The global economic recession is still taking its toll on the world economies including Rwanda where economic growth is projected at about 5.3 percent in the Financial Year 2009/10 from 11.2 percent last year.
While acknowledging that recovery of the global economy is still fragile, the country’s investment bank – The Development Bank of Rwanda (BRD) has shown signs of resilience to external shocks of the crisis.
According to the bank’s audited financial statements, profit after tax rose to Rwf1.4 billion in the first half of 2009 up from Rwf752m registered in the whole year in 2008 as net interest income increased by 55.4 percent from Rwf.916m last year to Rwf1.4 billion this year .
In an interview with Business Times ‘s BERNA NAMATA, acting Managing Director JACK NKUSI KAYONGA talks about the bank’s recent achievement.
How are you going to spend this money (profit)?
We do give dividends but last year and this year, shareholders have opted not to take dividends but to invest re-invest the money in the bank to increase on the capacity of the bank to lend and be able to generate more profit.
For the result of 2009, it will be a decision that will be taken by the General Assembly in May 2010. I believe it will be a combination of both dividends reserves for the bank to invest.
The tradition has been that they take 30 percent of the net profit as dividends and 70 percent is re-invested.
To what extent have you been affected by the crisis?
The effect has not been significant because we had a non-performing loan portfolio that is less than 10 percent as of June 2008, now we are actually at 8 percent.
We have been affected indirectly by the crisis. The impact has been seen on mobilization of resources—it is quite difficult mobilizing resources now because what the financial crisis has done is more about breaking trust, it is not that there are no resources out there but there is lack of trust between the borrowers and lenders.
This has definitely impacted on us because we are not a deposit taking institution.
The other indirect effect is through our customers who are very exposed to the export sector, especially coffee.
In 2008 the prices of coffee went down and this had an effect on our book and we had to restructure those loans.
The upside of this is that we are seeing some positive signs and the prospects of 2009 look good.
What measures have you adopted to mitigate/ cushion the impact of external shocks on the bank’s operations?
For resource mobilization we have diversified on our traditional lenders and we are now looking at other non-traditional lenders including leveraging the different resources that have been put in place for countries that are facing problems arising from the financial crisis.
We are also considering attracting more domestic resources.
For coffee prices and others, these are market based but now as the big nations are coming out of the recession we are already seeing the prices of specialty coffees stabilizing.
We have indications that the average coffee price for 2009 is around $ 4.8 per kilogramme.
In comparative terms last year these stood at $2.2 per kilogramme. I think things are normalizing and we should be able to get out of the recession before the end of the year.
We also have strong relationship with government and they have been there for us and provided us with more resources to promote investment in the country.
According to a recent IMF report, Liquidity shortages experienced earlier this year exposed weaknesses in risk management of the local banking system, forcing them to tighten credit standards and leading to a decline in credit growth.
This has prompted the Central Bank to instruct all banks to set up risk departments. How are you set to address this problem?
Fortunately for us we had started that way back and this explains why the impact of the economic downturn has been indirect.
We have a fully fledged risk department and they are doing their work in all sectors.
However we are still developing the capacity of our staff. We have also established committees at board level to check the decisions that are made by management in this perspective.
What new projects have you taken on?
So far as we speak we have already invested about Rwf12billion of which the lion’s share goes to agriculture and exports and tourism. We are also considering building vocation centres.
What big projects have you taken on as a development bank?
The bank has financed cooperatives to the tune of Rwf1billion for the purchase of improved breeds of cows.
This project has a big development impact because it is improving cow breeds in the country and providing rural families with a proven poverty-alleviating asset.
The bank has financed around 16 schools, among them the construction of ULK (Université Libre de Kigali) which today boosts more than 10,000 students.
The Bank has promoted ICT penetration in rural areas by financing mobile phones to around 52,000 people living in 13 districts.
In agriculture, BRD has promoted the development of the coffee sector by financing the construction of around 31 washing stations and coffee campaigns.
BRD is promoting the tourism sector which is one of the biggest revenue earners in the country. To date BRD has financed the construction of 21 hotels of medium and high standing.
We are currently managing three large projects to the tune of over $10 million that are in agro-processing notably; setting up a cassava processing plant in Southern Province, 70 milk collection centres across the country and a distillery plant in the Eastern Province.
Through refinancing Microfinance Institutions, we have been able to reach a great proportion of our population providing the highly needed financial products and services.
In conclusion, what is BRD envisioning for the future?
BRD’s vision is to be the most profitable bank at the service of poverty reduction in Rwanda. Most importantly the Bank would like to increase its capital base.
We are targeting to increase our capital from Rwf31 billion to Rwf50 billion within the next one year. We are also going to include a new product by the mid of this month—trade finance (which includes) doing a lot of documentation for our exporters and our borrowers for example letters of credit, guarantees, invoice discounts.
This will help us to attract more financial resources, two important prerequisites that will enable the Bank to play a stronger role in the socio-economic development of the country.