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Rwanda govt considers privatising BRD for profits, efficiency

Friday March 14 2014
BRD

Analysts believe the privatisation of BRD would be a game changer for the banking industry. Photo/Cyril Ndegeya

Development Bank of Rwanda (BRD) is likely to be privatised in the coming months as government withdraws funding, Rwanda Today has learnt.

The bank is also to be subjected to a management audit to improve its efficiency. The bank’s management came under scrutiny at the 11th National Leadership Retreat held at the RDF Combat Training Centre in Gabiro, Eastern Province.

The bank is specifically faulted for eschewing the poor for the middle and upper class, contrary to its mandate — finance priority sectors to support poverty reduction.

President Paul Kagame said the the bank was mostly benefitting government officials and singled out BRD management for not implementing projects as planned.

“I have seen the list of loan beneficiaries from BRD and half of you here have benefited and I hope it’s the last time we are discussing the bank’s problems,” President Kagame said, calling for a management audit.

Although the president did not mention any names, he hinted at government officials and their spouses who acquired mortgage loans at the expense of the poor.
Now the president is proposing that government privatises the bank for its efficiency.

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BRD, whose source of funds is the shareholder’s equity, development partners, grants and lines of credit, had an initial capital of Rwf7.8 billion, which has grown to over Rwf42 billion. Its preferred minimum-lending sum is presently Rwf15 million.

BRD has financed individual projects of upto Rwf7 billion in the latest approvals. However, the highest amount depends on the bank’s net worth limited to five per cent and project investment requirements.

Analysts believe the privatisation of BRD would be a game changer for the banking industry which is still struggling to meet demand.

“The Rwandan financial market needs venture capital initiatives for small and medium enterprises which can be ensured by private players with less financing problems,” said Lawson Naibo, the chief operating officer of Bank of Kigali. As to market demand, experts argue that even though the ability of the industry was doubled, the market would still be served below capacity.

“It makes business sense to have more players in the market to serve the huge demand by projects like Kigali master plan and the increasing housing problems,” added Naibo.

Last year, in terms of the balance sheet growth measured by changes in total assets, the banking sector grew by 21 per cent from Rwf1,247 billion end of December 2012 to Rwf1,509 billion at the end December 2013.

The growth was driven by the gross loans to the private sector that increased by 12.9 per cent from Rwf747 billion in 2012 to Rwf844 billion end of 2013.

In terms of profitability and loan disbursement, BRD achieved its targets last year. For example, the bank had set a target of Rwf45 billion for loan approvals but got Rwf60 billion, a 130 per cent achievement rate.

Among these, the biggest investment approvals were in the commercial and hotels, closely followed by manufacturing and industries, and agriculture and livestock sectors with 65 per cent of approved loans disbursed to the beneficiaries.

BRD also provides real estate investment financing and mortgage loans. Much emphasis has been put on real estate development through financing developers, however, the bank is to start its affordable housing development soon after raising funds.

BRD has also introduced a mortgage department but there are fears that it is will also benefit the rich and leave out the poor.

However, efforts to get a comment from BRD management were futile since none of the top officials were comfortable to discuss the subject.

The banking industry in Rwanda is dominated by foreign operators such as Kenya Commercial Bank, Equity Bank from Kenya, and Access from Nigeria. Locally owned private banks include Cogebanque, Bank of Kigali and Bank Populaire du Rwanda.

The call to privatise BRD comes at a time when the government is boasting of over 80 per cent of all parastatals lined up for privatisation, have been fully or partially sold to private investors.

READ: Rwanda's private sector close to controlling economy

Although government has been successful with some companies, over 20 companies are still untouched.

Notable among them are RwandAir, the national carrier that is supposed to offload 99 per cent to private investors, Onatracom (100 per cent) and Bank of Kigali, seeking to sell the remaining 80 per cent.