BK GROUP PLC Rights Issue Information Memorandum by Publisher of Hope Magazine

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RIGHTS ISSUE INFORMATION MEMORANDUM 2018

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

(Formerly Bank of Kigali Limited) Incorporated in the Republic of Rwanda, Company Registration Number 100003458 Registered by the Rwanda Development Board as a non-operating holding company and listed on the Rwanda Stock Exchange

Information Memorandum In respect of Rights Issue of 222,222,222 New Ordinary Shares with a par value of FRw 10 at and an Issue Price of FRw 270 per share in the ratio of 1 New Ordinary Share for every 3 Ordinary Shares held

Lead Transaction Advisor

Sponsoring Broker

making more possible

This Information Memorandum is dated 16th October, 2018 and is valid for 6 months from this date ELIGIBLE SHAREHOLDERS HAVE THE OPTION TO TAKE UP THEIR RIGHTS IN FULL OR PARTIALLY, RENOUNCE, TRANSFER BY WAY OF PRIVATE TRANSFER OR TO TRADE THEM ON THE RWANDA STOCK EXCHANGE. REFER TO SECTION 4 FOR FURTHER DETAILS ON THE OPTIONS AVAILABLE.

III

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

VISION BK Group PLC aspires to be the leading provider of the most innovative financial solutions in the region

MISSION To be the leader in creating value for our stakeholders by providing the best financial services to businesses and individual customers, through motivated and professional staff

VALUES    

Customer focus Integrity Quality Excellence

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

CONTENTS

IMPORTANT NOTICE

CORPORATE INFORMATION

VIII

ADVISORS TO THE TRANSACTION

DEFINITIONS & ABBREVIATIONS

LETTER FROM THE CHAIRMAN

XIII

DIRECTORS’ STATEMENT

XIV

SECTION 1:

TIMETABLE FOR THE OFFER

SECTION 2:

EXECUTIVE SUMMARY

SECTION 3:

THE OFFER

SECTION 4:

TERMS AND CONDITIONS OF THE OFFER

SECTION 5:

RWANDA ECONOMIC OVERVIEW

SECTION 6:

SECTORS OVERVIEW

SECTION 7:

BUSINESS OVERVIEW OF BK GROUP PLC

SECTION 8:

CORPORATE GOVERNANCE

SECTION 9:

RISK FACTORS

SECTION 10:

STATUTORY AND GENERAL INFORMATION

SECTION 11:

REPORTING ACCOUNTANTS’ REPORT

SECTION 12:

LEGAL OPINION

174

SECTION 13:

AUTHORIZED SELLING AGENTS (ASAS)

176

SECTION 14:

APPENDICES

177

1.1.

PAL Form

177

1.2.

Form of Renunciation

179

1.3.

Form of Entitlement

181

1.4.

Power of Attorney

183

1.5.

Irrevocable Bank Guarantee

184

1.6.

Irrevocable Letter of Undertaking

185

1.7.

CSD Form 1 (a) – Account Opening Form (Individuals)

186

1.8.

CSD Form 1 (b) – Account Opening Form (Companies)

187

1.9.

CSD Form 5 – Pledge Form

188

1.10.

CSD Form 7 – Private Transfer Form

189

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

IMPORTANT NOTICE THIS DOCUMENT CONTAINS IMPORTANT INFORMATION FOR CONSIDERATION AND REQUIRES YOUR CAREFUL ATTENTION AS IT INCLUDES LEGAL, MARKET AS WELL AS HISTORIC, CURRENT AND FUTURE FINANCIAL INFORMATION This document (including the documents incorporated by reference herein (the “Information Memorandum”) relates to the offering by BK Group Plc of 222,222,222 ordinary shares of a par value of FRw 10, each at an issue price of FRw 270 (the “Issue Price”) per offer share (the “New Shares”). Subject to applicable securities laws and the terms set out in this Information Memorandum, the holders of ordinary shares (the “Shareholders”) at 12.00 pm on Wednesday, 24 October 2018 (“Record Date”) are being granted transferable subscription rights to subscribe for the New Shares pro rata to their shareholding in the Company. The offering (“Offering”) comprises (1) the rights issue (the “Rights Issue”) in which Shareholders as of the Record Date will be granted 1 transferable subscription right for 3 existing ordinary shares held on that date (the “Rights”) to subscribe for New Shares at the Issue Price (“Rights Shares ”), and (2) the rump offer (the “Rump Offer), in which New Shares for which Rights have not been validly exercised or which are untaken during the Rights Offer Period (as defined below) (the “Rump Shares”) will be sold at a price no lower than the Issue Price. The Rights Issue will be made by way of a public offering in Rwanda under law N°01/2011 of 10/02/2011 Law regulating capital market in Rwanda. The Rights Shares shall be admitted to listing on the Rwanda Securities Exchange (“RSE”). This Information Memorandum is issued by the Issuer in compliance with the requirements of the Registrar General’s Instructions No. 01/2010/ORG of 12/04/2010 relating to the form and content of a prospectus (“Information Memorandum Instructions”) Law No17/2018 of 13/04/2018 relating to Companies (the “Rwanda Companies Act”), and the regulation No 7 of 6 June 2012 on Public Offers and Issues of Securities of the Capital Markets Authority (CMA) of Rwanda (the “Rwanda CMA”) and the requirements of the RSE. Application has been made to the Rwanda CMA and approval has been granted for the Rights Issue and a no objection to the Cross Listing. As a matter of policy, the Rwanda CMA assumes no responsibility for the correctness of any statements or opinions made or reports contained in this Information Memorandum. Approval of the Rights Issue and the listing of the New Shares on the RSE are not to be taken as an indication of the merits of the Group, its subsidiaries or of the New Shares. The securities offered have not been approved or disapproved by the Authority. The RSE has given permission for listing of the Rights Shares. It is expected that the admission of the trading of the Rights Shares on the RSE will commence at 9.00 am on Friday,30 November 2018. The RSE assumes no responsibility for the correctness of any of the statements made or opinions or reports expressed in this Information Memorandum. Admission of the Rights Shares to the official list of the RSE is not to be taken as an indication of the merits of the Group, its subsidiaries or of the New Shares. Application has been made to the Capital Markets Authority of Kenya (the “Kenya CMA”) and to the Nairobi Securities Exchange (“NSE”) and approval has been granted for the Cross Listing of BK Group shares on Main Investment Market Segment (“MIMS”) of the NSE. As a matter of policy, the Kenya CMA and the NSE assume no responsibility for the correctness of any statements or opinions made or reports contained in this Information Memorandum. Approval of the Cross Listing and the subsequent admission to the official list of the NSE are not to be taken as an indication of the merits of the Group, its subsidiaries or of its shares.

Prospective investors should carefully consider the matters set forth under the caption “Risk Factors” under Section 9. If you are in doubt as to the meaning of the contents of this Information Memorandum or as to what action to take, please consult your investment bank, financial advisor, stockbroker, or other professional advisor, duly authorized under the capital markets legislation, who specializes in advising on the acquisition of shares and other securities. If you have sold or transferred all your ordinary shares in BK, please forward this Information Memorandum and the Entitlement and Acceptance Form to the purchaser or transferee, or to the stockbroker or agent through whom the sale or transfer was effected, for delivery to the purchaser or transferee.

Responsibility Statements

This Information Memorandum has been seen and approved by the Board of the Directors of the Group. The Directors, whose names are given on page viii, collectively and individually accept full responsibility for the accuracy of the information given in this Information Memorandum and confirm that, after having made all reasonable enquiries, and to the best of their knowledge and belief (having taken all reasonable care to ensure that such is the case) there are no false or misleading statements and other facts the omission of which make any statement herein false or misleading or otherwise likely to affect the import of such information. The Lead Transaction Advisor acknowledges that based on all the available information and to the best of their knowledge and belief, the Information Memorandum constitutes a full and true disclosure of all material facts concerning the Offer and they have satisfied themselves that any profit or cash flow projections for which the Directors are fully responsible, has been prepared for inclusion in the Information Memorandum and has been stated by the Directors after due and careful enquiry and have been duly reviewed by the Reporting Accountants. Potential investors should not assume that the information in this Information Memorandum is accurate as at any date other than the date of this Information Memorandum. No person is or has been authorized to give any information or make any representation in connection with the Offer and Listing, other than as contained in this Information Memorandum. Delivery of this Information Memorandum at any time after the date hereof will not under any circumstances create any inference that there has been no change or that the information set out in this Information Memorandum is correct as at any time since its date.

Selling Restrictions

The Offer does not constitute an offer to issue or sell, or the solicitation of an offer to subscribe for or buy, securities in any jurisdiction in which such an offer or solicitation would be unlawful. The Offer consists of an offering outside the United States of America (the United States) of shares pursuant to Regulation S under the US Securities Act 1933, as amended (the Securities Act). The Shares have not been and will not be registered under the Securities Act or qualified for sale under the laws of any state of the United States or under the applicable laws of the United Kingdom, Canada, Australia or Japan and, subject to certain exceptions, may not be offered, sold, pledged or otherwise transferred in the United States or to, or for the account or benefit of, U.S. persons as defined in Regulation S or to any national, resident or citizen of the United Kingdom, Canada, Australia or Japan. Neither this document nor any copy of it may be sent to or taken into the United States, the United Kingdom, Canada, Australia or Japan nor may it be distributed to any U.S. person.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

Supplementary Information Memorandum

If, prior to the Listing of the Shares a significant new development occurs in relation to the information contained in this Information Memorandum or a material mistake or inaccuracy is found that may affect the assessment of the Group, a supplement to this Information Memorandum may be published with the approval of the Regulatory Authorities.

Forward - looking statement

This Information Memorandum contains “forward-looking statements” relating to the Company’s business. These forward-looking statements can be identified by the use of forward-looking terminology such as “believes”, “expects”, “may”, “is expected to”, “will”, “will continue”, “should”, “would be”, “seeks” or “anticipates” or similar expressions or the negative thereof or other variations thereof or comparable terminology, or by discussions of strategy, plans or intentions. These statements reflect the current views of the Company with respect to future events and are subject to certain risks, uncertainties and assumptions. Many factors could cause the actual results, performance or achievements of the Company to be materially different from the future results, performance or achievements that may be expressed or implied by such forward-looking statements. Some of these factors are discussed in more detail under “Risk Factors” and “Business Overview”. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this Information Memorandum as anticipated, believed, estimated or expected.

Consents

Renaissance Capital (Rwanda) Limited as Lead Transaction Advisor, BK Capital as Sponsoring Broker and Registrars; Trust Law Chambers as Legal Advisors; PricewaterhouseCoopers as Reporting Accountants; Bank of Kigali as the Receiving Bank; and Hope Holdings Ltd as the PR & Marketing Advisors to the Company have consented in writing to act in the stated capacities and to their names being included in this Information Memorandum and have not withdrawn their consent prior to its publication. None of the above advisors has been employed on a contingent basis by the Company and none of them owns shares in the Company which would be material to that person or has a material, direct or indirect economic interest in the Company.

Legal Opinions

Trust Law Chambers have given and have not withdrawn their consent to the inclusion in this Information Memorandum of their Legal Opinion, and the references to their name, in the form and context in which it appears, and have authorised the contents of the said Legal Opinion.

Reporting Accountant’s Report

PricewaterhouseCoopers Rwanda Ltd have given and not withdrawn their consent to the issue of the said report in the form and context in which they are included in this Information Memorandum.

VII

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

CORPORATE INFORMATION 1.1.

Name of Issuer

BK Group Plc

1.2.

Country of Incorporation

The Republic of Rwanda

1.3.

Date of Incorporation

22 December 1966

1.4.

Company Registration Number

100003458

1.5.

Registered/Head Office

BK Group PLC Building. KN4 Ave No 12, Plot No 790. P. O. Box 175, Kigali, Rwanda

1.6.

Authorised Share Capital

FRw 10,504,600,000

1.7.

Issued and Paid-up Share Capital

FRw 6,745,370,000

1.8.

Financial Calendar

31 December

1.9.

Website

https://www.bk.rw

1.1. Directors 123 Name

Role on Board

Nationality

Address

Profession

Age

Marc Holtzman

Chairman

American

Tower 2, 1st Floor, The Lily, Hong Kong - China.

Entrepreneur

Richard Tusabe1

Non-Executive Director

Rwandese

Rwanda Social Security Board. KN 3 Rd.

CEO, RSSB

Dr. Diane Karusisi

CEO

Rwandese

P. O. Box 175, Kigali - Rwanda

CEO, BK Group

Julien Kavaruganda

Independent NonExecutive Director

Rwandese

Rwanda Bar Association KK 500 St.

President, Rwanda Bar Association

Reuben Karemera

Non-Executive Director

Rwandese

Ministry of Finance & Economic Planning. 12KN 3 Avenue, Kigali - Rwanda.

Director Accountant General, Treasury Management - Ministry of Finance and Economic Planning

Alline Kabbatende

Independent Non - Executive Director

Rwandese

WEF - 1201 Ralston Avenue, San Francisco, CA 94129

GoR Rep for World Economic Forum

Lilian Kyatengwa2

Independent NonExecutive Director

Rwandese

KAMI Building KN5, Remera, Kigali.

Chief Strategy Officer, Aviation Travel & Logistics Holding

1.3.

Company Secretary

Emmanuel Nkusi Batanage KN4 Ave No 12, Plot No 790 P. O. Box 175, Kigali – Rwanda

1.4. Auditors PricewaterhouseCoopers Rwanda Limited 5th Floor, Blue Star House, Kacyiru P. O. Box 1495, Kigali - Rwanda

1.5. Advocates Emmanuel Rukangira P. O. Box 3270, Kigali - Rwanda

1 2

Appointed on 22 October 2018, pending regulatory approvals Appointed on 22 October 2018

VIII

Athanase Rutabingwa P. O. Box 6886, Kigali - Rwanda

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

ADVISORS TO THE TRANSACTION Lead Transaction Advisor

Sponsoring Broker

making more possible

Renaissance Capital (Rwanda) Limited Centenary Ground, 3rd Floor, No. 16. Kigali - Rwanda. Tel: +254 (0) 20 368 2000 Email: inforwanda@rencap.com www.rencap.com

BK Capital Limited BK Group PLC Building. KN4 Ave No 12, Plot No 790 P. O. Box 175, Kigali - Rwanda Tel: +250 252 593100 www.bk.rw

Rwanda Legal Counsel

Reporting Accountants

Trust Law Chambers KG 569 Street, TLC House, Kacyiru P. O. Box 6679, Kigali - Rwanda Tel: +250-252 503075 Email: info@trustlawchambers.com www.trustchambers.com

PricewaterhouseCoopers Blue Star House, 5th Floor, Blvd de Iâ&#x20AC;&#x2122;Umuganda, P. O. Box 1495, Kigali - Rwanda Tel: +250-252 588203/4/5/6 Email: info@pwc.com www.pwc.com/rw

Receiving Bank

PR & Marketing agency

Bank of Kigali PLC BK Group PLC Building KN4 Ave No 12, Plot No 790 P. O. Box 175, Kigali - Rwanda Tel: +250 252 593100 www.bk.rw

Hope Holdings Limited Kigali Heights, West Wing, 3rd Floor Kimihurura, Gasabo, Kigali - Rwanda Tel: +250 788 524 189 Email: info@hope-mag@.com www.hope-mag.com

Rwanda Share Registrars

making more possible

BK Capital Limited BK Group PLC Building KN4 Ave No 12, Plot No 790 P. O. Box 175, Kigali - Rwanda Tel: +250 252 593100 Website: www.bk.rw

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

DEFINITIONS & ABBREVIATIONS Except where the context otherwise requires (i) words denoting the singular include the plural and vice versa; (ii) words denoting any one gender include all genders; (iii) words denoting persons include firms and corporations and vice versa and (iv) capitalized terms used in the accompanying forms shall be construed and interpreted in accordance with this Information Memorandum. Reference to any statute or statutory provision includes a reference to that statute or statutory provision as from time to time amended, extended, replaced, re-enacted or consolidated statutory instruments or orders made pursuant to it.

TERM

DEFINITION

“AGM”

Annual General Meeting of shareholders as defined in the Articles of the Company

“Application Money”

The amount paid in Rwandese Francs to the Authorised Agent or the Receiving Bank and which is the Issue price multiplied by the number of New Shares in accordance with the relevant Entitlement and Acceptance Form

“Articles” or “Memarts”

The memorandum and articles of association of the Company

“Auditor”

PricewaterhouseCoopers

“Authorised Cheque”

Bankers or Authorised Selling Agents cheque

“Authorised Selling Agents” or “ASA” or “Authorised Agent”

Those licensed brokers, licensed commercial banks and the Receiving Bank listed in Section 16

“BK Group” or “BK” or “Group” or “Company”

BK Group Plc, a public company incorporated under the Laws of Rwanda whose Company Code is 100003458, registered as a foreign branch in Kenya with registration number CF/2012/91559, listed on the RSE and operating as a non-operating holding company for its subsidiary companies, including the Bank.

‘’Bank’’

Bank of Kigali PLC, a subsidiary of the BK Group operating as a commercial bank incorporated in Rwanda on 21 December 2017 with company registration number 107610471 and whose registered office is located in Kigali.

