The Ministry of Finance and Economic Planning has unveiled a massive plan for the recapitalisation of Development Bank of Rwanda (BRD) in a move aimed at increasing the lender's ability to fund the country's ambitious development programme.
Over the next three years the treasury will spend Rwf23 billion to recapitalise the institution in which the Government holds majority stake.
In the 2019-2020 fiscal year alone, which begins in July this year, the Government will spend Rwf10 billion on recapitalising BRD, the Minister for Finance and Economic Planning, Uzziel Ndagijimana, said.
Government has decided to recapitalise the institution to enable it play a greater role in the expansion of the private sector to accelerate growth, he said.
Ndagijimana told The New Times that the bank is in the process of thorough restructuring, which is why it is being recapitalised.
"BRD is in a restructuring process. The bank has made a lot of efforts to recover bad debts and the Government will recapitalise BRD progressively using the national budget," he told The New Times yesterday.
Ndagijimana disclosed, that under the restructuring process, the government will soon name a new Board of Directors for the bank after appointing a new Chief Executive Officer and a new Chief Operating Officer.
The Government's decision to recapitalise the bank was informed by the need to bolster the lender's ability to sustain financing key sectors, such as agriculture, manufacturing, housing, and exports, among others.
In the third quarter of 2018, BRD's total assets were Rwf229.6 billion and it had an equity of Rwf62.2 billion, according to its audited financial reports.
The recapitalisation could potentially help the lender rebound from an operating loss of close to Rwf5 billion.
According to BRD's 2017 annual report, the Government of Rwanda and Rwanda Social Security Board (RSSB) had injected Rwf35 billion to help the bank to stabilise as it seeks additional capital injection elsewhere beyond 2018.
Based on the 2017 annual report, the bank's business prospects were not in good shape.
It registered a huge decline in key financial performance indicators, such as negative profitability, reduced total investment output, and poor portfolio quality that led to increased non-performing loans.
The bank's absolute credit losses were on the increase a mounting to Rwf11.1 billion at the end of the year 2017.
Now the key question is whether the recapitalisation will enable the financial institution to serve its development mandate.
The bank's mandate, as a development finance institution, is to provide affordable and long-term financing to economically impactful projects intended to improve Rwanda's socio-economic development through the promotion of exports, import substitution, job creation, affordable housing, and energy for all, among others.
Celestin Rwabukumba, the Chief Executive Officer of Rwanda Stock Exchange, believes the success in turning around the performance of the bank will not necessarily depend on recapitalisation, but on how much they strike the balance between the developmental agenda and profitability.
"The bank's main agenda is developmental, but definitely you can be profitable while financing development. This will depend on how they strike the balance between the two, but also correcting what went wrong in its management," he noted.
BRD already funds many local development-driven projects and private companies through a number of programmes.
It owns stakes in many local firms and has been making equity investment in the private sector.
As of September last year, the financial institution had made equity investment worth Rwf14.7 billion in 17 local companies.
It had a significant stake in companies like Trust Industries Ltd, Kinazi Cassava Plant, Development Fund, Great Lakes Cement Company, Eastern Province Investment Company, and Rwanda Enterprise Investment Company.
Investments in these firms stood at Rwf9.2 billion, but some of the projects are struggling.
These companies are involved in agriculture, production of hygiene products like toilet papers and wipes as well as cement production, to mention but a few.
Read the original article on New Times.
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