Anything wrong that happens to the Development Bank of Rwanda (BRD) has adverse effect on Rwanda’s economy, and the financial sector in particular.
For 50 years, BRD has been Rwanda’s leading development financial partner, but the year 2016 and 2017 were some of its worrying years, contextually.
The East African Newspaper of October 6, 2018 reported that “the bank’s 2017 financial report shows that profitability reduced by 638%, from a profit of $4.07 million in 2016 to a loss of $22 million due to poor operational performance and increase in provisions for outstanding assets and receivables.”
The total comprehensive loss of $22 million in 2017 was a huge loss by all standards. This was partly a result of loan loss provisions of about US$14.2 compared to US$1.6 million during the previous year.
All the bad numbers, I was told, were a result of governance issues, transparency and laxity in lending and management of the bank’s loan book.
But the scenario was not strange.
Every business has ups and downs. I however found it alarming when it was reported that the bank’s “capital levels are almost depleted.” It was not the “Lehman Brothers” bankruptcy case, in my view.
A development bank does not become depleted that easily as it is with any other financial institution, provided that BRD is Rwanda’s economic engine driver.
Unless one is not in the know, BRD in a period of just ten months is encouraging.
The Bank has gone through a dramatic turnaround after the resignation in December 2017 of it’s former CEO, Alex Kanyankole, whom I interviewed numerous times during his reign.
I can conform the current positive trend has to do with the new leadership orientation.
I have interviewed the new CEO, Eric Rutabana, enough times to understand where he is taking the bank and his leadership style.
He, cleverly, gives credit to his team for what has been done just ten months.
In the coming weeks, I will be documenting some of the achievements the team has registered.
Last week, I called the CEO to inquire about the reported ugly past of the bank. The East African scooped us the bank’s audited books. They, however, did not capture the bank’s recovery process this year.
Below is my conversation with CEO.
From early 2018, you recapitalized the Bank; do you have particular figures?
Indeed recapitalization happened with support from our main shareholders. In March 2018, we received Rwf15 billion from Rwanda Social Security Board (RSSB) and then from the government of Rwanda, we received $5 million in March and later Rwf12 billion in August 2018.
How is the capital adequacy ratio at the moment?
We are above the minimum requirements of 15%. We are at around 17.4%
Assets, liquidity, what is the status now?
Our assets have grown by about 4% in June 2018 compared to December 2017 and the quality of assets is also improving. The assets quality is however still vulnerable because of the nature of the investments. Some of these are long term – such as hotels, commercial buildings manufacturing, and agriculture projects that may have some ups and downs during the year. These investments require long term capital but have been financed using short to medium term resources which may affect their performance and consequently lead to quality issues along the way. The focus on this has been on trying to source long term capital to refinance these projects that may struggle due to their funding structure. The other important item is that BRD has been making equity investments over the past so many years. The intention is always to play a role in catalyzing investments in certain sectors and to attract private sector investments. We have been reassessing these investments to determine mature ones that are sufficiently attractive to private capital for exit so that we can do more in other areas. The other area of focus on assets has been the recovery efforts from the non-performing assets where we are making progress as well. On liquidity, we are well above the regulatory requirements of 100%. On liquidity, we have no problem, no cash flow problem at all.
Is there a particular figure you would like to share?
On liquidity ratio, one month’s liquidity ratio is very healthy, at more than 500% and one year ahead, we are at 106%. The minimum requirement for both is 100%. That means that for every payable, we have over 5 times of cash and receivables to cover it in a month’s time. And then within the next 12 months, because we have 106%, that means that any obligation that comes up will be paid without any difficulties.
Tell me how you are managing the days after a loss that the bank incurred?
It is always difficult to recover from such a position, but the most important thing is to refocus your efforts on the future. You try to do better investments but also put in place measures to follow up and recover as much as possible from the non-performing assets. Although we are still in a loss making position, we have become more careful in the new businesses we generate and frugal in the way we spend. Of course the major challenge is how fast we will recover on non-performing loans. We have applied a number of measures, including creation of a dedicated recovery task-force to fast-track recoveries and also enlisted external debt collection agents to speed up the process. The challenge is that you do not recover fast enough – sometimes we go for auctions and we fail to get buyers for some of those assets or sometimes start the receivership process and clients go to court to file for insolvency which delays the entire process.
How did the market react towards your intervention to deal with the losses?
it is always important to communicate to your stakeholders on actions that you take in the interest of the institution. The good thing is that we are not a deposit taking institution and so, people were not worried of losing their deposit which could have been a difficult challenge to deal with. We engaged our shareholders and financing partners to explain what had happened but more important showing them what was being done to address the challenges. These losses are not unusual in financial institutions but also important to note that the losses were did not stretch for a long time. So, dealing with stakeholders becomes easier with concrete actions on what is being done to turn things around. And with the support from shareholders, the situation was easier to deal with.
What projects have you invested in so far?
We have our main focus areas of Agriculture, Export promotion, Energy, Education and Housing and Infrastructure that we have continued to focus on. Our export growth fund continues to support our exporters, while the recently launched Renewable Energy Fund (REF) has been supporting our rural people to access electricity from renewable sources – mainly solar. We are working with SACCOs to reach all areas where our people do not have access to electricity from the grid. We have also engaged banks to ensure they support solar companies through the use of the fund to increase their reach. We are also working with housing investors to make sure we can deliver affordable houses required by our people. Overall, we are still very much focused on our key priority areas.