“Bankers Cheque”

A cheque /draft issued by a commercial bank licensed by BNR

‘’Belgolaise’’

Belgolaise S.A., a bank incorporated in Belgium

“BNR”

Banque Nationale du Rwanda / National Bank of Rwanda, being the central bank of the Republic of Rwanda

“Board” or “Directors”

The Board of Directors of the Group, which comprises the persons named in Section 8 as the directors of BK Group

‘’BVPS’’

Book Value Per Share

“Cabinet”

The Cabinet of the Government of the Republic of Rwanda

“Caisse Sociale du Rwanda”

Social Security Fund of Rwanda

“CAGR”

Compound annual growth rate

“Capital Markets Legislation”

Refers to the Capital Markets Authority Law No. 23/2017 and Law No. 01/2011 of the Laws of Rwanda and all subsidiary and subsequent legislation, regulations and guidelines; the rules and guidelines of the Rwanda Stock Exchange and any other applicable laws that govern the capital markets in Rwanda

“CAR”

Capital Adequacy Ratio which equals Total Capital divided by risk weighted assets

“CSD”

Central Securities Depository system in Rwanda that is run by the BNR for the clearing and settlement of securities

“CSD Account”

A securities account opened and maintained by the CSD (or its authorised agents) in accordance with the Rwanda law governing the Holding and Circulation of Securities No. 26/2010 of 28/5/2010 gazetted on 28 May 2010

“Closing Date” or “Closure Date”

November 9, 2018

“COMESA”

Common Market for East and Southern Africa

“Core Capital” or “Tier I Capital”

Permanent shareholders’ equity in the form of issued and fully paid up shares plus all disclosed reserves, less goodwill and any intangible assets

‘’Cross Listing’’

Cross Listing of BK Group shares on the NSE

“CSD 1R Form”

CSD Account Opening Form

“CSD 5R Form”

CSD Pledge Form

“East African”

Citizens of the East African Community including corporations incorporated in the EAC

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

TERM

DEFINITION

“East African Community” or “EAC”

The regional intergovernmental organization whose current partner states include the Republic of Rwanda, the Republic of Kenya, the United Republic of Tanzania, the Republic of Uganda, Republic of South Sudan and Republic of Burundi, set up by treaty, with its headquarters in Arusha, Tanzania

“EFT”

Electronic Funds Transfer

“EGM”

A special meeting of shareholders convened in accordance with the Articles of the Group other than the AGM

“Eligible Shareholder”

A shareholder registered as a holder of the shares as of the Record Date

‘’Eligible Person’’

Eligible Shareholders and those persons who purchased the Rights during the Rights Trading Period

“Employee”

Any person in the employment of the BK Group as at the date of this IM

“Entitlement”

The entitlement of Offer Shares of an Eligible Shareholder (or purchaser of or Renouncee of Rights) pursuant to the Rights Issue at the Entitlement Ratio and the Rights Issue Price

“Entitlement and Acceptance Form” or “Application Form” or “PAL”

The Provisional Allotment Letter and/or Form E and/or Form R, as referred to (Refer below)

“Entitlement Ratio”

1 New Share for every 3 Existing Shares (1:3)

‘’EPS’’

Earnings Per Share

“ESOP”

Employee Share Ownership Plan of the Group as described in this IM

“Existing Shares”

Ordinary shares of par value of FRw 10 each of BK Group PLC and held by Eligible Shareholders as of the Record Date

“Form A”

Form of Power of Attorney to be completed by Eligible Persons wishing to appoint third parties as their lawful attorney or agent to act on their behalf in connection with the Rights Issue

“Form E”

Form of Entitlement to be used by any person and issued in favour of such person, in the case of Rights purchased on the RSE or balance Rights in the CSD account

“Form R”

Form of Renunciation to be completed by the Eligible Person on renunciation of the provisional Rights to a third party through direct renunciation

“FRw” or “FRW”

The Rwandan franc, the official currency of the Republic of Rwanda

“GDP”

Gross Domestic Product

“GoR” or “the Government”

The Government of the Republic of Rwanda

“IBG”

Irrevocable Bank Guarantee issued by a commercial bank licensed by BNR, a sample of which is included as Appendix 14 and can be used by an Eligible Person at their cost and on the terms of this Information Memorandum

“ILU”

Irrevocable Letter of Undertaking issued by Rump Investor, a sample of which is included in Appendix 14 and can be used by Rump Investor at their cost and terms of this Information Memorandum

“IFRS”

International Financial Reporting Standards

‘’IMF’’

International Monetary Fund

“Information Memorandum” or “IM”

This Information Memorandum dated 16 October, 2018

‘Information Memorandum Instructions’’

Instructions of the Registrar General No. 01/2010/ORG of 12/04/2010 relating to the form and content of an Information Memorandum as amended from time to time

“Issued Price”

The price of FRw 270 at which the New Shares are offered

“Lead Transaction Advisor” and “Sole Bookrunner”

Renaissance Capital (Rwanda) Limited

“Legal Advisor” or collectively as “Legal Advisors”

Trust Law Chambers as the Legal Advisor in Rwanda and Coulson Harney LLP (trading as Bowmans) as the Legal Advisor in Kenya, as may be indicated

“Listing”

Admission of the New Shares to the official list of the RSE

“Listing Date”

The date on which the New Shares are listed on the RSE

“MFI”

Micro-finance Institution

“MINECOFIN”

Ministry of Finance and Economic Planning, Rwanda

“NBAs”

Non-Business Associations include non-profit organizations, charities, religious institutions, educational institutions, cooperatives etc

‘’NGO’’

Non- Governmental Organization

‘’NISR’’

National Institute of Statistics of Rwanda

“NPL”

Non-Performing Loans

“NSE”

The Nairobi Securities Exchange

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

TERM

DEFINITION

“Offering” or “Offer”

The offer comprising of (i) the Rights Issue, and (ii) the Rump Offer

“Offer Period”

Means the period beginning on the Rights Issue Opening Date and ending on the Closure Date

“Offer Shares” or “New Shares” or “New Offer Shares”

The New 222,222,222 Shares that are being offered through this Rights Issue

“Office National des Postes”

National Post Office

“Opening Date”

29 October 2018

“P/BV”

Price-book value ratio

“PAL” or “Provisional Allotment Letter”

The letter issued to Eligible Shareholders indicating their Entitlement and providing for full, additional or partial acceptance in the form or substantially in the form set out in Appendix 14

‘’PE’’

Price-earnings ratio

“POS”

Point of Sale

QII

Qualified Institutional Investor, a corporate body including a financial institution, a collective investment scheme, a fund manager or other entities whose ordinary business includes the management or investment of funds, whether as principal or on behalf of clients as approved by BK Group

“Receiving Bank”

Bank of Kigali PLC

“Record Date”

24 October, 2018 the date the register of the company will be closed for the purpose of determining entitlement to participate in the Rights Issue

“Registrar” or “Share Registrar” collectively “Registrars”

BK Registrars Limited as the Registrar in Rwanda and CDSC Registrars the Registrars in Kenya, as may be indicated

“Reporting Accountants”

PricewaterhouseCoopers

“Rights”

The transferable right to subscribe for one New Share for each existing ordinary share held on the Record Date at the Issue Price under the terms of this Information Memorandum and the PAL

“Rights Issue”

The offer in which Shareholders as of the Record Date will be granted Rights

“Rights Shares”

The New Shares subscribed by Shareholders as part of the Rights Issue

“Rights Offer Period

Means the period from 9.00 am on October 29, 2018 to 5.00 pm on November 9, 2018 (both dates included)

“RSSB”

The Rwanda Social Security Board

“RSE”

The Rwanda Stock Exchange

“RTGS”

Real time gross settlement

‘’Rump Offer’’

The sale of the New Shares for which Rights have not been validly exercised or which are untaken during the Rights Offer Period (as defined above) (the “Rump Shares”) at no lower than the Rights Issue Price to QIIs

“Rump Shares”

The New Shares untaken as part of the Rights Issue which shall be offered to QIIs

‘’Rwanda CMA’’

The Capital Market Authority of Rwanda

“Rwanda Companies Act”

The Law No. 17/2018 of 13/04/2018 relating to Companies

“SACCO”

Savings and Credit Cooperative Organization

“Securities Act”

United States Securities Act of 1933

“Shares”

Ordinary shares of par value FRw10 each in the capital of BK

“Shareholders”

Persons who own shares in BK Group and are on the register of members

‘’SME’’

Small to Medium-Sized Enterprise

“Sponsoring Broker”

BK Capital Limited

“Supplementary Capital” or “Tier II Capital

Includes 25% of revaluation reserves, subordinated debt, permanent debt and any other form of capital as determined by the BNR

“SWIFT”

Society for Worldwide Interbank Financial Telecommunication

“Time”

Any reference to time in this Information Memorandum shall refer to 2 hours in advance of Greenwich Mean Time (GMT) being the local time in Rwanda

“Total Capital” or “Net Worth”

Core Capital plus Supplementary Capital

“USD” or “US Dollars” or “US$” or “$”

The official currency of the United States of America

‘’VISA©’’

Registered trademark of Visa Inc.

XII

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

LETTER FROM THE CHAIRMAN

Dear Shareholders, On behalf of the BK Board, I have great pleasure in presenting to you this Information Memorandum (“IM”) for BK’s Rights Issue, which is being effected further to your approval at the last AGM. This is the second public equity raising initiative by BK following the successful IPO in 2011 and it provides you with an opportunity to enhance your investment by taking up more shares in your company. The targeted capital raise of FRW 60 billion will be put to very good use by your management team in pursuing BK’s exciting and well-defined expansion and growth agenda. At the AGM we also received approval to pursue a potential cross listing onto the Nairobi Securities Exchange (“NSE”) and I am delighted to update that we have received approval from the Kenya CMA and the NSE for the Cross Listing, which will become effective immediately post the end of the Rights Issue offer period, and enable the trading of your shares across both the RSE and NSE. We believe the cross listing will access a wealth of new potential investors and increase our daily liquidity, which will be only to the benefit of our existing shareholder base and market. Over the last 7 years, our business has grown steadily resulting in a balance sheet size of FRw 727billion at the end of 2017. Similarly, the net profit grew by approximately 21% CAGR from FRw 6.2billion to FRw 23.3billion between 2010 and 2017. In our banking business, we continue to enjoy market leadership and grow our platform. Bank of Kigali now proudly boasts a wide footprint of 79 branches which are supported by a growing network of agents and mobile vans, which has enabled us to reach a wider majority of Rwanda’s population and, which together with our focus on digital transformation, will enable us to remain true to our promise of financially transforming lives and contributing to the financial inclusion of all Rwandans. We have also been heavily focused on our other financial services subsidiaries, including the launch of our Insurance business, BK General Insurance which promises to create a lot of value and is highly complementary to our traditional Banking effort. In accordance with this desire to become a full suite financial services company, and further to shareholder approval last year, we restructured the listed entity to be BK Group, a new holding company that allows our shareholders to benefit from out all subsidiary initiatives. The funds raised from the Rights Issue will go towards ensuring that the Group’s subsidiaries are adequately capitalized to comply with the capital adequacy requirements as well as implement our growth strategy. This Rights Issue is an invitation to all existing shareholders to increase your investment in the Group and be part of the growth of a vibrant business. Our talented team is mindful that our success is constantly measured by the creation of shareholder value and how well we serve our community. Given the dynamism and opportunities in Rwanda today, coupled with the transformative changes taking place in today’s financial services sector, we believe that our future is indeed limited only by ourselves. As such, I am also delighted that an Employee Share Ownership Plan (ESOP) is being established in conjunction with this capital raise which will allow our exemplary staff to participate and further align with the success of the Group. Through this Information Memorandum the Company is inviting Eligible Shareholders to apply for 222,222,222 New Shares at an Issue Price of FRw 270 per share (before costs and expenses of the Offer). This translates into 1 New Share for every 3 Existing Shares held. This IM contains detailed information about the Group’s operations, financial performance and corporate governance. It also outlines the risks to the Group’s business. I therefore encourage you to read this IM and other documents in their entirety and seek independent professional advice as necessary, before making an investment decision. Yours Sincerely

Mr Marc Holtzman Chairman

XIII

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

DIRECTORSâ&#x20AC;&#x2122; STATEMENT

The Directors of BK Group, whose names appear in Section 8.3, collectively and individually accept responsibility for the information contained in this Information Memorandum. To the best of the knowledge and belief of the Directors (who have taken all reasonable care to ensure that such is the case), the information contained in this document is in accordance with facts and does not omit anything likely to affect the import of such information. The Directors declare that all information stated in this Information Memorandum and the statements contained herein are correct and that no minutes of the meetings of the Board of Directors, audit reports or any other internal documents contain information which could distort the interpretation of this Information Memorandum. The Directors are further of the opinion that the issued and fully paid up share capital is adequate for the Company for the foreseeable future. The Directors confirm that BK Group will comply, where applicable, with the Rwandan capital market laws), and (Article 52 of the Law No.17/2018 of 13/04/2018 relating to Companies, the RSE Rules, the Kenya Capital Markets Act; the Capital Markets (Securities) (Public Offers, Listing and Disclosure) Regulations, 2002, the Nairobi Securities Exchange Listing Rules 2014 and the Companies Act, 2015 of Kenya.

Signed by:

Marc Holtzman Dr. Diane Karusisi Chairman Director & Chief Executive Officer

XIV

SECTION 1: TIMETABLE FOR THE OFFER No.

Event

Time

Date

Record Date

12.00pm

Wednesday, 24 October

Upload of Rights into the depository system

4.00pm

Friday, 26 October

Rights Issue Opens

9.00am

Monday, 29 October

Last date and time for renunciation by private transfer

12.00pm

Friday, 2 November

Last date and time for trading in NIL paid Rights

12.00pm

Monday, 5 November

Rights Issue Closes

5.00pm

Friday, 9 November

Rump Offer Opens

9.00am

Monday, 12 November

Rump Offer Closes

5.00pm

Friday, 16 November

Last date of payment of IBGs and Rump Offer Shares

3.00pm

Wednesday, 21 November

Announcement of results

9.00am

Friday, 23 November

Electronic Crediting of CSD and CDS accounts with the New Shares

5.00pm

Wednesday, 28 November

Listing of New Shares on the RSE and Cross Listing on the NSE and commencement of trading on both markets.

9.00am

Friday, 30 November

Notes: 1. 2. 3. 4. 5.

All references to time are in Rwanda local time, except as otherwise stated; If any date falls on a gazetted public holiday, the applicable date shall be the next working day; The dates may be changed at the discretion of the Board, subject to the approval by the Rwanda CMA and Kenya CMA, the RSE and NSE; Any changes or amendments shall be announced and published in public media; It should be noted that the RSE record date will be 3 working days prior to the Companyâ&#x20AC;&#x2122;s Record Date.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 2: EXECUTIVE SUMMARY THIS SUMMARY SHOULD BE READ AS AN INTRODUCTION TO THIS INFORMATION MEMORANDUM AND ANY DECISION TO INVEST IN BK’S SHARES SHOULD BE BASED ON THE CONSIDERATION OF THE INFORMATION MEMORANDUM IN ITS ENTIRETY

2.1.

Company History and Business Overview

BK Group is a leading financial institution in Rwanda offering a wide spectrum of financial services through its various subsidiaries, including banking and insurance services to corporate, SME and retail customers. BK was incorporated, as Bank of Kigali S.A., in the Republic of Rwanda on December 22, 1966. It was founded as a joint venture between GoR and Belgolaise, with each owning 50% of the Ordinary Share Capital of the bank. The Bank commenced operations in 1967 with the opening of its first branch in Kigali. Belgolaise was a subsidiary of Fortis Bank operating in Sub-Saharan Africa and in 2005 began to withdraw from its operations in Africa in line with Fortis’ strategy. In 2007 the GoR acquired Belgolaise’s shareholding, thereby increasing its direct and indirect shareholding to 100% of the entire issued shares. In 2011, the Bank changed its name under the new Companies’ Law from Bank of Kigali S.A. to Bank of Kigali Limited. In June of 2011, GoR divested by selling 25% of its shareholding to the public through the capital market that led to the subsequent listing of the Bank on the Rwanda Stock Exchange. In 2013, BK Securities, which subsequently in 2018 was renamed to BK Capital, was established while BK General Insurance and BK TecHouse were subsequently established in 2016. In 2017, the Group restructured, creating a holding company – BK Group Plc to hold and manage the investments in the subsidiaries.

2.2.

Transaction Summary

Issuer

BK Group PLC

The Shares

The authorised share capital of the Company is FRw 10,504,600,000 divided into 1,050,460,000 Ordinary Shares, each with par value of FRw 10.00. As at the date of this Information Memorandum the number of issued and fully paid Ordinary Shares is 674,537,000.

New Shares

The Company is offering 222,222,222 ordinary Shares by way of the Rights Issue. The New Shares are being offered to Eligible Shareholders.

Issue Price

FRw 270 per Offer Share

Securities Exchange Listing

It is expected that the Admission of the additional Shares to trading on the RSE will occur on Friday, November 30.

Registration

The New Shares will be issued as dematerialised securities. The New Shares will be registered in the Securities Account of each applicant held with the CSD and CDS. No physical share certificates will be issued.

The Offer

If subscribed in full, the issue of the New Shares is expected to raise approximately FRw 60 billion.

The Rights Issue

The Rights Issue will be made on the basis of 1 New Share for every 3 Existing Shares held by an Eligible Shareholder at close of business on the Record Date (being Wednesday, October 24, 2018).

The Rump Offer

The New Shares not taken up during the Rights Issue will be offered to QIIs at the Board’s discretion and will therefore, for avoidance of doubt, not be offered to the general public in Rwanda, Kenya or elsewhere

Cross Listing

BK has received approval from CMA Kenya and the NSE to cross list its shares on the Main Investment Market Segment of the NSE. The cross listing is expected to be effective on November 30, 2018. Any shares taken up during the Rump Offer by investors that hold CSD accounts in Kenya, will begin trading on November 30, 2018

Employee Share Ownership Plan

It is the intention of the Group to set up an Employee Share Ownership Plan, as part of the Rights Issue. 7,200,000 New Shares, representing 3.24 % of the Offer, will be issued to employees of the Group, as per details in Section 3.

Security Codes/Ticker

2.3.

Investment Highlights

Sound Macro Fundamentals

• • • • •

Significant banking sector potential

• • • •

Politically stable country with sound governance Very attractive demographic profile: population of 12.0 Million Robust economic growth averaging 8% pa in the last 5 years, expecting a sustainable high GDP growth into 2020. Moderate inflation: average CPI 3.2% The 2017 World Bank Doing Business Report ranked Rwanda as the 41st out of 190 countries in terms of ease of doing business and 2nd in Africa. Significant headroom for growth given under-banked and excluded population Number of financially excluded population reduced from 28% in 2012 to only 11% in 2016. Total assets/GDP of 38.0% as at 31 March 2018 Well-regulated banking sector: fairly conservative regulator relative to other regulators in the EAC

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 2: EXECUTIVE SUMMARY

Market leadership

• • • • •

Strong market positioning and sustainable leadership by; Total assets FRw 731.8 billion; 32.7% market share as at 1H 2018 Net Loans FRw 481.2 billion; 37.9% market share as at 1H 2018 Customer Deposits FRw 472.3 billion; 31.0% market share as at 1H 2018 Shareholders’ Equity FRw 129.9 billion; 38.7% market share as at 1H 2018

Stringent Risk Management

• •

Manageable level of non-performing 5.8% of gross loans as at 1H 2018, down from 19.4% in 2007. Liquid assets holding of 39.5% (minimum requirement 20%)

Experienced management team

• • •

Strong management team with extensive banking sector experience; Complemented by an experienced and diversified Board of Directors; Track record of producing profitable and stable financial results;

Profitable growth

• • •

Robust asset growth at a CAGR of 15.5% 2013 - 1H 2018) - FRw 731.8 billion as at 1H 2018 ROAA ranging from 3.7 % - 4.0% between 2013 and 1H 2018 ROAE ranging from 20%-23% between 2013 and 1H 2018

2.4.

Financial Performance Summary4

These summary financial statements should be read along with the Reporting Accountant’s Report as set out in Section 11 of this Information Memorandum.

