magnitudes.

A number of cases come to mind while trying to profile what is in store for Sayinzoga. Higher education sector financing with its portfolio of non-performing loans (NPLs) is a case in point.

There is also the issue of toxic loan book issued out during Kanyankole’s tenure. These are text book reference cases waiting for solutions by the new management team.

While the BNR’s latest monetary policy and financial stability statements indicate that the sector is recovering from acute problem of NPLs from 7.2% by September 2018 to 5% by late last year, it has not escaped analysts saying that the reduction is due to writing off the bad loans.

Banks are struggling to develop high quality investment projects due in part to lack of local expertise in origination and closure of bankable proposals. This is an industry-wide phenomenon.

It is important to look at the metrics of BRD as the year 2020 unfolds. As a pure development finance institution (DFI) BRD is still a minor player in terms of financial muscle compared to the industry leader BK.

BRD has total assets worth over US$200 million according to its reports compared to BK’s whooping US$1 billion. However, as a DFI BRD is expected to fund priority sectors to the tune of more than 5 times its asset value.

This includes over US$100 million to be pumped into affordable housing. The weighty matter known as affordable housing in the public domain is seen as long overdue. It is a pledge that the government as part of housing policy enacted in the year 2013 has been making to its citizens.

The major challenge here for BRD is that there is a very low pipeline of stocks supply to buyers in a market with very huge demand pointing to lack of requisite funding needed by developers.

Another equally weighty matter is energy sector deliverables. BRD seeks to sink over US$200 million into energy sector in line with the national electricity plan (NEP) unveiled past year. Through, NEP the government of Rwanda seeks universal access to electric power for the entire economy by the year 2024 a very high ambitious target.

The challenge to BRD is the need to have in place a new mechanism for fast tracking closure of funding to beneficiaries.

The rest of the cash amounting to over US$700 million is to be spread out within the bank’s key priority sectors of its intervention. This includes agriculture and social development, exports financing as well as refinancing microfinance institutions (MFIs).

According to management specialists the sinking of over US$1 billion into Rwanda’s economy by BRD in the next 2 to 3 years is very possible. However, it will be extremely challenging to BRD top management. This is to its recent negative management history as well as lack of expertise.

However it can leverage its bank’s core assets of more than US$200 million with counterpart third party funds especially financial injections from the public sector worth an estimated US$800 million to deliver US$1 billion into the market.

Another indicator of BRD’s possible turnaround is from the sector regulator’s perspective. BNR has been on a crusade in the last few years to radically change banking sector capitalization. The new move by BNR is technically known as the Basel III new capital requirement.

DFIs like BRD are expected to increase their core capitalisation from US$3 million to US$52 million. This is a very huge quantum leap by any standards. Commercial banks on other hand are expected to increase core capitalisation from US$5 million to over US$21 million.

The objective of the new BNR policy is meant to radically change the local banking sector going forward. The new move by BNR is in a bid to enable the sector to fund bigger investment projects away from current situation where banks are unable to get into real big-ticket investment deals that the local economy desperately needs.

In the new banking sector scheme of things BRD’s shareholders are required to start digging very deep into their pockets to inject new forms of heavy shareholder funding into BRD over the next 5 years.

That kind of big-time public sector funding injection into BRD requires without a doubt a robust management system to assure its shareholders of healthy return on their investment.

The big question in the minds of many is; with an impressive CV, including stints as a Treasurer in the Ministry of Finace, and as chief government economist among others; does Kamepeta have the turnaround credentials to get BRD out of its current management quagmire? Will she bulldoze the heavy weight of invisible political hands that usually interfere with the Bank’s operations?

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