2.4.1. Income Statement

The summarized consolidated statements of comprehensive income of BK for the five financial years ended 31 December 2017 and the half year to June 2018 are as follows;

Period Ended 30 June 2018

2017

2016

2015

2014

2013

FRw’000’

Interest income

44,823,823

84,707,152

74,341,736

61,753,209

54,090,042

46,815,676

Interest expense

(8,679,207)

(18,315,980)

(16,556,236)

(13,727,086)

(12,654,600)

(10,015,908)

Net interest income

36,144,616

66,391,172

57,785,500

48,026,123

41,435,442

36,799,768

Net fees and commission income

8,888,653

15,857,994

12,072,942

10,097,923

8,718,939

9,196,329

Foreign exchange related income

4,147,361

7,786,502

6,583,450

5,301,247

7,724,325

7,476,135

153,500

1,231,111

181,442

292,651

301,838

281,008

1,547,214

2,104,762

283,950

Operating income before impairment losses

50,881,344

93,371,541

76,907,284

63,717,944

58,180,544

53,753,240

Net impairment on loans and advances

(6,845,851)

(16,489,292)

(10,448,958)

(7,547,662)

(7,542,957)

(8,993,999)

(1,363,454)

(6,634,811)

(1,816,787)

(775,299)

(909,363)

43,260,194

74,609,432

59,823,515

54,353,495

50,637,587

44,759,241

(10,132,460)

(21,127,700)

(14,075,178)

(15,029,991)

(14,427,737)

(11,707,238)

Depreciation and amortisation

(2,463,630)

(4,501,210)

(3,955,171)

(3,807,120)

(3,663,534)

(4,639,637)

Administration and general expenses

(8,485,208)

(14,815,059)

(11,812,051)

(9,779,152)

(9,787,611)

(9,656,130)

Total operating expenses

(21,081,298)

(40,443,969)

(29,842,400)

(28,616,263)

(27,878,882)

(26,003,005)

Profit before income tax

22,178,896

34,165,463

29,981,115

25,737,232

22,758,705

18,756,236

Income tax expense

(8,767,579)

(10,823,154)

(9,225,249)

(5,253,174)

(4,441,880)

(3,926,001)

Profit for the period/year

13,411,317

23,342,309

20,755,866

20,484,058

18,316,825

14,830,235

Other operating income Net premium income

Other operational related costs Insurance claims Net operating income Employee benefits

The summary financial statements herein may differ from the Company’s Annual Reports due to adjustments for accounting changes over the period of review. For detailed information refer to the PWC Opinion in Section 11 Notes 1 and 2.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 2: EXECUTIVE SUMMARY

Period Ended 30 June 2018

2017

2016

2015

2014

2013

FRw’000’

Other comprehensive income not to be reclassified to profit and loss in subsequent periods; Revaluation of property and equipment net tax

5,458,581

13,411,317

23,342,309

26,214,447

20,484,058

18,316,825

14,830,235

Basic earnings per share in FRw

19.88

34.67

30.87

30.49

27.34

22.20

Diluted earnings per share in FRw

19.88

30.76

30.38

27.22

22.13

13.87

12.31

12.15

16.33

11.10

Total comprehensive income for the year

Dividend per share (FRw)

2.4.2. Summary of Five-Year Balance Sheet The summarized consolidated balance sheets of BK for the five financial years ended 31 December 2017 and the half year to June 2018 are as follows; Period ended 30 June

For the year ended 31 December

2018

2017

2016

2015

2014

2013

FRw ‘000’

Cash in hand

15,489,713

19,731,699

15,032,721

14,951,617

12,020,669

11,110,210

Balances with the National Bank of Rwanda

51,665,954

42,583,327

31,832,058

44,572,594

46,938,373

24,855,050

Due from banks

45,843,817

53,055,021

84,634,868

62,568,118

102,988,217

107,377,523

Held to maturity investments

88,699,681

94,248,923

77,962,606

93,503,198

58,596,907

50,820,690

481,246,614

471,704,315

385,824,570

313,925,535

233,439,509

199,025,241

2,069,896

1,147,644

13,002,141

10,304,365

8,877,766

8,255,500

7,665,385

7,695,005

221,425

218,455

32,744,653

33,529,626

33,435,701

22,846,884

20,503,423

21,018,894

791,456

678,355

514,883

381,529

234,056

239,005

731,775,350

727,204,700

638,336,598

561,226,400

482,607,964

422,360,073

37,887,893

42,377,460

28,105,184

22,609,724

15,214,461

17,345,024

472,313,572

455,213,393

419,017,263

384,713,700

324,601,160

280,489,463

5,783,330

6,900,698

4,165,830

808,141

692,518

1,828,573

286,198

2,351,802

6,795,553

2,193,269

1,839,991

1,927,101

Dividends payable

14,762,774

9,378,311

8,343,104

34,230

5,469

7,416,579

Insurance liabilities

2,809,771

2,123,038

Other liabilities

9,514,231

15,267,691

6,286,996

9,656,897

10,860,278

8,705,581

Long-term finance

58,544,298

70,842,175

57,137,068

42,475,643

40,254,954

34,190,519

TOTAL LIABILITIES

601,902,067

604,454,568

529,850,998

462,491,604

393,468,831

351,902,840

ASSETS

Loans and advances to customers Insurance receivables Other assets Equity investments Property and equipment Intangible assets TOTAL ASSETS LIABILITIES Due to banks Deposits and balances from customers Current income tax Deferred income tax

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 2: EXECUTIVE SUMMARY

Period ended 30 June

For the year ended 31 December

2018

2017

2016

2015

2014

2013

FRw ‘000’

6,745,370

6,724,428

6,721,842

6,713,706

6,684,500

Share premium

18,936,176

18,695,343

18,665,604

18,572,040

18,236,171

Revaluation reserves

13,000,149

13,630,625

8,172,043

Retained earnings

91,191,588

84,068,437

69,435,204

65,175,307

55,681,344

37,364,519

TOTAL EQUITY

129,873,283

122,750,132

108,485,600

98,734,796

89,139,133

70,457,233

TOTAL LIABILITIES AND EQUITY

731,775,350

727,204,700

638,336,598

561,226,400

482,607,964

422,360,073

CAPITAL AND RESERVES Share capital

2.4.3. Summary of Five-Year Cash Flow Statements

The summarized cash flows of BK for the five financial years ended 31 December 2017 and the half year to June 2018 are as follows; Period ended 30 June

For the year ended 31 December

2018

2017

2016

2015

2014

2013

FRw ‘000’

22,178,896

34,172,034

29,981,115

25,737,232

22,758,705

18,756,236

2,093,180

3,884,073

3,513,410

3,503,134

3,469,943

4,303,044

Amortization of intangible assets

370,450

617,137

441,761

303,986

193,591

336,593

Gains on disposal of fixed assets

(852,793)

(50,723)

(75,778)

(84,496)

(24,753)

Loss on revaluation of long-term finance/ accrued interest

640,876

2,084,387

4,052,702

2,354,123

725,925

392,446

2,109,787

(45,779)

1,091,939

481,001

(47,651)

(32,427)

(67,614)

(54,254)

27,347,411

40,949,126

38,386,839

31,755,083

27,009,414

23,763,566

(9,542,299)

(85,879,745)

(71,899,035)

(80,486,026)

(34,414,268)

(13,958,489)

(922,252)

(850,426)

(2,697,775)

(1,723,817)

(622,262)

(590,118)

29,620

4,929,704

(630,530)

36,196,130

34,303,563

60,112,540

44,111,697

68,624,395

17,100,179

(2,529,998)

(1,989,951)

(3,375,390)

(2,325,792)

686,733

1,418,233

Profit before income tax Adjusted for: Depreciation of property and equipment

Release of impairment on investment securities Interest accrued on long-term financing Dividend income Cash flows before changes in working capital

Changes in Working capital Increase in loans and advances Increase in insurance receivables Increase in other assets Increase in deposits and balances from customers Increase in cash reserve requirement Increase in insurance liabilities

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 2: EXECUTIVE SUMMARY

Period ended 30 June

For the year ended 31 December

2018

2017

2016

2015

2014

2013

FRw ‘000’

(5,753,463)

(3,948,231)

(3,369,901)

(1,347,174)

2,154,695

(6,370,132)

(11,950,552)

(12,532,032)

(5,063,962)

(4,640,477)

(5,665,044)

(2,862,521)

13,637,451

(15,267,029)

(10,254,709)

1,428,438

30,900,322

74,126,523

(483,552)

(780,609)

(575,115)

(451,459)

(188,642)

(237,478)

(1,308,207)

(5,001,970)

(4,844,962)

(5,846,595)

(3,049,369)

(3,874,221)

1,876,780

50,723

75,778

179,393

205,000

(110,008,159)

(333,502,798)

(385,606,513)

(307,227,740)

(287,832,102)

(37,701,365)

114,679,541

317,216,481

401,147,105

272,321,449

280,055,885

Purchase of equity Investment shares

(2,970)

Dividends received

47,651

32,427

67,614

54,254

2,879,624

(20,144,465)

10,203,665

(41,060,953)

(10,783,551)

(41,608,064)

19,936

(8,304,345)

(8,187,096)

(10,961,334)

(7,411,110)

(5,892,885)

Drawdown of long-term finance

31,362,073

19,958,446

7,250,000

9,261,851

29,154,396

Repayment of long-term finance

15,048,540

(20,833,291)

(9,830,725)

(7,383,434)

(3,923,340)

(1,301,301)

Increase in share capital

20,942

2,586

8,136

29,206

11,130

Increase in share premium

240,833

29,739

93,564

335,869

127,995

(15,028,604)

2,486,212

1,972,950

(10,993,068)

(1,707,524)

22,099,335

Net (Decrease) /increase in cash and cash equivalent

1,488,470

(32,925,282)

1,921,906

(50,625,583)

18,409,247

54,617,794

Net foreign exchange difference

1,462,518

1,277,029

(2,882,861)

502,736

2,832,074

Cash and cash equivalents at 1 January

46,130,278

77,778,531

78,739,486

128,862,333

107,621,012

71,379,965

Cash and cash equivalent at 31 December

49,081,267

46,130,278

77,778,531

78,739,486

128,862,333

125,997,759

Increase/ (decrease) in other liabilities

Income tax paid Net cash generated from operating activities

INVESTING ACTIVITIES Purchase of intangible assets Purchase of property and equipment Proceeds from sale of fixed assets Purchase of Held to Maturity Investments Proceeds from Held to Maturity Investments

Net cash flows from investing activities

FINANCING ACTIVITIES Dividends paid

Net cash flows from financing activities

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 3: THE OFFER 3.1.

The Offer

The Company is offering 222,222,222 New Shares in the Offering at the Issue Price of FRw 270 per New Share, equivalent to 1 New Share for every 3 ordinary shares held. The Rights Issue is expected to raise approximately FRw 60 billion. Shareholders on register at the Record Date are being granted Rights in the Rights Offering that will entitle Shareholders that qualify as Eligible Persons to subscribe for Offer Shares at the Issue Price. The mere granting of Rights to a Shareholder does not constitute an offer of New Shares. No offer of New Shares is being made to Shareholders who are not Eligible Persons and are therefore not permitted to exercise the Rights granted to them. The Lead Transaction Adviser has agreed, on behalf of the Company, to act as manager for the Rump and to use reasonable endeavors to procure QII subscribers for any Rump Shares. The Rump Offer, if any, is expected to commence as soon as reasonably practicable after the expiry of the Rights Issue Offer Period.

3.2.

Impact on Share Capital

As at the date of this Information Memorandum, BK Group has 375,923,000 unissued shares in its share capital. The share capital of the Company as at the date of this Information Memorandum is as follows:

Pre-Rights Issue: Nominal Value per Share

Total No. Shares

Share Capital (FRW)

Authorised capital

FRw 10

1,050,460,000

FRw 10,504,600,000

Issued & fully paid up capital

FRw 10

674,537,000

FRw 6,745,370,000

Unissued capital

FRw 10

375,923,000

FRw 3,759,230,000

Assuming the New Shares are fully subscribed, the share capital of the Company on the closing of the Offering shall be as follows:

Post-Rights Issue: Nominal Value per Share

Total No. Shares

Share Capital (FRW)

Authorised capital

FRw 10

1,050,460,000

FRw 10,504,600,000

Issued & fully paid up capital

FRw 10

896,759,222

FRw 8,967,592,222

Unissued capital

FRw 10

153,700,778

FRw 1,537,007,778

3.3.

Impact on Shareholders

3.4.

Rationale of the Offer and Use of Proceeds

Shareholders who transfer, or who do not timely or validly, or are not permitted to, exercise any of their Rights granted under the Rights Offering will suffer a dilution of their proportionate ownership and voting rights of approximately 25 % as a result of the issue of the Offer Shares. However, such Shareholders may receive consideration for their Rights during the Offer Period by trading their Rights on the RSE (Refer to Section 4.7 for more details on the Trading of Rights). The Rights Issue is part of the Groupâ&#x20AC;&#x2122;s broader objective of ensuring that its subsidiaries, and in particular Bank of Kigali PLC, are adequately capitalised to comply with capital adequacy requirements and implement its growth strategy. In line with this, the Group anticipates that FRw 40 billion, representing 67% of the gross proceeds, raised from the Rights Issue will be used directly by Bank of Kigali Plc to strengthen and enhance its capital base, as the basis for its mid-term strategy. The rest of the funds raised will go towards the Groupâ&#x20AC;&#x2122;s investments in its other subsidiaries i.e. BK Capital, BK General Insurance and BK TecHouse.

Below is a summary: Beneficiary

Approx. Amount

% of Proceeds

Overview

Bank of Kigali Plc

FRw 40,000,000,000

Maintain capital adequacy ratio at greater than 20% Further expand market share and growth into retail and SME. Digitalisation of banking platform.

BK Insurance

FRw 15,000,000,000

Expand penetration and share of General Insurance as well as introduce new products. Potential acquisition of life insurance business.

Others

FRw 5,000,000,000

Funds will go to support general working capital for BK Capital and BK TecHouse, as well as to support other general Group initiatives to align each subsidiary strategy with that of the entire Group.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 3: THE OFFER BK Group anticipates that the Rights Issue and the Cross Listing on the NSE will have the following additional benefits for the Company and its stakeholders: • • • • •

Provide investors, both institutional and retail, with an opportunity to participate in the income streams and future capital growth of the Group; Enhance the liquidity and tradability of the ordinary Shares through a spread of investors; Highlight investment potential for financial and tech service companies in Rwanda; Further encourage local Share ownership; and Access broader pool of potential investors

3.5.

Rights Issue Statistics

DATA

Par value (FRw)

Rights Issue Price (FRw /Share)

Entitlement Ratio

Number of authorized shares

1,050,460,000

Authorized share capital (FRw)

10,504,600,000

Number of issued and fully paid up shares (pre-Rights Issue)

Issued and fully paid up share capital (pre-Rights Issue) (FRw)

Number of unissued shares

Unissued share capital (FRw)

Number of New Shares

Gross proceeds of Rights Issue assuming full subscription (FRw)

Number of issued and fully paid up shares post-Rights Issue assuming full subscription

Market capitalization of BK Group at Rights Issue Price (FRw)

242,124,990,000

Net asset value (shareholder funds) as of 30 June 2018 (FRw)

129,873,285,000

Net asset value per Existing Share as of 30 June 2018 (FRw)

Rights Issue Price to net asset value per Existing Share above (FRw)

Profit after tax for financial year ended 31 December 2017 (FRw)

Earnings per share using profit after tax for financial year ended 31 December 2017 (FRw)

34.60

Trailing price-earnings ratio using the Rights Issue Price and earnings per share for full year 2017

7.80x

Dividend per share for financial year ended 31 December 2017 (FRw)

13.87

Dividend yield on Rights Issue Price

5.14%

Profit after tax for six months to 30 June 2018 (FRw)

Earnings per share using profit after tax for six months to 30 June 2018 (FRw)

3.6.

10 270 1 for 3

674,537,000 6,745,370,000 375,923,000 3,759,230,000 222,222,222 60,000,000,000 896,759,222

192.54 1.40 23,342,309,000

13,411,317,000 19.88

Intention of the Major Shareholders

BK’s major shareholders are the Government of Rwanda (GoR), through the Agaciro Development Fund, who hold 29.4% and the Rwanda Social Security Board (RSSB), who hold 32.4%. GoR does not intend to participate in the Rights Issue and its shares will therefore be available for allocation in the Rump Offer. RSSB intends to participate in the Rights Issue and will subscribe but only to a level that ensures a shareholding, post issue of 30%. Post the Rights Issue, the 2 major shareholders will collectively hold 52.08% of BK Group.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 3: THE OFFER The top 10 shareholders of BK currently are as follows;

Shareholder

Total No. Shares

% Ownership

Rwanda Social Security Board

218,228,900

32.4

Agaciro Development Fund*

198,578,600

29.4

The Rock Creek Group LP -T126 A

45,515,800

6.7

KCB Bank Uganda Ltd A/C123a

42,500,000

6.3

Dunross and Co Aktiebolag

28,520,300

4.2

Stanbic Nominees Limited A/C Nr5156062 - T109 Au

20,937,200

3.1

Kamau Robert Wachira

15,976,700

2.2

RWC Frontier Markets Equity Master Fund Limited

8,575,200

1.3

Frontaura Global Frontier Fund LLC

7,392,200

1.1

The Vanderbilt University - T133

6,095,500

0.9

Others

83,193,300

12.3

674,537,000

100.0

Total No. Shares

% Ownership

*Ownership transferred from GoR to Agaciro in 2018. The share ownership of the Company post the Rights Issue is expected to be as follows:

Shareholder 1

Rwanda Social Security Board

269,027,767

30.0

Agaciro Development Fund

198,578,600

22.1

ESOP

7,200,000

0.8

Others

421,952,852

47.1

896,759,222

100.0

3.7.

Employee Share Ownership Plan

BK Group will reserve 7,200,000 New Shares (the “ESOP Shares”), same as the ESOP set up during the IPO in 2011, that may be subscribed for by directors and eligible employees and each ESOP Share so subscribed shall entitle the purchaser as part of the Bank’s Directors and Employee Share Ownership Plan (The Plan) New Shares as issued by the Group. Each beneficiary shall be entitled to purchase from the Company, from the Listing Date of the New Shares up to the third anniversary (the “Vesting Date”) and thereafter, entitled to buy options under the scheme not later than the fifth anniversary from the Listing Date, for the cash consideration equal to the Offer Price and payable in full. On the fifth anniversary, as part of the Group’s executive management retention scheme, the executive directors and senior managers shall be entitled to bonus shares equivalent to 50% of their individual holding under the scheme, if the Group’s share average price in the final year shall have doubled. The beneficiaries shall continue to serve as Directors or be employed by the Bank, as the case may be, until the vesting date. The Board shall have the final discretion in the allotment, operations and vesting of the ESOP shares. All eligible Employee are entitled to purchase the ESOP shares from the ESOP for 100% of the purchase price and have the option to either pay the full amount upfront by cash, or otherwise through deductions as set up and managed by the HR department.

3.8.

Minimum Subscription

A minimum of 70% of the total capital raise from both the Rights Issue and Rump, is required to be accepted for the Transaction to be declared successful. This implies that a minimum of 155,555,555 New Shares, equivalent approximately to FRw 42 billion, need to be taken up and fully paid for in the Rights Issue and Rump Offer. However, if this minimum amount is not attained, approval may be sought from the Capital Markets Authorities and the Exchanges to proceed with the listing of the accepted fully paid New Shares under the Rights Issue. BK may consider raising capital from other sources in the event that the full subscription is not achieved. In the event of Rump Shares, allocation shall be made in accordance with the procedure prescribed in Section 4 in the Terms and conditions.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 3: THE OFFER 3.9.

Green Shoe and Over-Subscription

This Rights Issue has no â&#x20AC;&#x2DC;green shoeâ&#x20AC;&#x2122; option. In the event of over-subscription and following allotment, BK shall make refunds as detailed in Section 4.

3.10. Underwriting

Neither the Rights Issue nor the Rump Offer will be underwritten.

3.11. Status of the New Shares

The New Shares, when issued and fully paid, shall rank pari passu with the Existing Shares, including the right to receive dividends or distributions paid or declared. After the date of this Information Memorandum the New Shares are freely transferable and are not subject to any restrictions on marketability or any pre-emptive rights. Every new share shall be entitled to one vote at shareholder meetings.

3.12. Rights Issue Documents

The following documents will be used for the Rights Issue and the Rump Offer:

Information Memorandum

This is a booklet that contains information on the company, the Rights Issue offer, the financial statements, legal, compliance and relevant information to assist the shareholder in making an informed decision.

Provisional Allotment Letter (PAL)

The document is the renounceable (nil paid) provisional allotment letter issued to Eligible Shareholders and includes the Entitlement in the form or substantially in the form set out in Appendix 14.1 of this Information Memorandum.

Form R

Form of Renunciation: As set out in Appendix 14.2 to be used by Eligible Shareholders renouncing or transferring their Rights, by way of private transfer and by Renouncees to take up their New Shares.

Form E

Form of Entitlement: As set out in Appendix 14.3 to be used by any person and issued in favor of such person, in the case of Rights purchased on the RSE or balance Rights in the CSD Account.

Form A

Form of Power of Attorney: As set out in Appendix 14.4 to be completed by Eligible Persons wishing to appoint third parties as their lawful attorney or agent to act on their behalf in connection with the Rights Issue.

CSD Form 1

A standard form by the Central Security Depository to be used to open a CSD Account through an authorised agent.

CSD Form 5

Standard form by the Central Security Depository to be used for utilizing loan facilities to subscribe for New Shares.

CSD Form 7

Standard form by the Central Security Depository Limited that is used in connection with a private transfer by Eligible Persons with CSD Accounts.

Irrevocable Bank Guarantee (IBG)

By a commercial bank licensed by the National Bank of Rwanda. A sample letter is contained in Appendix 14.5 of this Information Memorandum and can only be used by any Eligible Person.

Letter of Undertaking (LOU)

By an institution approved by the Transaction Advisor. A sample letter is contained in Appendix 14.6 of this Information Memorandum and can only be used after the allocation policy has been announced.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 4: TERMS AND CONDITIONS OF THE OFFER THE TERMS AND CONDITIONS OF THE OFFER ARE SUBJECT TO THE RSE RULE BOOK (2013) AND THE RSE OPERATIONAL PROCEDURES FOR RIGHTS ISSUES (2010) 4.1.

Availability of Documents

4.1.1.

Eligible Shareholders can obtain a copy of the Information Memorandum and their forms from their brokers where their shares are held or from a BK branch or download it from: www.bk.rw

4.1.2.

Form A, Form R and Form E shall be available from an authorised Sales Agent or www.bk.rw

4.1.3.

CSD Forms 1, 5 and7 shall be available from the authorised Sales Agents.

4.1.4.

The IBG and ILU sample formats are available in the Annexures of the Information Memorandum.

4.2.

Rights

4.2.1.

Existing Shareholders as at the Record Date are being granted Rights in book entry form, to subscribe for the New Shares at the Issue Price. Each ordinary share held immediately after the close of trading on the Record Date will entitle its holder to one Right. Subject to applicable securities laws and the terms set out in this Information Memorandum. Eligible Persons will be entitled to subscribe for one Offer Share for every three held until the end of the Offer Period. As the RSE does not allow for trading of odd lots – shares that are less than 100, the Entitlement Rights shall be issued rounded down in multiples of 100. No fractional Offer Shares will be issued. Fractional Shares shall be treated as per Section 4.3

4.2.2.

If a person holds Ordinary Shares and its Ordinary Shares are registered in the Company’s shareholders’ register on the Record Date, that person will receive rights to subscribe for Offer Shares and will be sent a PAL by the Company, informing that person of the number of Rights to which it is entitled and of the procedures that it must follow to exercise or trade its Rights. Upon exercise of the Rights granted to that person, that person will receive Offer Shares in accordance with and subject to the terms and conditions of this Information Memorandum Shareholders should contact the Company (Refer to Section 4.1.3 above) if they are entitled to receive Rights but have not received their PAL.

4.2.3.

Only Shareholders who qualify as Eligible Persons during the Offer Period will be entitled to take up, sell or otherwise transfer Rights pursuant to the grant of Rights by the Company (Refer to Section 4.4). Rights granted to Shareholders who are not Eligible Persons shall not constitute an offer of Offer Shares to such person. The Rights will be credited to their account and will not confer any rights upon such person, including the right to take up, exercise, sell or otherwise transfer such credited Rights. Receipt of this Information Memorandum by a person other than an Eligible Person shall not, subject to certain exceptions, constitute an offer of Offer Shares to that person.

4.2.4.

Eligible Shareholders are required to verify the correctness of the Entitlement.

4.3.

Treatment of Fractional Shares

4.4.

Eligible Shareholder Options

The Rights have been calculated on the basis of the Entitlement Ratio and no restrictions are placed on the number of Existing Shares to be held before a Shareholder’s Right accrues. However, mathematically, this might result in fractional Rights and odd lots of the New Shares. In such an event, fractions and odd lots (not in multiples of 100) shall be rounded down. These fractions and odd lots shall then form part of the Rump Offer. The following actions are possible by all Eligible Shareholder(s) in the Rights Issue:

NO.

ACTION

REFERENCE

TAKE UP their Entitlement in FULL

Refer to Section 4.5

RENOUNCE ALL the Rights to a close relation

Refer to Section 4.6

SELL ALL of their Entitlement on the RSE

Refer to Section 4.7

ACCEPT PART of their Entitlement & SELL balance on the RSE

Refer to Section 4.5 and 4.7

ACCEPT PART of their Entitlement & RENOUNCE balance to a close relation

Refer to Section 4.5 and 4.6

ACCEPT PART of their Entitlement & allow balance to LAPSE

Refer to Section 4.5 and 4.8

DO NOTHING and allow Entitlement to lapse

Refer to Section 4.8

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 4: TERMS AND CONDITIONS OF THE OFFER Other Actions NO.

ACTION

Reference

PURCHASE Rights on the RSE and take-up the Entitlement

Refer to Section 4.7

PURCHASE and SELL all the Rights on the RSE

Refer to Section 4.7

PURCHASE and SELL some Rights on the RSE and take up the balance Entitlement

Refer to Section 4.7

4.5.

Exercise of the Rights

4.5.1.

Subject to the restrictions set out below, an Eligible Person, whether a Shareholder at the Record Date or a subsequent transferee of Rights, may subscribe for New Shares by exercising its Rights from 9:00 am on October 29, 2018 up to 4.00 pm on November 9, 2018, which is the end of the Offer Period. 4.5.2. If an Eligible Person has not exercised its Rights by the end of the Offer Period, these can no longer be exercised by the Eligible Person. Once an Eligible Person has validly exercised its Rights, it cannot revoke or modify that exercise. Accordingly, once a holder of Rights has validly exercised its Rights, it must pay the Issue Price for the Offer Shares subscribed for, even if the market price of the Ordinary Shares fluctuates below the Issue Price. 4.5.3. An Eligible Person exercises his Rights by submitting a duly completed counterpart of the relevant Entitlement and Acceptance Form, together with remitting the Application Money for the number of New Shares (including where applicable any Additional Shares) specified in the relevant Entitlement and Acceptance Form on the terms set out in this Information Memorandum to the Authorized Agent by 4.00 p.m. on Rights Issue Closure Date. 4.5.4. The Entitlement and Acceptance Forms are the PAL, Form R, and Form E. 4.5.5. The relevant Entitlement and Acceptance Form must be correctly executed so as to be binding, while the Application Money must be cleared funds. 4.5.6. The relevant Entitlement and Acceptance Form, once duly completed and executed, must be returned to any Authorized Agent, together with the Application Money for the number of New Shares. 4.5.7. PAL: Eligible Shareholders who wish to take up their full Entitlement are required to duly complete the section entitled ‘Acceptance in Full’ (Part 1A) together with other relevant sections of the PAL. Eligible Shareholders wishing to accept only part of their Entitlement are required to duly complete the section of the PAL entitled ‘Partial Acceptance of New Shares’ (Part 2) as well as other relevant sections of the PAL. Note that partial acceptance will not be permitted for less than 100 New Shares. 4.5.8. If the Entitlement and Acceptance Form is not completed correctly, BK may in its sole and absolute discretion reject it or treat it as valid, and BK’s decision as to whether to accept or reject, or how to construe, amend or complete an Entitlement and Acceptance Form shall be final. 4.5.9. Entitlement and Acceptance Forms can be rejected as per Section 4.12 - Rejection Policy below 4.5.10. Acceptance is subject to regulatory restrictions and obligations under Section 4.14 – Regulatory Restrictions below.

4.6.

Renunciation by Private Transfer

4.6.1. 4.6.2. 4.6.3.

Eligible Shareholders are advised to contact an Authorized Agent for the purposes of effecting the renunciation by private transfer. Eligible Shareholders wishing to transfer their nil paid Rights to a close relative, may do so by way of private transfer, as par RSE rules. In order to effect a private transfer, both the Eligible Shareholder and the person to whom the Rights are being transferred to must have a CSD account and must duly complete a CSD Form 7. If an Eligible Shareholder accepts some Rights and renounces the remainder by private transfer in the manner specified above, and where such renunciation is done via CSD Form 7, such Eligible Shareholder shall be required to submit the PAL Form, in addition to the resulting Form E, both duly completed and executed and accompanied with the Application Money in connection with the accepted Rights to the relevant Authorized Agent or Receiving Agent, not later than 4.00 p.m. on Rights Issue Closure Date. The last date and time for renunciation by way of private transfer is 4.00 p.m. on Private Transfer Renunciation Date. Any costs or RSE fees associated with renunciation by private transfer shall be borne by the Renouncee. Renunciation by private transfer of nil paid Rights is subject to regulatory restrictions and obligations under Section 4.14 – Regulatory Restrictions below.

4.6.4.

4.6.5. 4.6.6. 4.6.7.

4.7.

Trading of Rights

4.7.1. 4.7.2. 4.7.3.

The Rwanda CMA and RSE have approved the trading of nil paid Rights on the RSE. Eligible Shareholders are advised to contact an Authorized Agent for the purposes of effecting the renunciation by trading of Rights. Only Eligible Shareholders with CSD Accounts who have their accounts credited with the nil paid Rights can renounce by trading of the nil paid Rights. The nil paid Rights constitute a security in the form of an option and are tradable on the Main Investment Market Segment of the RSE for a value. The price of the nil paid Rights is determined by demand and supply on the RSE. Nil paid Rights may be traded on the RSE from 09:00 a.m. on Rights Issue Open Day to 12:00 p.m. on Last Rights Trading Date. Trading of nil paid Rights on the RSE will attract a brokerage commission plus other statutory costs payable by the vendor and purchaser of such Rights and therefore not payable by BK. The normal brokerage commissions are:

4.7.4. 4.7.5. 4.7.6.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 4: TERMS AND CONDITIONS OF THE OFFER

4.7.8.

Brokerage Commission

RSE Fees

Compensation Fund

CSD Fee

Total Fees

1.50%

0.14%

0.02%

0.05%

1.71%

Purchasers of nil paid Rights are issued with a completed Form E by the Sales Agent for further action. This Entitlement can subsequently be sold, (partially or wholly) on the RSE or be accepted (partially or wholly) or have a combination of sale and acceptance, within the Offer Period as per the timetable in Section 1.

4.8.

Declining the Right

4.8.1.

No action is required of Eligible Shareholders who wish to decline their Rights. These Rights not taken up by such Eligible Shareholders shall form part of the Rump Shares.

4.9.

Rump Offering

4.9.1.

The Lead Transaction Adviser has agreed, on behalf of the Company, subject to the terms and conditions of this IM and the approval granted to the Board at the last AGM to deal with shares untaken in Rights Issue as they deem fit, to act as manager for the Rump and use its reasonable endeavors to procure subscribers for any Rump Shares through a sale to eligible QIIs. The price per Rump Share shall be no less than the Rights Issue Price. The Rump Offering, is expected to commence as soon as reasonably practicable after the end of the Rights Issue Offer Period. The Rump Shares will not be offered to and will not be available to the general public but will be a limited sale to QIIs. The sale of the Rump Shares will not constitute an offer to the public as defined either under Rwandan capital markets laws or Kenyan laws (Capital Markets Act (Cap 485A of the laws of Kenya) and the Kenya Companies Act). The private placement of the Rump Shares constitutes a private offer as defined either under the aforementioned Rwandan laws or Kenyan laws Section 510(2) of the Kenya Companies Act; Section 30A (3) of the Capital Markets Act (Chapter 485A of the Laws of Kenya); and Section 21 of the Capital Markets (Securities) (Public Offers, Listings and Disclosures) Regulations 2002. Allotment of the Rump shares will be solely at the discretion of the Board. Payment of the Rump Shares shall be done on the final allotted amount. The Rump allotment results will be published as part of the results announcement for the Rights Issue.

4.9.2. 4.9.3.

4.9.4.

4.10. Application Money 4.10.1. The following shows authorised ways of payment of the Application Money 4.10.2. All payments shall be made in Rwanda Francs 4.10.3. Any fees payable in securing any of the payments shall be borne by the Eligible Shareholder, Entitlee or Renouncee but not the Company or its advisors/agents. 4.10.4. All payments have to be made to the Receiving Bank and shall upon receipt of the relevant amount in cleared funds, constitute acceptance of the Rights Issue on the terms and conditions set out in the Information Memorandum and on the Form, but subject to Section 4.12 -Rejection Policy. 4.10.5. No interest shall be payable by the Company nor its advisors/agents on any Application Money received for the Rights Issue. 4.10.6. If a Financier is involved where the New Shares are to be used as security, payment can be made by the Financier as described below. 4.10.7. Eligible Shareholders can use either of the following payment modes. Note, only one payment mode maybe used to pay for one Application Form:

Payment Mode

Description

Banker’s Cheque

• • •

Funds Transfer

• • • •

It is preferred that this is paid directly into the Receiving Bank for the reference account of the Sales Agent (see below for the ASA accounts List). It should be drawn in favour of ‘BK Rights Issue – Form No. XXXXXXX’ and be crossed “A/C Payee Only”. (Where xxx represents the serial number) The Banker’s Cheque shall be attached to the Application Form and it shall be deposited immediately for collection. Funds Transfer shall be made to the Receiving Bank directly provided it is into the correct sales agent (see account as below – ASA accounts List). These transfers shall include the name of the shareholder and the Application Form serial number for immediate reference. Make a photocopy of the remittance advice. Attach the original remittance advice to the Application Form and retain the photocopy.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 4: TERMS AND CONDITIONS OF THE OFFER

Payment Mode IBG

Description • • •

ILU

• •

The key advantage of an IBG is the ability to pay on allocation of shares. The key disadvantage of an IBG is the cost to secure it as fees vary across commercial banks. IBGs shall use the format provided in Appendix 14 and should be authenticated by the guaranteeing bank via a SWIFT message forwarded to the Receiving Bank, on or before 5:00 p.m. Rights Issue or Rump Offer closing date (as the case may be). The original IBG is to be attached to the RIF. The IBG shall be drawn down at the sole discretion of the Company.

• •

The original ILU is to be attached to the RIF. The ILU shall be drawn down at the sole discretion of the Company.

All Application Money must be received in any of the following accounts, depending on the Authorised Sales Agent. The account at the Receiving Bank is:

Bank

Broker Account Name

Account Number

Bank of Kigali

BK Rights Issue – BK Capital

00040-99002018-74

Bank of Kigali

BK Rights Issue – African Alliance Rwanda

00040-99002019-75

Bank of Kigali

BK Rights Issue – Baraka Capital

00040-99002020-76

Bank of Kigali

BK Rights Issue – CDH Capital

00040-99002021-77

Bank of Kigali

BK Rights Issue – CORE Securities

00040-99002022-78

Bank of Kigali

BK Rights Issue – Faida Securities

00040-99002023-79

Bank of Kigali

BK Rights Issue – MBEA Brokerage Services

00040-99002024-80

Bank of Kigali

BK Rights Issue – SBG Securities

00040-99002025-81

4.11. Financed Applications 4.11.1. A Financier can be approached for loan to facilitate payment of the Application Money. 41.11.2. The extension of loan facilities using New Shares as part or full collateral is the decision of the Financier at its sole and absolute discretion and risk. 4.11.3. In addition, the Financier shall send a letter to the CSD stating that the New Shares will be pledged as security unless it instructs CSD in writing to lift the pledge. 4.11.4. As per Section 4.14 refunds require that the Financier provide appropriate bank account details in the RIF. 4.11.5. The letter as per Sections 4.11.3 along with the Application Money shall be attached to the Application Form and upon receipt shall be processed by the Registrar. 4.11.6. Neither the Company nor its advisors/agents will accept responsibility for pledges/lien not created by the Listing Date.

4.12. Rejection Policy 4.12.1. A PAL or other form used to take up Entitlement and Additional Shares shall be rejected for the following reasons:

If incomplete, inconsistent or inaccurate with the instructions as provided in the Information Memorandum and each of the forms;

ii)

No signature as required or as per the signing mandate;

iii)

Insufficient money paid to the Receiving Bank;

iv)

More than one mode of payment was used to pay for New Shares in one Application Form;

Inappropriate IBG or ILU;

vi)

Application money was correctly received but the form is incorrect or missing;

vii)

Any private transfer rejected or where RSE approval is delayed beyond the Closure Date;

viii)

Where a Form E is used, there are no Rights in the CDS Account;

ix)

Multiple Sales Agent stamps on the same form;

Deliveries after the Forward Date by the Sales Agent to the Receiving Agent;

xi)

Money is deemed by BK to be non-compliant with provisions under Anti Money Laundering Laws.

xii)

Neither BK Group nor its advisors/agents shall be liable should any form be rejected as per this Rejection Policy.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 4: TERMS AND CONDITIONS OF THE OFFER 4.13. Allocation Policy 4.13.1. Subject to the Section 4.12 – Rejection Policy: 4.13.2. Eligible Shareholders who accept Entitlement in full, or in part, accompanied by Application Money, shall receive the fully paid New Shares indicated in their PAL. 4.13.3. Renouncees who successfully transfer their Entitlement in full or in part, accompanied by Application Money, shall have the number of New Shares allotted in full as indicated in their Form R. 4.13.4. Entitlees who successfully accept their Entitlement in full, or in part, accompanied by Application Money, shall receive the full number of fully paid New Shares indicated in their Form E. 4.13.5. Any further Rump Shares shall be available for allocation to the applicants for the Rump Offer. 4.13.6. For the avoidable of doubt, allocation of shares will be in the following order: i)

Allocation as per the provisional allotment to Existing Shareholders;

ii)

Allocation to Renouncees (Form R);

iii)

Allocation to Entitlees (Form E);

iv)

Allocation to the Rump Offer

4.13.7. While applicants under category (i), (ii) and (iii) will receive their full entitlement if they have satisfied the laid down criteria, applicants in category (iv) will only be entitled to be allocated any shares if there are still unallocated shares outstanding after satisfying the first three categories. 4.13.8. Allocations for New Shares shall be undertaken at the time and date on which the Board of BK Group meets to determine the final allocations for the Rights Issue, which includes the issue of New Shares by BK Group by way of rights on the terms, and subject to the conditions contained in this Information Memorandum, including the Rump Shares.

4.14.

Refund Policy

4.14.1. Where an application has been rejected in line with 4.12 , refunds shall be paid via Funds Transfer and a bank account is mandatory. 4.14.2. Receiving Bank customers shall receive an internal credit transfer. 4.14.3. If the first refund is unsuccessful, the Receiving Bank shall make the second attempt after re-checking the data provided on the forms. The third attempt may be made after contact with the investor. 4.14.4. If the Funds Transfer is still declared unsuccessful, a Banker’s Cheque or bank draft may be issued. 4.14.5. Where a Financier has advanced money to an investor to subscribe to New Shares, refunds shall be made to the details provided in the form. The Financier is responsible for ensuring their bank details are made on the form and that they are correct. 4.14.6. Refund cheques should be collected from the Sales Agent who received the payment. Proof of identity and other documentation must be provided. 4.14.7. Payments of refunds shall take into account the prevailing exchange rates. Exchange rate losses will be borne by the investor and not the Company or any of its appointed advisors/agents. 4.14.8. Neither the Company nor its agents or advisors shall be responsible or liable for refunds that are not received or delayed once they have been made. Losses incurred on refunds are for the account of the investor and not the Company or any of its appointed advisors/agents. 4.14.9. Where refunds are sent to the incorrect bank account, or where cheques are cleared incorrectly by the Receiving Bank, the Company shall take responsibility and have the transfer or cheque rectified as required, provided there is a formal notification. The investor is required to write a letter to the Sales Agent or the Company who within 10 Business Days of receipt shall investigate and give feedback to the investor. Rectification is expected to be made within another 10 Business Days. 4.14.10. The Receiving Bank will put in place measures to ensure safe custody and clearance of cheques. These include effective co-ordination of information with the Sales Agents, the use of special documentation, hierarchical administrative structures and dedicated personnel with specific responsibilities. 4.14.11. Refunds shall be subject to compliance with AML Laws.

4.15. Regulatory Selling Restrictions 4.15.1. Selling and transfer restrictions The distribution of this Information Memorandum and the Rights Issue in certain jurisdictions may be restricted by law and therefore persons into whose possession this Information Memorandum comes should inform themselves about and observe any such restrictions, including those that follow. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction. No action has been taken or will be taken by the Company or the Lead Transaction Advisor in any jurisdiction that would permit a public offering or sale of the New Shares, or possession or distribution of this Information Memorandum (or any other offering or publicity material relating to the Rights Issue), in any country or jurisdiction (other than Kenya) where action for that purpose is required or doing so may be restricted by law. None of the New Shares may be offered for subscription, sale or purchase or be delivered, and this Information Memorandum and any other offering material in relation to the Rights Issue may not be circulated, in any jurisdiction where to do so would breach any securities laws or regulations of

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 4: TERMS AND CONDITIONS OF THE OFFER any such jurisdiction or give rise to an obligation to obtain any consent, approval or permission or to make any application, filing or registration. Persons into whose possession this Information Memorandum comes should inform themselves about and observe any restrictions on the distribution of this Information Memorandum and the Rights Issue contained in this Information Memorandum. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

4.15.2. European Economic Area In relation to each Member State of the European Economic Area (“EEA”) which has implemented the Prospectus Directive (2003/71/EC) (each, a “Relevant Member State”) an offer to the public of any New Shares may not be made in that Relevant Member State, except that the New Shares may be offered to the public in that Relevant Member State at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State: a)

to any legal entity which is a qualified investor as defined under the Prospectus Directive;

to fewer than 100 or, if the Relevant Member State has implemented the relevant provision of the 2010 PD Amending Directive, 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive);

in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of New Shares shall result in a requirement for the publication by the Company or Lead Transaction Advisor of an Information Memorandum pursuant to Article 3 of the Prospectus Directive and each person who initially acquires New Shares or to whom any offer is made will be deemed to have represented, warranted and agreed to and with the Lead Transaction Advisors and the Company that it is a “qualified investor” within the meaning of the law in that Relevant Member State implementing Article 2(1)of the Prospectus Directive. For the purposes of this provision, the expression “an offer to the public of any New Shares” in relation to any New Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the Offer and the New Shares to be offered so as to enable an investor to decide to purchase or subscribe for the New Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State. The expression “Prospectus Directive” means Directive 2003/71/EC (and any amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State) and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU. In the case of any New Shares being offered to a financial intermediary as that term is used in Article 3(2) of the Prospectus Directive each financial intermediary will be deemed to have represented, warranted and agreed that the New Shares acquired by it in the Offer have not been acquired on a non-discretionary basis on behalf of, nor have they been acquired with a view to their offer or resale to, persons in circumstances which may give rise to an offer of any New Shares to the public other than their offer or resale in a Relevant Member State to qualified investors as so defined or in circumstances in which the prior consent of the Managers has been obtained to each such proposed offer or resale.

The Company, the Lead Transaction Advisors and their affiliates, and others will rely upon the truth and accuracy of the foregoing representation, acknowledgement and agreement. Notwithstanding the above, a person who is not a qualified investor and who has notified the Lead Transaction Advisors of such fact in writing may, with the consent of the Lead Transaction Advisors, be permitted to subscribe for or purchase New Shares in the Offer

4.15.3. United States Eligible investors The New Shares have not been and will not be registered under the US Securities Act or under any applicable state securities laws of the United States, and, subject to certain exceptions, may not be offered or sold within the United States. The New Shares will be offered or sold only in an offshore transaction outside the United States within the meaning of and in compliance with Regulation S under the US Securities Act. In addition, until 40 days after the commencement of the Offer, an offer of New Shares within the United States by a dealer (whether or not participating in the Rights Issue) may violate the registration requirements of the US Securities Act if such offer or sale is made otherwise than in accordance with Rule 144A. Each person who initially acquires New Shares or to whom any offer is made will be deemed to have represented, warranted and agreed to and with the Lead Transaction Advisors and the Company that (i) it and any person for whose account it is subscribing for New Shares are outside the United States and is acquiring such New Shares in an offshore transaction within the meaning of and in compliance with Regulation S under the Securities Act; (ii) it did not become aware of nor is it making any investment decision with respect to the New Shares as a result of any “directed selling efforts” within the meaning of Rule 902(c) of Regulation S under the Securities Act; and (iii) it will not re-offer, re-sell, pledge or otherwise transfer or deliver any New Shares, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and all applicable securities laws of the states and other jurisdictions of the United States. The Company and the Lead Transaction Advisors and their affiliates, and others will rely upon the truth and accuracy of the foregoing acknowledgments, representations and agreements.

4.15.4. South Africa

The Rights Issue does not constitute an ‘‘offer to the public or any Section of the public’’ (as such expression is defined in the South African Companies Act, No. 71 of 2008 (as amended)) (‘‘South African Companies Act’’) in South Africa and this Information Memorandum does not, nor is it

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 4: TERMS AND CONDITIONS OF THE OFFER intended to, constitute a ‘‘registered Information Memorandum’’ (as that term is defined in the South African Companies Act) prepared and registered under the South African Companies Act. To the extent that the New Shares are offered for subscription or sale in South Africa, such Offer is made: (i) only to persons (“Appropriate Persons”) described in Section 96(1)(a) of the South African Companies Act; and/or (ii) in terms of Section 96(1)(b) of the South African Companies Act such that the total acquisition cost of the shares for any single addressee acting as principal is equal to or greater than South African Rand 1,000,000. To the extent that the New Shares are made available to any persons in South Africa, such persons shall be subject to, to the extent applicable, any applicable South African Exchange Control Regulations and requisite approvals from the South African Reserve Bank. Each person who initially acquires New Shares or to whom any offer is made in South Africa will be deemed to have represented, warranted and agreed to and with the Lead Transaction Advisor and the Company that it is an Appropriate Person. Accordingly, the Offer made in terms of this Information Memorandum does not constitute an ‘‘offer to the public or any Section of the public’’ within the meaning of the South African Companies Act.

4.15.5. United Kingdom No New Shares have been marketed to, nor are they available for purchase in whole or in part by, the public in the United Kingdom in conjunction with the Offer. This Information Memorandum does not constitute a public offer or the solicitation of a public offer in the United Kingdom to subscribe for or buy any securities in the Company or any other entity. This Information Memorandum does not constitute an admission document drawn up in accordance with the AIM Rules for Companies. This Information Memorandum is also not an approved Information Memorandum for the purposes of Section 84(2) of the Financial Services and Markets Act 2000 (“FSMA”) and has not been approved by the Financial Conduct Authority as an Information Memorandum for the purposes of Sections 85 and 87 of FSMA. This Information Memorandum has not been approved as a financial promotion in the United Kingdom for the purposes of Section 21 of FSMA. To the extent that any New Shares are made available for purchase to persons in the United Kingdom, they shall only be made available to (i) investment professionals (within article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (as amended) (the “FPO”)); (ii) certified sophisticated investors (within article 50(1) of the FPO); (iii) self-certified sophisticated investors (within article 50A(1) of the FPO); (iv) persons of a kind described in article 49(2) of the FPO; (v) certified high net worth individuals (within article 48(2) of the FPO); (vi) associations of high net worth or sophisticated investors (within article 51 of the FPO); and (vii) any other persons to whom any offer for the purposes of Section 21 of FSMA can otherwise lawfully be made (in each case a “Relevant Person). Each person who initially acquires New Shares or to whom any offer is made in the United Kingdom will be deemed to have represented, warranted and agreed to and with the Lead Transaction Advisors and the Company that it is a Relevant Person.

4.16. Taxation Implications 1.16.1. Eligible Shareholders interested in participating in the Rights Issue should consult their tax advisor of any possible tax implication connected with the Rights Issue. The Board of Directors have not provided detailed advice in respect of taxation consequences in connection with the Rights Issue, save for what is expressly set out in this Information Memorandum. 1.16.2. Neither BK nor any of the Directors of BK Group or any of BK officers or transaction advisors will accept any liability for any taxation implications, in connection with the Rights Issue. 1.16.3. Residents are subject to withholding tax on dividends at the rate of 5% for EAC investors. Non EAC investors will be subject to a withholding tax rate of 15%.

4.17. Governing Law The Rights Issue documents and any contract resulting from the acceptance of an application to purchase the New Shares in connection with the Offering shall be governed by and construed in accordance with the Laws of Rwanda and it shall be a term of each such contract that the parties thereto and all other interested parties submit to the exclusive jurisdiction of the Courts of Rwanda.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 5: RWANDA ECONOMIC OVERVIEW 5.1.

Country Overview

Despite being one of the smallest countries on the African continent, Rwanda is among the fastest growing economies in the world. Steady GDP growth at about 6% per annum since 2008 has boosted economic development in Rwanda since the 1994 genocide. Economic growth has been supported by fiscal and monetary policies which have created a stable environment highly sympathetic to investment. Rwanda is targeting to achieve middle income country status by 2020, which is the main objective of its Vision 2020 programme.

5.1.1. Rwanda National Facts & Macro-economic Indicators Area

26,338 sq. km

Population

12.2 million

Official Languages

Kinyarwanda, French, English, Swahili

Capital

Kigali

Currency

Rwandan Franc (FRw) {854.0 FRw = 1 US$ as of 31 Dec 2017}

Credit Rating

‘B +‘(Fitch Ratings) ‘B+’ (Standard & Poors)

Nominal GDP 2017

US$ 8.8 billion

Nominal GDP Per Capita 2017

US$ 745

Nominal GDP 2018P

US$ 9.7 billion

Nominal GDP Per Capita 2018P

US$ 804

Real GDP Growth rate - 2017

6.1%

Real GDP Growth rate - 2018P

7.2%

Inflation Rate - 2017

4.9%

Private Sector Growth - 2017

28.5%

Private Sector Credit % GDP - 2017

19.3%

Net External Debt %GDP - 2017

11.8%

Currency Depreciation against USD Dec 2017

3.1%

Foreign Reserves 2016-17

3.5 – 4 Months of imports

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SECTION 5: RWANDA ECONOMIC OVERVIEW 5.1.2. Population Demographics

Rwanda’s population as at 1 January 2018 was estimated to be 12,322,920 people. This is an increase of 2.40% (281,171 people) compared to a population of 12,033,749 in 2017. The population is largely youthful with approximately 3% over 60 years. The adult population is largely rural based with 84% (4.9 million), residing in the rural areas. Below are the key figures for Rwanda population in 2017; • • • •

396,271 live births 90,614 deaths Natural increase-305,657 people Net migration-16,486 people

The graphs below show the population growth rate in Rwanda over the past 28 years and 7 censuses as well as gender distribution. The average growth rate has been 2.24% over this period.

Growth Rate 1988-2018 8 6 4 2 0 -2 -4 -6 1998

1992

1996

2000

2004

2008

2012

2016

Source: Country meters

Population Demographic(%)

65+ 55-64 25-54 0-24 Male

Female

Source: Finscope Rwanda Report 2016

5.2.

Vision 2020 Programme

Vision 2020 is a framework for Rwanda’s economic development, presenting the main sector priorities and acting as a guiding tool for the future. The Vision aims at attaining per capita income of a middle-income country in an equitable manner as Rwanda aspires to become a modern, strong and united nation, without discrimination among its citizens. Since the development of the Vision 2020 programme, Rwanda has implemented strong policy reforms which have driven high and steady rates of economic growth averaging 6% to 7%, with a peak of 11.6% in 2008. The implementation of the programme has helped the Country to reduce poverty and make significant strides economically and in a number of development areas. Rwanda’s business and investment environment continues to improve, which is reflected in its improved ease of doing business. Indeed, Rwanda moved up six places in the latest assessment, from 62nd to 56th position, consolidating its second rank in Africa behind Mauritius. The improvement testifies to Rwanda’s commitment to upgrading its business environment in an endeavour to attract investment. From 2005 to 2017, Rwanda implemented a total of 47 reforms across all indicators of the Doing Business report. These reforms are in line with the country’s Vision 2020.

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SECTION 5: RWANDA ECONOMIC OVERVIEW

Table: International Rankings Publications

Ranking 2015-2016

2016-2017

Ease of Doing Business

62 out of 189

56th out of 190

WEF Global Competitive Index

58th out of 140

52nd out of 138

Index of Economic Freedom

71 out of 178

51st out of 180

Human Development Index

163rd out of 188

159th out of 188

11th out of 54

9th out of 54

Mo Ibrahim Index

Sources: World Bank, World Economic Forum, The Heritage Foundation, Mo Ibrahim Foundation, Transparency International

5.3.

Structure of Rwanda’s Economy

Rwanda remains dependent on its agricultural sector. The sector accounts for around 30% of GDP, and between 50% and 70% of the population derives their income from the sector. In addition to the country’s most important cash crops tea and coffee, Rwanda’s agricultural sector currently produces maize, rice, banana, potato, sweet potato, cassava, sorghum and beans in significant quantities. In turn, formal economic production is dominated by the services sector, with the latter accounting for just over 47% of GDP. Sub-sectors such as wholesale & retail trade as well as real estate activities are some of the largest contributors to overall GDP. The government aims to establish Rwanda as a leader in telecommunications and financial services in the region, embracing new technologies and developing an environment conducive to progress in these sectors. Rwanda’s long-term development plan, Vision 2020, has the main objective of transforming the country into a servicesbased, middle-income country by the end of 2020 The table below shows the percentage contribution to GDP by sector for the period 2012 to 2017.

Table: Gross domestic product by sector for the period 2012 to 2017 2012

2013

2014

2015

2016

2017

AGRICULTURE, FORESTRY & FISHING

Food crops

Export crops

Livestock & livestock products

Forestry

Fishing

INDUSTRY

Mining & quarrying

Manufacturing

Electricity

Water & waste management

Construction

SERVICES

TRADE & TRANSPORT

Maintenance & repair of motor vehicles

Wholesale & retail trade

Transport

OTHER SERVICES

Hotels & restaurants

Information & communication

Financial services

Real estate activities

Professional, scientific and technical activities

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SECTION 5: RWANDA ECONOMIC OVERVIEW

2012

2013

2014

2015

2016

2017

Administrative and support service activities

Public administration and defence; compulsory social security

Education

Human health and social work activities

Cultural, domestic and other services

TAXES LESS SUBSIDIES ON PRODUCTS

100

GROSS DOMESTIC PRODUCT(GDP) Sources: National Institute of Statistics of Rwanda

5.4.

Recent Economic Performance

GDP

Real GDP growth for 2017 was 6.1%. This was slightly higher than the 2016 growth rate of 5.9%, and notably higher than a consensus forecast of just over 5%. A 10.3% year-on-year expansion in the agricultural sector in 2017 Q4 pushed annual growth in the sector to 6.6%, while an 8.0% annual expansion in services activity can largely be attributed to an 11.3% year-on-year growth rate during the final quarter of the year. The strong growth momentum observed during the final quarter of 2017 is expected to continue into 2018. Economic growth is expected to be supported by: • • •

Recovery in public investment: The Government’s resolve to ease external account pressures resulted in a marked reduction in capital goods imports, which in turn translated into a slowdown in construction activity. An improvement in external balances would allow the Government to recommence its public investment programme Stronger agricultural output: As the effects of the regional drought dissipate, stronger agricultural output will have positive effects on employment and on the country’s merchandise trade balance Rising private consumption: Subdued consumer price inflation together with an accommodative monetary policy environment is expected to stimulate domestic demand, supporting services sectors such as retail and financial services

Real GDP growth is expected to reach 6.7% in 2018 before averaging around 7% p.a. for the remainder of the forecast period. The favourable monetary environment has already resulted in a marked improvement in credit extension i.e. credit growth has increased from 3.4% year on year in January 2017 to 15.5% year on year in January 2018. Financial services sector is expected to continue showing strong growth as it absorbs the large proportion of underserviced Rwandans.

Quaterly GDP Growth,growth rates at constant 2014 prices 12.0 10.0 8.0 6.0 4.0 2.0 Mar

Jun

Sep

Dec

2015

Mar

Jun

Sep

2016

Dec

Mar

Jun

Sep

2017

Dec

Mar

2018

Sources: National Institute of Statistics of Rwanda

Inflation

The marked drop in price inflation pressure has provided BNR the necessary scope to further loosen monetary conditions with a 50-bps cut in the policy rate to 5.5% in December 2017. The current inflation environment has been supported by subdued demand-side pressures, but an uptick in economic activity, together with base effects, will again put some pressure on price inflation in coming months. In addition, a more expansionary fiscal policy is expected to increase franc liquidity while the expected recovery in international energy prices would also have inflationary consequences. However, these pressures are only expected to build during the latter half of the year. Consumer price inflation is projected to average 3.2% in 2018, which is slightly lower than the 2017 average of 4.9%.

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SECTION 5: RWANDA ECONOMIC OVERVIEW Inﬂation,annual change 12.00 10.00 8.00 6.00 4.00 2.00 0.00 -2.00

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

2017

Jun

2018

Sources: National Institute of Statistics of Rwanda

Monetary Policy

BNR uses the key repo rate and discount rate as its key monetary policy tools. The repo rate is the rate of interest that banks earn from deposits placed with BNR. The discount rate is the rate of interest that BNR charges banks for short term accommodation. BNR continues to implement its monetary and exchange rate policy to keep inflation low and currency stable. The table below shows the key rates over the past two years.

Year

2016

2017

2018

Month

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

Mar

Apr

May

Jun

Key Repo Rate

6.50

6.25

6.00

5.50

Discount Rate

10.50

10.25

10.00

9.50

3.09

3.62

4.73

5.02

4.99

4.42

4.11

4.21

3.98

4.04

4.15

4.38

Repo Rate Source: BNR

Commercial Bank Rates

The table below shows the average commercial bank lending, deposit and inter-bank rates from Mar 2016 – Jun 2018. Year

2016

2017

2018

Month

Mar

Jun

Sep

Dec

Mar

Jun

Sep

Dec

Mar

Apr

May

Jun

Interbank Rate

5.18

5.93

6.67

6.61

6.10

6.40

5.76

5.85

5.24

5.60

5.75

5.60

Deposit Rate

7.32

7.94

8.28

8.01

7.84

7.92

7.86

8.70

8.24

7.49

n/a

Lending Rate

17.09

16.95

17.36

17.21

16.89

16.76

17.33

17.19

17.08

16.81

16.91

17.03

9.77

9.01

9.08

9.20

9.05

8.84

9.47

8.49

8.84

9.32

n/a

Spread Source: BNR

Chart: Yield curve as at 12 July 2018

Yield Curve 16.00 14.00 12.00 10.00 8.00 6.00 4.00 2.00 7 Days

28 Days

91 Days

182 Days 364 Days

Source: BNR

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

3yrs

5yrs

7yrs

10 Yrs

15 Yrs

SECTION 5: RWANDA ECONOMIC OVERVIEW FX Trends

Foreign exchange is liberalised, and commercial banks can buy foreign currency following an administered floating exchange rate. There are no legal restrictions on capital transfers in and out of Rwanda. Investors can obtain foreign exchange and make transfers at any authorized bank to repatriate profits and dividends and make payments for imports and services. Depreciation of the franc in recent years has served to act as a salient external buffer against exogenous shocks.

Chart: 3-year Historic Performance of the Rwandan Franc up to 31 July 2018

Rwanda Franc Perfomance Against Major Currencies 1,300.0 1,200.0 1,100.0 1,000.0 900.0 800.0 700.0 600.0 Aug-15

Nov-15

Feb-16

May-16 Aug-16

Nov-16

USDRWF

Feb-17

May-17

EURRWF

Aug-17

Nov-17

Feb-18

May-18

Aug-18

GBPRWF

Source: FactSet

International Trade

The 33.6% improvement in the merchandise trade balance in 2017 translates into a much narrower current account deficit. The current account deficit of 11.0% of GDP for Q4 2017 reflects a considerable improvement from the 15.0% of GDP deficit recorded in 2016. Looking ahead, the ‘Made in Rwanda’ initiative is expected to continue to support import substitution while more stable mineral prices will encourage investment in the mining sector, and thus an increase in mining related export receipts. Imports are expected to gain some upward momentum from this year onwards as the government continues its infrastructure investment drive.

Balance of Trade -5.0 -10.0 -15.0 -20.0 -20.0 -30.0

Mar-15

Jun-15

Sep-15

Dec-15

Mar-16

Jun-16

Sep-16

Dec-16

Mar-17

Jun-17

Sep-17

Dec-17

Source: National Institute of Statistics of Rwanda

Table: Key Trading Partners of Rwanda Main Destination of Exports Q1 2018

Main Origin of Imports Q1 2018

Kenya

21.24

China

18.38

Democratic Republic of Congo

14.61

United Arab Emirates

10.54

United Arab Emirates

13.70

India

9.67

Switzerland

12.31

Uganda

7.99

7.56

Kenya

5.47

69.42

Total

52.05

Uganda

Total Source: National Institute of Statistics of Rwanda

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SECTION 5: RWANDA ECONOMIC OVERVIEW Foreign Direct Investment Inflows

Foreign Direct Investment in Rwanda increased by $254.5 million in 2016. FDI averaged $224.3 million from 2009 until 2016, reaching an all-time high of $ 315 in 2014 and a record low of $118million.The graph below indicates FDI as a percentage of GDP over a 6-year period. Graph: FDI inflows as % of GDP

FDI Infows(% of GDP) 8 6 4 2 0

2010

2011

2012

2013 Year

Source: National Institute of Statistics of Rwanda

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

2014

2015

2016

SECTION 6: SECTORS OVERVIEW 6.1.

Banking Sector Overview

6.1.1. An Overview of the Financial Sector

The Rwandan financial sector comprises 16 banks, 491 micro-finance institutions and savings and credit cooperatives and 54 non-bank financial institutions. The sector is dominated by banks, which account for two-thirds of the total assets of the industry, followed by the pension funds and the insurance sector. The chart below further displays the various players within the Rwandan Financial Sector.

Chart: The Financial Sector

The supervisory tools used in supervising banks include: • • •

Offsite surveillance methodologies such as CAMELS model which stands for; Capital, Assets Quality, Earning, Liquidity and Sensitivity to Market; Onsite inspections: for the purpose of assessing risk management quality and compliance; and Risk Based Supervision

Chart: Total Financial Sector Assets, 2016

Insurance 10 %

Non-Bank Micro Finance 6%

Pension Fund 17 % Banking Sector 67 %

Source: National Bank of Rwanda The second Financial Sector Development Program (FSDP II) follows from the FSDP I, adopted in 2008, which helped catalyse increased access to financial services in Rwanda from 47% to 72% of the population by 2016. Two main drivers underlying FSDP II are: • •

a focus on soundness and stability, and positioning Rwanda within the prospective common market for financial services in the East African Community (EAC)

The overarching vision of FSDP II is to develop a stable and sound financial sector that is sufficiently deep and broad, capable of efficiently mobilizing and allocating resources to address the development needs of the economy and reduce poverty. FSDP II comprises four main programs: • Financial inclusion, • Developing financial institutions, markets and the supporting infrastructure, • Investment and savings to transform the economy, • Protecting consumers and maintaining financial stability • According to the Ministry of Finance and Economic Planning, FSDP II is less about the creation of institutions and markets, and more about building from a sound base to expand outreach, efficiency and innovation, and integration in the EAC.

6.1.2. Dimensions of Financial Inclusion

In total, 89% of adults in Rwanda are financially included (including both formal and informal financial products/services), while 11% are excluded and do not use any financial products or services to manage their financial lives. Of those that are financially included, 76% (i.e. 68% of the total population) are formally served while the remaining 24% exclusively use informal mechanisms. About 26% of adults in Rwanda are banked. Growth in bank usage is driven by debit cards, loans from the bank and a high uptake of mobile banking.

6.1.3. National Bank of Rwanda

The National Bank of Rwanda (BNR)’s responsibility is to formulate and implement Rwanda’s monetary policy. The main objectives of the BNR are to: • Ensure and maintain price stability, • Enhance and maintain a stable and competitive financial system without any exclusion, • Support the Government’s general economic policies, without prejudice to the two missions referred to above These objectives allow the BNR to focus on price stability while considering the implications of monetary policy for the whole economy.

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SECTION 6: SECTORS OVERVIEW To achieve the price stability objective, the BNR currently operates in a flexible monetary targeting framework with the monetary base as an operating target, broad money aggregate as an intermediate target and inflation as the goal. The BNR monitors movements in monetary base daily, in line with the targets set in the annual monetary program. It agrees on the importance of low inflation and low inflation expectations. In that exercise, the BNR uses several policy instruments mainly open market operations, discount rate and reserve requirement. The key repo rate (policy rate) set by the monetary policy committee is used to signal the stance of monetary policy.

Table: Currencies performance during the period January 2018 to June 2018 Country

USD/Local Currency

01-Jan-18

30-June-18

% Change

Nigeria

USDNGN

360.0000

361.5000

-0.4%

Mozambique

USDMZN

59.0000

59.5000

-0.8%

Ghana

USDGHS

4.5225

4.7900

-5.6%

Ethiopia

USDETB

27.3345

27.3967

-0.2%

Uganda

USDUGX

3,645.0000

3,880.0000

- 6.1%

Tanzania

USDTZS

2,245.0000

2,275.0000

-1.3%

Rwanda

USDFRW

854.0000

873.8086

-2.3%

Kenya

USDKES

103.2500

101.0500

2.2%

Source: FactSet

6.1.4. Commercial Banks in Rwanda

There are twelve (12) commercial banks, one (1) development bank, one (1) cooperative bank and three (3) microfinance bank institutions registered in Rwanda. They are licensed, supervised and regulated by the National Bank of Rwanda (BNR). The purpose of supervising these institutions is to protect the interest of depositors by ensuring that financial institutions are financially strong and economically stable. The table below shows the list of banks licensed by the BNR.

Table: Commercial, Microfinance, Development and Cooperative Banks Licensed by the National Bank of Rwanda as of June 2017 Name

Category

Year Licensed

I&M Bank Ltd

Commercial Bank

1963

Bank of Kigali Ltd

Commercial Bank

1966

Guarantee Trust Bank (Rwanda) Ltd

Commercial Bank

1983

Ecobank Rwanda Ltd

Commercial Bank

1995

Access Bank (Rwanda) Ltd

Commercial Bank

1995

COGEBANQUE Ltd

Commercial Bank

1998

KCB Bank Rwanda Ltd

Commercial Bank

2008

Banque Populaire Du Rwanda Ltd

Commercial Bank

2008

Equity Bank Rwanda Ltd

Commercial Bank

2011

Crane Bank Rwanda Ltd

Commercial Bank

2014

Bank of Africa Rwanda Ltd

Commercial Bank

2015

Commercial Bank of Africa (Rwanda) Ltd

Commercial Bank

2016

Urwego Bank Ltd

Microfinance Bank

2007

Unguka Bank Ltd

Microfinance Bank

2011

AB Bank Rwanda Ltd

Microfinance Bank

2013

Development Bank of Rwanda Ltd

ZIGAMA CSS

1967

Source: BNR

Development Bank

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Cooperative Bank

2011

SECTION 6: SECTORS OVERVIEW The National Bank of Rwanda is mandated to regulate and supervise the Non-Bank Financial Institutions (NBFIs) which are mainly insurance and pension sectors. The insurance sector comprises of both private and public insurance companies and insurance intermediaries (insurance brokers, insurance agents and loss adjusters). The main purpose of regulating the sector is to protect the interest of policy holders and pensioners by ensuring that these institutions are financially sound and stable. Other non-bank financial institutions regulated by BNR are credit and forex bureaus. Rwanda, regarded as one of the fastest growing economies in Africa has seen its banking sector grow remarkably over the last three (3) years. From a base of 1,864 billion in Mar 2015, the total assets held by the banking sector increased at a compounded annual rate of 14.7% to FRw 2,814 billion by Mar 2018, a change of 151.0% over the period.

Chart: Growth in Total Assets

Total Assets 2,813.9

3,000.0

Frw Billions

2,500.0 2,000.0

1,863.6

1,500.0 1,000.0 500.0 Mar

Jun

Sep

Dec

Mar

Jun

2015

Sep

Dec

Mar

2016

Jun

Sep

Dec

2017

Mar 2018

Sources: BNR

Table: Outstanding Loans by Sector and by Maturity (in FRw ‘bns)

Activity Sector

31-Dec-15

31-Dec-16

Longterm

Mediumterm

Shortterm

Total

Longterm

Mediumterm

Shortterm

Total

8.9

90.9

9.1

108.8

8.7

91.3

8.2

108.1

Mortgage industries

271.5

102.4

39.0

413.0

327.3

102.6

36.5

466.4

Transport & warehousing

19.1

42.3

13.8

75.2

31.4

56.6

11.6

99.7

Commercial & hotel

100.8

106.5

140.7

347.9

164.4

119.0

146.7

430.1

Service sector

23.1

14.4

4.9

42.4

29.8

13.9

6.1

49.9

Ofi & insurance

11.1

5.7

1.9

18.7

13.9

4.8

5.0

23.6

Agricultural, fisheries & livestock

15.1

9.2

4.3

28.5

15.0

8.2

5.4

28.6

Manufacturing activities

55.6

13.0

26.4

95.1

84.1

19.4

33.8

137.4

Water &energy activities

26.3

0.1

1.8

28.3

29.4

2.7

0.5

32.6

Mining activities

0.0

0.3

0.0

0.3

0.9

0.3

0.0

1.2

531.5

384.8

241.9

1,158.2

704.9

418.7

254.0

1,377.6

Non-classified activities

Total

Sources: National Institute of Statistics of Rwanda

6.1.5. Market Dynamics

The quality of assets held by the banks decreased slightly over the 2015 to mid-2017 period but has recovered since. The ratio of non-performing loans to gross loans varied between a low of 5.9% and a high of c.8.2% while the net non-performing loans (net of interest) to gross loans increased over the period moving from 4.9% in March 2016 to 6.2% in March 2018. The agricultural sector has the largest share of NPL ratio in comparison to the other sectors. The deterioration is due to the slowdown of agricultural production in 2016. However, the impact of weak agriculture performance is insignificant as loans to this sector make up only 2% of total banking sector loans. The increase in the overall NPL ratio was mainly driven by an increase in NPL ratio for “Trade & Hotel” and “Manufacturing”. Around 41% of total NPLs in the banking sector are in “Trade & Hotel”. The mortgage sector, which accounts for the largest share of loans, has one of the lowest NPL ratios, at 5%.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 6: SECTORS OVERVIEW Chart: Growth in Loan and Deposits

Loans and Deposits

Frw Billions

2,000.0

105.0% 100.0% 95.0% 90.0% 85.0% 80.0% 75.0%

1,500.0 1,000.0 500.0 Mar

Jun

Sep

Dec

Mar

2015

Jun

Sep

Dec

Mar

Jun

2016

Loans & Overdrafts (Gross)

Sep

Dec

2017

Deposits

Mar 2018

Gross Loans/Total Deposits

Source: BNR

Chart: Non-Performing Loans vs Gross Loans

Non-performing Loans vs Gross Loans Percentage %

9.0 8.0 7.0 6.0 5.0 4.0 Mar

Jun

Sep

Dec

Mar

Jun

2015

Sep

Dec

Mar

Jun

2016 NPLs/Gross Loans

Sep

Dec

Mar

2017

NPLs net of interest/Gross Loans Source: BNR

Chart: Return on Average Assets and Return on Equity

Return on Average Assets and ROE Percentage %

15.0 10.0 5.0 Mar

Jun

Sep

2015

Dec

Mar

Jun

Sep

2016 RoAA Source: BNR

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

Dec

Mar

Jun

Sep

2017 ROE

Dec

Mar 2018

SECTION 6: SECTORS OVERVIEW Chart: Net Interest Margin and Cost of Deposits

Percentage %

Net Interest Margin and Cost of Deposits 12.0 10.0 8.0 6.0 4.0 2.0 Mar

Jun

Sep

Dec

Mar

Jun

2015

Sep

Dec

Mar

Jun

2016

Sep

Dec

2017

Net Interest Margin

Mar 2018

Cost of Deposits

Source: BNR

Chart: Cost to Income and Overhead to Income Ratios

Percentage %

Cost to Income and Overhead to Income Ratios 100.0 90.0 80.0 70.0 60.0 50.0 40.0 Mar

Jun

Sep

Dec

Mar

Jun

2015

Sep

Dec

Mar

Jun

2016 Cost to Income

Sep

Dec

2017

Mar 2018

Overhead to Income

Source: BNR The last three years have seen an increase in exposure to large borrowers. This has been accompanied by falling yields on advances as large borrowers tend to have greater bargaining power.

Chart: Banking Sector Exposure to Large Loans

Large Loans Exposure Percentage %

40.0 30.0 20.0 10.0 Mar

Jun

Sep

2015

Dec

Mar

Jun

Sep

2016 Large Exposures/Gross Loans

Dec

Mar

Jun

Sep

2017

Dec

Mar 2018

Yield on Advances

Source: BNR

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 6: SECTORS OVERVIEW To adapt to the changing financial landscape and bolster solvency of the banking sector, the National Bank of Rwanda recently imposed new capital requirements as part of its efforts to implement Basel II and Basel III standards. The central bank has set its common equity Tier 1 ratio at a minimum of 8% of risk-weighted assets, the Tier 1 ratio at 10% and the regulatory CAR at 12.5%. Banks are also required to hold a capital conservation buffer of 2.5%, which brings the minimum CAR to 15% while an additional 1 – 3.5% CAR may be required for domestic banks. The general health of the banking sector remained solid throughout the period under review. The ratio in the sector of Core capital to Risk Weighted Assets ranged between 19.2% and 23.3% while the Total Qualifying Capital to Risk weighted Assets swung between 20.8% and 25.9%. The ratios were well above the regulatory mandatory requirement of 10% and 15% respectively.

Chart: Banking Sector Capital Level

Percentage %

Capital Requirement Ratios 30.0 25.0 20.0 15.0 10.0 5.0 Mar

Jun

Sep

Dec

2015 Core Capital/RWA

Mar

Jun

Sep

Dec

Mar

2016

Jun

Sep

Dec

Mar

2017

Total Qualifying Capital/RWA

2018

Min Core Capital/RWA

Source: BNR In summary, Rwandan banks are capitalized; they hold adequate capital buffers capable of withstanding financial sector loss from either credit or market risks.

6.2.

Insurance Sector in Rwanda

Rwanda’s insurance industry is comprised of public and private insurers. Public insurance business is run by 2 public health insurers (RSSB-medical and MMI), while private insurance business consists of 14 private insurers (10 general insurers and 4 life insurers). In the year to June 2018, the general insurance sector accounted for 82.8 percent of total gross premiums earned, while life insurance accounted for 17.2 percent. The insurance sector operates a network of 581 agents, 17 brokers, and 18 loss adjusters as at June 2018, respectively from 557 agents, 13 brokers, and 13 loss adjusters in June 2017. To sustain a healthy insurance sector, NBR will continue working with the insurance industry on appropriate pricing of risks, as well as proper management of claims and operational expenses

The table below shows the list of insurance licensed by the BNR. Name

Category

Year Licensed

RSSB – Medical Scheme

Public

2010

Military Medical Insurance

Public

2005

General Insurance 3

Sonarwa General Insurance

Private

1975

Soras Assurances Generales Ltd

Private

2010

Saham Assurance Rwanda Limited

Private

2001

Prime Insurance Ltd

Private

1995

Phoenix of Rwanda Assurance Company S.A.

Private

2006

UAP Insurance Rwanda Limited

Private

2013

Radiant Insurance Company

Private

2013

Britam Insurance Company Rwanda

Private

2013

BK General Insurance Company Ltd

Private

2016

Mayfair Insurance Company Rwanda Ltd

Private

2017

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 6: SECTORS OVERVIEW

Name

Category

Year Licensed

Life Insurance 13

Soras Vie Ltd

Private

2010

Prime Life Insurance Ltd

Private

2012

Saham Assurance Vie Rwanda Limited

Private

2014

Sonarwa Life Assurance Company Ltd

Private

2012

6.2.1. Insurance Market Dynamics

Assets of the insurance sector increased by 15% (from FRW 366.5 billion in June 2017 to FRW 423 billion in June 2018), compared to 10.2% achieved in the corresponding period of 2017. Improved growth of the insurance sector assets was driven by retained earnings from public insurers and capital injections of several private insurers during the period between June 2017 and June 2018. Despite this growth, the insurance penetration (Gross premiums relative to GDP) remains low at 1.7% in June 2018, the same level as in June 2017. During the period under review, the per capita insurance spending (Gross premiums relative to active population) improved to FRW 20,943 in June 2018 from FRW 17,813 in June 2017. Insurance sector assets are dominated by placements in banks and investment in Government securities. As at end June 2018, placements in banks accounted for 47% insurance sector assets from 48% as at June 2017, followed by investment in Government securities at 15% of total assets from 12% as at June 2017. General insurers, with short-term liabilities, maintained their investment is short-term instruments like placements in banks. On the other hand, life insurers relatively maintained their investments in long-term assets (real estate, treasury bonds) that match their long-term liabilities.

Total Assets 600 500 400 300 200 100 0

Dec Mar Jun 2014

Sep

Dec Mar Jun

2015

Sep

Dec Mar Jun

2016

Sep Dec

2017

Mar Jun 2018

Source: BNR Improved profits of the insurance sector were largely driven by the strong growth of premiums and improved investment income. Net profits improved across many insurers both private and public Profits of the insurance sector were underpinned by the strong growth of premiums which outweighed the growth of claims and operational expenses. For the sector as a whole, net premiums earned increased by FRw 9.1 billion (from FRw 52.3 billion in June 2017 to FRw 61.4 billion in June 2018). On the other hand, in the same period, both claims and management expenses of the insurance sector increased by FRw 7 billion (from FRw 46.1 billion to FRw 53.1 billion).

Gross Written and Net Earned Premiums 140 120 100 80 60 40 20 0

Dec Mar Jun 2014

Sep 2015

Dec

Mar Jun

Sep 2016

GWP

Dec

Mar Jun

Sep 2017

Dec

Mar Jun 2018

NEP

Source: BNR

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 6: SECTORS OVERVIEW

Investment Income and Net Income

50 40 30 20 10 0 Dec

Mar

Jun

2014

Sep

Dec

Mar

Jun

2015

Sep

Dec

Mar

Jun

2016 Investment Income

Sep

Dec

Mar

2017

Jun

2018

Net Income

Source: BNR Consequently, the combined ratio of the insurance sector, that compares total expenses to net premiums earned, reduced from 87% in June 2017 to 86% in June 2018, compared to the 90 maximum prudential standards. Profits of the insurance sector also came from a strong growth of investment income Investment income of the insurance sector grew by 34% to FRW 17 billion in June 2018 from FRW 12.7 billion in June 2017. Particularly, profits (after tax) of private insurers mainly originated from investment income that grew by 17% to FRW 6.1 billion in June 2018 from FRW 5.2 billion in June 2017. Strong growth of investment income was driven by favourable yields on term deposits in banks and government securities as well as a marked growth in invested funds from the capital injections.

Percentage (%)

Claims and Epenses Ratios 70 60 50 40 30 20 10 0

Mar

Jun

Sep

2015

Dec

Mar

Jun

Sep

Dec

Mar

2016 Claims Ratio

Jun

Sep

2017

Dec

Mar

Jun

2018

Expense Ratio

Generally, private insurers are still making underwriting losses, although much lower compared to last year (from 4.2 billion in June 2017 to 3 billion in June 2018). Going forward, in order improve the underwriting business of private insurers, the NBR will continue working with the insurance sector to ensure appropriate pricing of risks, combat fraud in claims, obtain efficiency by managing operating expenses, and through ensuring that companies have sufficient technical reserves to pay claims. Aggregate private insurers’ solvency margins – a measure of the strength of insurers’ capital buffers held to cover losses – strengthened to 149% in June 2018, compared to 61% in June 2017 and the 100% prudential requirement. The improved solvency position of private insurers was driven by capital injections by some insurance companies. As at June 2018, total capital of the sector grew by 17% to FRW 311.3 billion from FRW 266 billion in June 2017.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC 7.1.

History

Bank of Kigali was incorporated in the Republic of Rwanda on December 22, 1966. It was founded as a joint venture between GoR and Belgolaise, with each owning 50% of the Ordinary Share Capital of the Bank. The Bank commenced operations in 1967 with the opening of its first branch in Kigali. Belgolaise was a subsidiary of Fortis Bank operating in Sub-Saharan Africa, which in 2005 began to withdraw from its operations in Africa in line with Fortis’ global strategy. In 2007 the GoR acquired the Belgolaise’s shareholding in Bank of Kigali, thereby increasing its direct and indirect shareholding in the Bank to 100% of the entire Issued Shares. In 2011, the Bank changed its name under the new Companies’ Law from Bank of Kigali S.A to Bank of Kigali Limited. In June 2011, GoR also divested by selling 25% of its shareholding to the public through the capital market – the Rwanda Stock Exchange, that led to the subsequent listing of the Bank. The Group reorganised in 2017, and a new structure was implemented, leading to the creation of the non-operating holding company – BK Group Plc. BK Group Plc is composed of 5 subsidiaries, Bank of Kigali Plc, BK General Insurance Ltd, BK Techhouse Ltd, BK Capital Ltd and Avial Ltd, with the ambition to become the reference companies in their individual sectors. Driven by an ambitious business project and human resources mobilized around a common vision, the Group consolidates its leadership by pursuing a policy of innovation and an entrepreneurial growth strategy.

7.2.

BK Group Milestones

Established as an equal JV between GoR & Belgolaise S.A

Go aquired Belgolaise’s stake, making BK 100% GoR owned

1966

2007

7.3.

GoR sold 45% stake via IPO leading to BK’s listing on the RSE

Supervisory Board enhanced & intenationalized

BK Lines of credit: • PTA Bank (US$ 10m) • OFID (US$ 10m) • EADB (US$ 10m)

BK Registrars Ltd was established

• Launch of BK General Insurance Ltd • Launch of BK TehHouse Ltd

2015

2016

2009

2010

2011

2013

New strategy focusing on the universal banking business model & profitability growth was adopted

A+ credit rating by Global Credit Rating (GCR)

BK major loans: • AFD (US$ 20m) • EIB (£5m) • AfDB (US$ 12m)

BK Securities and BK Nominees were established

• Shelter Afrique (US$ 10m) • Launch of BK Registrars • Launch of MasterCard

BK Nominees, BK Registrars and BK Securities were consolidated to form BK Capital

2017

2018

The Company restructured to create the BK Group PLC BK increased authorised share capital by Frw 3.5bn

BK Group Structure

The current principal functions at BK Group are carried out through Bank of Kigali which accounts for about 98% of the Groups revenues.

BK Group PLC

Bank of Kigali PLC

BK Capital

BK General Insurance

BK TechHouse

Avial Limited*

Notes: • Avial Ltd was formed in 2018 and is not yet operational • All the subsidiary companies are wholly owned by the BK Group • Bank of Kigali currently makes up most of the financials and activities of the Group

7.3.1. Bank of Kigali Plc

Bank of Kigali Plc is the largest and substantive subsidiary of the BK Group. Following the reorganization towards the end of 2017, the Group opened a wholly owned subsidiary, Bank of Kigali Plc on 21 December 2017. It is a licensed commercial banking institution offering retail and corporate banking services. Banking products include: lending (including micro-financing loans, mortgage loans, general consumer loans, automobile loans, payroll loans, term loans, working capital financing, bill discounting, overdrafts and credit cards), current, savings and term deposit accounts, bank card products and services, ATM services, Internet and SMS banking, utilities and other bill payments, treasury and foreign exchange management services, money transfers and remittances, standing orders, direct deposit services for wages and other monetary entitlements. Refer to Sections 8.3 and 8.4 on the Board and senior management of Bank of Kigali.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC 7.3.2. BK Capital Ltd

BK Capital is a 100% owned subsidiary of BK Group PLC and has been operating as BK Securities Limited offering brokerage services and financial advisory services. BK Capital is licensed by the Rwanda CMA, by the BNR for Fund Management and Administration service for Pensions Schemes and is a member of the RSE. Among the services that BK Capital offers are: brokerage and research, corporate finance and advisory, private equity, pension investment management, administration services, registry services and transfer agents.

The current Board of BK Capital comprises of: Name

Profile

Moses Kiiza Chairperson

Moses Kiiza is a Partner in Equity Juris Chamber, a Law firm operating in Rwanda; Moses is licenced to practise law in the Republic of Rwanda and has extensive experience in advising clients and negotiating contracts in the corporate finance, energy and infrastructure sectors. He regularly acts as counsel to private and public operators, including financial institutions, trading companies and manufacturers on matters such as acquisitions, project finance, securitization, joint ventures and project due diligence. Moses has also worked on projects funded by international development institutions, advised on legal policy issues and contributed to law reform projects; He has advised on several transactions such as Initial Public Offerings, Mergers and acquisitions and many other capital markets transactions. Moses holds a Master of Laws from McGill University, Montreal, Canada and a bachelor’s degree in Laws from The National University of Rwanda. He is a member of the Kigali Bar Association and the East African Law Association.

Umulinga Karangwa, CFA

Umulinga Karangwa is a Chartered Financial Analyst (CFA) charter holder and holds master’s degree in Tax Management from Solvay Business School, a master’s degree in Management with majors in Finance and corporate control and taxation from Solvay Business School. Umulinga is a highly regarded fund manager and equity investment advisor serving institutional clients as a consultant with strong competencies in equity funds and dedicated mandates management, equity valuation, portfolio management and financial modelling. She has a deep knowledge of the African capital markets and has a well-established network of relationship with corporates and fund managers in the region. She has worked as an equity investment manager in several organizations such as Trade and Development Bank (TDB) in Mauritius, BPI Capital Africa in Cape Town, Renaissance Capital in Johannesburg, HSBC London and Johannesburg, JP Morgan London, PricewaterhouseCoopers in Belgium. Umulinga is currently the Fund Manager/ CEO of OBAFRICA AM in Casablanca, a specialist of African stock markets who participates in the management of AFRICA PICKING FUND as an advisor to the Fund which is a longterm investor in African companies offering attractive valuations and strong growth prospects.

Aziz Alzhanov

Aziz Alzhanov is the Managing Director of TAMS LTD, a mineral comp dealing in Sourcing, Processing and Exporting of 3T Minerals Tin, Tantalum and Tungsten in Rwanda. Prior to moving to Rwanda, Aziz held the positin of Chief of Staff in JSC Kazkommertsbank in Kazakhstan and as an auditor of Financial services industry in Deloitte LLP Kazakhstan. Aziz holds a BSC Accounting for Management from Aston University in United Kingdom and currently undergoing ACCA studies.

Vincent Gatete

Mr. Gatete is the Chief Commercial Officer of BK Group. He joined BK Group from ISCO Intersec Security where he was the Managing Director for over 2 years, overseeing over 6000 employees. Mr. Gatete was also Chief Executive Officer of Crystal Telecom, a fully listed company on the Rwanda Stock Exchange. Prior to that, Mr. Gatete was Company Secretary for Crystal Ventures Ltd where he provided general legal advice to management and board of Crystal Ventures in addition to be the lead project manager on a couple of mergers, acquisitions and disposals; before Crystal Ventures, Mr. Gatete was at Rwanda Revenue Authority where he held a number of roles in the areas of Legal advisory, customs, regional integration and International affairs coordination. Vincent has also served as a non-executive Director in a number of companies including MTN Rwanda, Ultimate Concepts Ltd, Akagera Aviation Ltd and CVL developers Ltd. Mr. Gatete holds a bachelor’s degree in Law, from the National University of Rwanda, and is currently completing his MBA thesis at Strathmore Business School, Strathmore University.

Flora Nsinga

Ms. Nsinga is the Chief Human Resources and Administration Officer at BK Group and has been with the Bank since 2007. Prior to this, she was Head of Human Resources and Administration. Flora joined the Bank with about ten years’ experience from the Telecommunication industry. She has been responsible for the growth in branch network and the staff of the Bank since then. She was instrumental in leading the Bank through various organizational reforms in 2009. She oversaw the Bank’s strategic human resource restructuring, transforming it from a product-driven to a customer-focused structure. Ms. Nsinga holds a bachelor’s degree in Business Administration with specialization in Human Resources from Kigali Institute of Science, Technology and Management (KIST). She also holds a Master’s in Management, majoring in Leadership and Human Resources from Cambridge College Boston, Massachusetts – USA.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC As at September 2018, BK Capital had 4 employees with Ms. Carine Umutoni as its Managing Director.

Name

Profile

Carine Umutoni Managing Director

Ms Umutoni is the Managing Director of BK Capital Ltd. She has 15 years’ experience in the banking industry with expertise in Treasury solutions, Assets& Liabilities Management, Investments, Trade Finance and Capital Markets Activities; She has a vast knowledge of capital market activities and played key roles on important transactions that contributed to the milestones of the Capital Market in Rwanda. Ms Umutoni holds an MBA in Economic Policy & Corporate Strategy from Maastricht University of The Netherlands and a bachelor’s degree in Banking and Finance from Damelin South Africa; She has also benefited various leadership and strategic business management programs. Carine serves in the Board of Rwanda National Investment Trust which was incorporated in 2015 by the Government of Rwanda.

7.3.3. BK General Insurance Ltd

In 2015, BK Group incorporated an insurance business through BK General Insurance Company that was licensed by the National Bank of Rwanda to transact general insurance in March 2016. It offers a range of insurance products Motor-Private and Commercial, Fire, Burglary/Theft, Business interruption, Engineering, Marine, Individual and Group Personal Accident, Household All Risks, Guarantees, Professional Indemnity, Travel, Money, Goods in Transit, Public Liability, Workmen’s Compensation, Products Liability, Transport and Micro Insurance. In 2018, BK entered into an agreement with Swan Insurance of Mauritius, for Swan Insurance to acquire 30% stake in BK General Insurance. BK intends on extending its insurance services to include life insurance, and the understanding is that Swan Insurance would also partner with BK in that venture at 30% stake.

The current Board of BK General Insurance comprises of: Name

Profile

Sandra Rwamushaija Chairperson

Ms. Rwamushaija is a practicing lawyer, founder and Managing Partner of Factum Law Firm Ltd, a Rwandan-based law firm. Ms. Rwamushaija has held several senior managerial posts in both Public and Private institutions. She has vast experience in Transaction Advisory, Banking, Telecommunications, and Commercial and Corporate law. Ms. Rwamushaija serves on various Boards of both listed and un-listed companies as a non-executive member. She is a member of the Rwanda Bar Association and the East African Law Society and is currently serving her first term as an elected Council Member of the East African Law Society representing Rwanda. She holds a Master of Business Administration degree, and a Bachelor’s in Law, both from the United Kingdom.

Jack Kayonga Vice Chairperson

Mr Kayonga is the Chief Executive Officer of the Rwanda Sovereign Wealth Fund, Agaciro. Prior to his appointment, Mr Kayonga served as the Executive Chairman of Crystal Ventures. Prior to that, he served as a top executive for 9 years at the Development Bank of Rwanda (BRD), four years of which he was the Chief Executive of the Bank. Much earlier in his career, he served in various management and technical capacities with the Ministry of Finance and Economic Planning of Rwanda. Mr. Kayonga has served on several boards in Rwanda and beyond, notable among them; he was the Chairman of the Rwanda Bankers Association, Chairman MTN Rwanda, Chairman Rwanda Special economic zones. He has been awarded several accolades notable among them, Forbes Africa Young Business Leader 2012 and World Economic Forum Young Global Leader 2013. An Economist and Banker, Mr. Kayonga qualified at University of Rwanda, Cardiff University, Wales. He is finalizing his DBA in Corporate Governance from the Swiss Management Centre.

Ephraim Turahirwa

Mr Ephraim Turahirwa holds an BSc (Honors) in Accounting and an MBA Finance (Distinction). He has been in the banking industry for many years and in many countries including: Liberia, Kenya, Tanzania, Uganda and Rwanda. He has held very senior positions in Rwanda both in the Private and Public sectors including: Managing Director, Banque Commerciale du Rwanda (BCR); CEO, Banque Populaire du Rwanda (BPR); and Vice Governor of the Central Bank (BNR). Other senior positions held include: CEO, Tri Star Investments, and Managing Director, Rwandan Mountain Tea Ltd.

Nathalie Mpaka

Ms. Mpaka is the Chief Finance Officer of BK Group. She joined the BK’s Management team in 2011 as the Financial Reporting and Investors Relations Manager. Prior to joining the Bank, Nathalie studied and worked in the United Kingdom. She has vast experience in financial planning, analysis and reporting, as well as systems implementation. She is dynamic and passionate about Financial Excellence and Value creation. Ms. Mpaka is ultimately responsible for providing high quality accounting and financial services to the Bank, model strategic leadership and professional guidance to both the Finance and Treasury team. She leads the design and implementation of financial risk management, continuously implement control systems to monitor the performance of the bank, its flow of funds, adherence to budgets, and assess credit risk. Ms. Mpaka is an ACCA qualified finance professional and also a member of the Certified Public Accountants in Rwanda (ICPAR) where she is currently serving as Governing Council Member. She holds a first-class bachelor’s degree in Accounting and Finance from the University of Birmingham in the U.K. Ms. Mpaka is currently completing her MSc in International Banking and Finance.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC

Name

Profile

Yves Gatsimbanyi

Mr Gatsimbanyi is the Head of Risk and Compliance of Bank of Kigali since early 2010 with vast experience in the banking sector. Mr. Yves served as a bank examiner at the National Bank of Rwanda for ten years. Prior to joining the Bank, he was the Head of Compliance and Internal Control at I&M Bank-Rwanda. Mr Gatsimbanyi holds an MBA in finance and accounting from Mount Kenya University and a bachelor’s degree in Economics from the National University of Rwanda. He also has a diploma in Risk management in Finance and Banking.

As at September 2018, BK General Insurance had 31 employees with Mr Alex Bahizi as its Managing Director.

Name

Profile

Alex Bahizi Managing Director

Mr Bahizi joined Bank of Kigali in 2010 as a Legal Services Manager. He later headed departments of Legal Services and Recoveries until mid-2016 when he became the Chief Executive Officer of BK General Insurance. Prior to joining Bank of Kigali, Mr Bahizi was the Head of Quality Assurance, a member of the reform team in charge of modernizing the Social Security industry and a State Attorney in the National Social Security Fund. He is a member of the Kigali Bar Association and the East African Law Society. Mr Bahizi holds a Bachelor of Laws (LLB) from the National University of Rwanda (NUR), a Master of Laws (LLM) majoring in International Commercial Law from The Robert Gordon University - United Kingdom and has completed an MBA – Strategic Management at Mount Kenya University. He holds a Certificate of Arbitration from the London Chartered Institute of Arbitration (CIARB).

7.3.4. BK TecHouse Ltd

In 2017, BK TecHouse was launched as an innovative technology company that develops digital platforms to create more value adding solutions to clients. It currently had key partnerships and platforms in agriculture, education, real estate and internet of things. While the basket of products currently offered is very diverse, the Group is continuously developing new products and services to meet the needs of its customers, to which end BK TecHouse is crucial.

The current Board of BK TecHouse comprises of: Name

Profile

Diane Karusisi Chairperson

Dr Karusisi is the Chief Executive Officer of the BK Group. She is a Seasoned Economist who has held several leadership positions in the past. Prior to joining BK Group. Dr Karusisi was the Head of Strategy and Policy and Chief Economist at the office of the President. Dr Karusisi also served at the National Institute of Statistics of Rwanda where she oversaw the design and implementation of major surveys. Before she moved back to Rwanda, Dr Karusisi worked as a Fixed Income Portfolio Engineer at Credit Suisse in Zurich and taught statistics at the University of Fribourg in Switzerland. Dr Karusisi studied Economics majoring in Econometrics and holds a PhD in Economics from the University of Fribourg. Her research areas mainly concentrated on Risk Modelling and Measurement. Her doctoral thesis entitled “Dependency in credit portfolios: Modelling with Copula Functions” was published in 2009. Dr Karusisi currently serves as non-executive director on several boards including the University of Rwanda and Rwanda Development Board.

Eddy Kayihura

Mr Kayihura also serves the Bank as the Chief Information Technology Officer where he oversees the development of a full-bodied digital strategy to drive Bank of Kigali’s technology delivered services. He has more than 17 years of high-level experience in Information Technology related business. From 2013, he was the Chief Executive Officer of Broadband Systems Corporation (BSC) an Internet Service Provider in Rwanda focusing on service delivery to Major Corporates using Fiber and 4G connectivity. Prior to this he has served in different Technology positions in Telecommunications companies. Mr. Kayihura holds a bachelor’s degree in Information Technology from the University of Rwanda and is currently pursuing an (online) MBA in International Business at Oklahoma Christian University.

Nathalie Mpaka

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC

Name

Profile

Ephraim Rwamwenge

Mr Rwamwenge is the founder and CEO of Rwa Business Group, a holding company with interests in agriculture, energy and real estate. Mr Rwamwenge is a serial entrepreneur with all his professional experience being in the development and running of for-profit enterprises. Prior to founding Rwa Business Group, Mr Rwamwenge cofounded and worked as the Director of Finance Director of a Software-As-A-Service (SaaS) start-up in Botswana. Mr Rwamwenge is professionally trained as a Chartered Management Accountant by the Chartered Institute of Management Accountants in the United Kingdom and holds a bachelor’s degree (Honours) in Accounting and Finance from University of Derby.

As at September 2018, BK TecHouse had 15 employees with Mr Claude Munyangabo as its Managing Director.

Name

Profile

Claude Munyangabo Managing Director

Claude Munyangabo has been appointed CEO of BK TecHouse effective 1st October 2018. Prior to that he served in the Business Development Capacity where he was overseeing all the Business Operations within BK TecHouse. Mr Munyangabo has over 10 years’ experience in the Telecommunication and Technology Business. Prior to joining BK TecHouse, Claude worked in the business development capacity with different telecommunication and technology companies including but not limited to KT Rwanda Network (KT RN) from 2014 to 2016, Broad Band System Corporation (BSC Ltd) from 2012 to 2014 and New Airtel Ltd. from 2008 to 2012. Mr Munyangabo holds a master’s degree in Business Administration from Maastricht School of Management (MSM) and is a Certified Business Mediator from London International Dispute Resolution Center.

7.4.

BK Group’s Competitive Advantages and Strengths

Bank of Kigali Plc is the largest contributor to the Group’s revenues and consequently its strategy. However, the overall motivation of BK Group is to be the one-stop-shop to its customers for all their financial needs. The different subsidiaries of the Group compete with other financial institutions (directly and indirectly) to obtain customers (whether individuals, private sector companies or public sector authorities) for matters related to selling products, spreading geographically and providing banking and financial services in general. Accordingly, the Group will be affected if it cannot keep pace with its competitors in the prices and quality of its products and services. However, due to its long and established history, the Group has a number of advantages and strengths that give it a competitive edge. Some of these include:

7.4.1. Brand and Reputation

Bank of Kigali, and by extension BK Group, has a strong brand and reputation that is well known and appreciated spread across the Country. Part of this emanates from its long 50-year history, which makes it a symbol of the good quality of services.

7.4.2. Commercial Banking Service

The Bank has a dedicated unit for commercial banking services that provides convenient and cost-effective services to the its customers and helps to strengthen relations between the Bank and corporations and SMEs. The Bank was among the first to develop an independent commercial banking services unit dedicated to serve corporations and SMEs, which has led to Bank of Kigali being the leading commercial bank in Rwanda. The Bank then used the experience gained to provide quality services to the retail market and expand its customer reach. Through its rich banking experience, the BK Group benefits from being able to augment Bank of Kigali’s services and customer reach network to offer unparalleled services to its customers.

7.4.3. Culture of Risk Management

BK Group adopts a constantly-evolving policy for risk management, where it has been investing consistently to improve its risk management procedures. In addition, it performs risk management functions through a number of support units and Board Committees.

7.4.4. Seasoned Management Team and Staff

The management team of all BK’s subsidiaries bring together a well experienced team and significant knowledge of the markets in which they operate, that has gathered considerable understanding and know-how related to operational issues required to run the Bank and other subsidiaries. The Board believes that this experience and know how is one of the key assets of the Group and has confidence that this will put the management team in a strong position to face potential challenges and to continue growing the Bank and the Group at large.

7.4.5. Comprehensive Training and Development of the Work Team

Each of the subsidiaries provide regular training services to their staff at all levels through a dedicated training department that is part of the human resources. New staff are required to attend a training program that provides them with a comprehensive introduction to the Group’s products and services. The Group, through innovative programs, aims to develop the careers of its employees and increase the staff’s knowledge of all of its current and anticipated services. The Group believes that training and development programs have contributed to development of the skills of its staff. This is evidenced through how they serve customers and perform their duties. As a result, the subsidiaries is seen as a leaders and can confidently relay on employees to continue serving customers and stakeholders with utmost professionalism.

7.4.6. Innovation in Technology

The financial sector in Rwanda has generally been very traditional. However, with the setup of BK TechHouse, the Group is committed to more innovative products and platforms that leverage on technology and make banking, insurance, investment and overall financial inclusion convenient and cost effective both for the customer and for the Group. To this end, the Group has developed a strategy that strongly depends on technical and digital systems for the purposes of providing services, monitoring financial performance and collecting information enabling it to manage business in an effective and low-cost way and provide customers with fast, efficient and safe services.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC

7.4.7. Social Responsibility

The Group is an institution with tightly-knit community relations in Rwanda, and has a strong philosophy based on building strong ties with the local community. The Group intends to continue to promote positive community development in the Country, while supporting the Government in some of its development agendas. The Group has continued to implement a range of activities aimed at supporting and helping the community, such as providing financial assistance to various charitable organizations, launching vocational training programs, sponsoring training programs for various under privileged groups as well as for various SMEs that form the backbone of Rwanda’s growing economy.

7.5.

Banking Products and Services

i) ii)

Retail banking; Corporate banking;

The principal functions at BK Group are through Bank of Kigali, which accounts for about 98] % of the Groups Revenues. The Bank’s main business lines are as shown below:

Other functions within the bank include asset-liability management; information technology; human resources general insurance and; internet and digital services

7.5.1. Retail Banking

The retail banking division targets all individuals ranging from the low-income segment to the high net worth individuals. As of 31 December 2017, the Bank had a total of 208,592 retail current accounts and 61,567 savings accounts. Total retail clients reached over 268,000 by 30 June 2018.

FRw (Billion)

1H 2018

2017

2016

2015

2014

Loans

Deposits

129

114

Total Current Accounts

211

209

198

312

266

Source: Bank of Kigali The range of products and services that the Bank offers its retail customers includes:  Current accounts, savings accounts and time deposits;  Mortgage loans;  Consumer loans including micro-finance loans;  Asset leasing; and,  Overdraft facilities. The Bank aims to become the bank of choice for its customers across all the income groups.

Deposit Taking

The Bank offers its customers a variety of deposit products such as:  Non-interest earning current accounts or demand deposits with debit cards, SMS and Internet banking;  Savings accounts; and  Time deposits, which normally have a maturity of up to 12 months The table below shows a breakdown of deposits by product type as of the dates and amounts indicated below.

FRw (Billion)

1H 2018

2017

2016

2015

2014

Demand Deposits

102

Time Deposits

Savings Deposits

Total Deposits

129

114

Customer Deposits

Source: Bank of Kigali Interest rates - Interest rates range between 5% - 8% for savings deposits and 3% - 8% for term deposits.

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SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC ii)

Retail Lending

The Group makes credit available to its customers through the various loan products listed in the table as of the dates and amounts indicated below.

FRw (Billion)

1H 2018

2017

2016

2015

2014

Mortgages

Consumer Loans

Overdrafts

Other

Total Loans Source: Bank of Kigali

For all its retail loan products the Bank charges interest rates that range from 16.0% - 18.5%.

iii)

Consumer loans

iv)

Overdrafts

Mortgages

Consumer loans are granted to individuals who have a regular income or pension. Consumer loans typically have maturities of up to 48 months. â&#x20AC;&#x192; Overdrafts are subject to a limit for each customer as established by the Bank. Overdraft loans typically have maturities of 90 days.

The Bank offers mortgage loans for the purchase of real estate. The Bank offers a mortgage product with monthly fixed repayment instalments for a period of up to 20 years. The loan-to-value ratio of mortgage loans is 70 %.

7.5.2. Corporate Banking

The Bankâ&#x20AC;&#x2122;s corporate banking customers include corporate entities, SMEs and NBAs. As of 31 December 2017, the Bank had approximately 24,000 corporate customers, SME customers and NBA customers. Corporate customers are generally companies with annual gross revenues above FRw 600 Million or approximately US$1 Million, SMEs are companies with annual gross revenues of up to FRw 600 Million while NBAs are not for profit entities like churches, NGOs and schools. The table below presents a breakdown of the number of corporate loan and deposit accounts for the period indicated.

FRw (Billion)

1H 2018

2017

2016

2015

2014

Loans

438

428

339

263

188

Deposits

243

241

236

218

186

The table below shows the breakdown of corporate loans and deposits by client type as at the dates and in the amounts indicated below.

FRw (Billion)

1H 2018

2017

2016

2015

2014

Corporates

381

368

262.9

184.2

134.4

SMEs

71.2

69.7

46.9

NBAs

5.1

9.2

6.4

438

428

339

263

188

1H 2018

2017

2016

2015

2014

Corporates

135

142

125

137

SMEs

NBAs

Total Deposits

243

241

236

218

Loans

Total Loans

FRw (Billion) Deposits

Source: Bank of Kigali

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC The Bank serves corporate customers across all industry sectors in Rwanda. Other, 3.1%

Financial Intermadiation, 3.5%

Construction, 12.6% Agriculture, 0.7%

TWC, 10.2%

Manifacturing, 5.5%

Mortgage, Lease & Services , 10.6%

Energy & Water, 5.5%

Hotels & Restaurants, 13.1 %

Commerce, 33.7%

Education, 1.0%

Chart: The Bank’s sector-wise lending FY 2017

7.6.

Bank of Kigali’s Organization Structure

The Bank’s organization structure is represented below:

Bank of Kigali Board

Head Internal Audit

Head Corporate Aﬀairs & Company Secretary

Head Risk

Chief Oﬃcer, HR & Administration

Head Compliance and Litigation

Chief Oﬃcer, Finance & Business Intelligence

Chief Operating Oﬃcer

Head, Head, Head, Human Administration Operations Resources

Head, Credit

Head, Head, Customer Recoveries Experience

Chief Executive Oﬃcer

Head, Finance

Head, Business Intelligence

Chief Information Oﬃcer

Chief Commercial Oﬃcer

Head, Business

Head, Branch Network Business

Head, Treasury

Head, Marketing

Head, IT

Head, Head, Core Digital Banking Channels Systems

The table below contains the names, positions, academic and professional qualifications of the senior management of the Bank. Refer to the BK’s website www.bk.rw/about-us for further information.

Name

Position

Academic / Professional Qualification

Dr Diana Karusisi

Managing Director

PhD in Economics, Bachelors in Econometrics (BA)

Nathalie Mpaka

Chief Finance officer

BA (Hons) Accounting & Finance, ACCA

Eddy Kayihura

Chief Information Technology Officer

Bachelor’s degree in Information Technology

Flora Nsinga

Chief Human Resources Officer

Master’s in management, Bachelor’s Degree in business administration (BBA)

Desire Rumanyika

Chief Operating Officer

MBA in Banking, Master’s degree in International Financial Services and Banking Law

Vincent Gatete

Chief Commercial Officer

MBA, Bachelor’s degree in Law

Regis Rugemanshuro

Chief Digital Officer

MBA in Management, BA Science Information Technologies

Gerard Nyangezi

Chief Representative Officer, Nairobi

Bachelor’s degree in Finance, BSc in Accounting, CCA, FCCA, ICPAR

Rose Ngabire

Head of Customer Experience Management

MA International Relations & Globalization

Thierry Nshuti

Head of Marketing

Bachelor’s degree in science, Applied Mathematics

Samuel Nshimiyimana

Head of Finance

Bachelor’s degree in Accounting, ACCA

Innocent Musominari

Head of Recovery

Bachelor’s degree in Economics

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC

Name

Position

Academic / Professional Qualification

Yves Gatsimbanyi

Head of Risk

MBA Finance & Accounting, Bachelor’s in Economics

Barbara Busingye

Head of Operations

Masters in Economic policy management. Bachelor’s in Accounting

Celestin Zimulinda

Head of IT

BSc in Computer Eng. & IT, Masters in IT & Management

Bonaventure Urimube

Head of Credit

MBA Finance, Bachelor’s in Applied Statistics

Kevin Rudahinduka

Head of Digital Banking

Masters in IT, Bachelor’s in Computer Eng. & IT

Fabrice Bugingo

Head of Procurement & Administration

Degree in Finance (BBA)

Mami Fatou

Head of Human Resources

Bachelor’s degree in Sociology

Barnabas Kalenzi

Head of Business

Bachelor’s degree in Finance & Planning

Aimable Malaala

Head of Compliance, Litigations and Subsidiaries Corporate Counsel

Bachelor of Law (LLB), Master of Law (LLM)

Bonaventure Ntabwoba

Head of Branch Business

Bachelor’s degree in Management

Charles Gakuru

Head of Treasury

MBA Finance & Accounting, Bachelor’s in Management

7.7.

Summary of Financial Performance

The following table sets out certain summary financial and operational data for the Group. The financial data below has been extracted from audited Annual Financial Statements for the years ended 31 December 2017, 2016 and 2015 and unaudited and reviewed Interim Financial Statements for the half year ended 30 June 2018 and 2017. (FRw Billions)

Period Ended 30 June

Financial Data

2018

2017

2016

2015

2014

Assets

732

662

727

638

561

Net Loans & Advances

481

426

472

386

314

Total Deposits

472

434

455

419

385

Shareholders’ Equity

130

112

123

109

Net Interest Income Net Non-Interest Income

Year Ended 31 December

Total Operating Income (Revenue)

Total Operating Expenses

Profit for the period/year

Return on Average Assets (2)

3.7%

3.4%

3.5%

3.9%

Return on Average Equity

21.2%

20.3%

20.2%

20.0%

21.7%

(1)

Financial Ratios

Cost / Income Ratio

(3)

42.1%

47.9%

45.2%

47.4%

47.8%

Capital Adequacy Ratio (5)

21.7%

18.3%

19.0%

22.1%

Net Interest Margin

10.7%

9.9%

10.4%

10.5%

10.1%

(4)

(6)

Operational Data Number of Retail Current Accounts

211,295

219,469

208,592

198,067

312,369

Number of ATM’s

Number of Branches and Agencies

1,224

1,215

1,225

1,140

1,019

Number of Employees Note:

Return on Average Assets and Return on Average Equity for the periods ended 30 June 2018 and 30 June 2017 are annualized.

(1) (2) (3) (4) (5) (6)

Net non-interest income is net fee and commission income, foreign exchange gains and other income. Return on average assets equals net income of the period divided by average total assets for the same period. Return on average equity equals net income of the period divided by average total shareholders’ equity for the same period. Cost/income ratio equals total recurring operating costs for the period divided by total operating income Capital adequacy ratio is the ratio of tier 1 capital to the total risk weighted assets Net Interest Margin is the net interest income is a ratio of the average interest-bearing assets

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC Chart: Concrete growth in assets and shareholdersâ&#x20AC;&#x2122; funds

Shareholders Funds

FRw Bn

150 99

100

123

109

50 0 2014

2015

2016

2017

Total Assets 727

800

FRw Bn

600

638

561

483

400 200 0 2015

2014

2016

2017

Loans & Advances 600

496

FRw Bn

500

398

400

325 247

300 200 100 0

2014

2015

2016

2017

Customer Deposits 500

FRw Bn

400

385

419

455

325

300 200 100 0 2014

2015

Chart: Solid growth in customer deposits and loans & advances

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

2016

2017

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC 7.8.

Competitor Analysis

BK Group has the highest market share among the top 10 banks in Rwanda.

Chart: Top 10 Banks Market Share in 2017

Net Loans

Total Assets Bank of Kigali 38.1%

Other 36.1%

Bank of Kigali 34.3%

Other 40.5%

BPR 14.0%

I&M 11.8%

Deposits

Shareholder Equity Bank of Kigali 38.9%

Other 36.6%

Bank of Kigali 32.1%

Other 42.8%

BPR 13.5%

I&M 11.0%

BPR 12.9%

I&M 12.3%

BPR 12.6%

I&M 12.5%

Source: Bank results, BNR Furthermore, BK Group remains the most profitable of the top banks in the country.

Chart: Top 9 Banks - Return on Average Equity and Average Assets in 2017 25.0% 20.0%

20.2%

19.9%

17.4%

16.0%

13.0%

15.0%

11.3%

10.0% 5.0%

3.4%

2.8%

2.2%

5.0%

2.6%

1.5%

1.2%

4.2% 0.8%

0.5%

2.5%

0.4%

RoAE

BPR

Access

GT Bank

KCB

Ecobank

Equity

Cogebanque

I&M

Bank of Kigali

0.0%

RoAA

Source: Bank results, BNR

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC Chart: Top 9 Banks - Market Share based on Total Assets 34%

34%

13% 10% 10% 11%

11%

10% 10%

6% 6%

BPR

Cogebanque

9% 9% 9%

Equity

10%

KCB

10% 9%

Ecobank

4% 4%

GT Bank

4% 4% 4% 4%

Access

Source: Bank results, BNR

Chart: Top 9 Banks - Market Share based on Net Loans

34%

38% 38% 34%

13%

13% 14% 11%

10% 12% 11% 10%

10% 10% 9% 9% 7%

BPR

I&M

Cogebanque

7% 7% 8%

Equity

10% 10% 9% 8%

9% 7%

KCB

Ecobank

9% 9% 8% 7%

12%12% 10% 7%

4% 3%

3% 3%

GT Bank

Access

5% 5% 5% 5%

4% 4% 5% 5%

Source: Bank results, BNR

Chart: Top 9 Banks - Market Share based on Customer Deposits

37% 33% 32% 33%

12% 12% 13% 10%

BPR

13% 12% 10% 10%

I&M

9% 9%

Cogebanque

6% 6% 7%

Equity

KCB

Ecobank

GT Bank

Access

Source: Bank results, BNR

Chart: Top 9 Banks - Market Share based on Equity 43% 43% 39% 39%

14% 11%

10% 11% 11% 11%

6% 6%

BPR

I&M

8% 8% 8% 8%

9% 9% 8% 8%

Cogebanque

Equity

Source: Bank results, BNR

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

6% 6% 5% 6%

KCB

6% 6% 76% 6%

Ecobank

5% 5% 4% 4%

GT Bank

4% 4% 4% 3%

Access

SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC 7.9.

BK Group’s Strategy & Future Outlook

Management’s objective is to maximize shareholder value by further developing the Group into the leading one-stop-shop financial group in Rwanda and increasing its market share in all relevant sectors of the Rwandan financial services industry. The key elements of the Group’s business strategy are:

7.9.1. Become the Universal Financial Services Provider of Choice for all Rwandans

BK Group intends to offer under one brand all financial services to its customers and widen the BK Group scope of products and services. This will help achieve its ambition to grow the number of customers served by the group to 1,000,000 by 2021. Furthermore, plans to expand its retail business, transactional revenue, insurance & brokerage and other services are underway and will strengthen the BK brand across all segments of the population

7.9.2. Expand Retail Product Offering

Bank of Kigali aspires to further increase its market share and diversify its revenue streams and funding base by offering a wide range of retail banking products. The Bank plans to build a market–leading retail sales force to re-balance, over time, the composition of its loan book toward higher-yielding retail lending products, while continuously investing in technology-based delivery systems to ensure their scalability

7.9.3. Control risk, Strengthen Systems and Revolutionise Customer Experience

The Group plans to provide main services at branch level. Becoming customer service champions in order to convert customers into digital consumers thereby reducing concentration and introducing automated scoring models for personal loans, salary advances & SMEs loans. A fully operational and effective call centre developed alongside a business intelligence function will support decision making and solve customers’ pain points and ensure smooth and enjoyable customer experience. The provision of key indicators in an easy format on a daily basis will help maintain manageable NPLs at less than 5%.

7.9.4. Digital Financial Institution

BK Group plans to automate processes with the integration of BK group systems to ensure a single view of customers and subsequently grow the number of digital consumers to at least 20% of the BK group’s total customer base. By complying with global IT standards and ensuring that IT systems are stabilised at 99% uptime of core banking systems and on all channels. Furthermore, digitizing manual processes such as back office functions at BK Bank and BKGI.

7.9.5. Build Sufficient Channel Capacity

In addition to the expansion of the branch footprint, the Group intends to further enhance its ATM, POS, mobile and Internet banking channel capacity. To this end, the Group expanded in 2010 its ATM network from six to 26 ATMs and as at 2017 has 91 ATMs and ensured the interoperability of its ATM acquiring business with that of the other banks in Rwanda. The Group is in the process of expanding its network of installed POS terminals from 100 as at 31 March 2011 to 1,250 POS terminals as at December 2017, installing the new terminals at the premises of various leading merchants and hospitality sector operators.

7.9.6. Maintain Profitable Growth

The Group intends to continuously improve its risk management policies and procedures and pursue disciplined capital management. Management believes that it is possible to achieve the Group’s growth and market share objectives without sacrificing profitability and additionally intends to pursue a dividend policy that is compatible with the Group’s growth potential.

7.9.7. Strong Performance Management Systems

The Group plans to attract and retain the best talent in the industry with targeted training in IT, operations, business intelligence and risk. It will develop online training tools to ensure all BK staff are regularly trained on policies and regulation.

7.10. Dividend Policy

BK Group targets to reduce the dividend payout ratio from current forty (40%) to between fifteen to thirty percent (15%-30%) of its profit before tax. The dividend payout may, however, vary depending on the Company’s performance, liquidity and investment plans as determined by the Board, and subject to an AGM approval.

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SECTION 7: BUSINESS OVERVIEW OF BK GROUP PLC 7.11. Share Price Trend (FRw)

High

Low

2013

250.00

170.00

2014

365.00

240.00

2015

300.00

273.00

2016

290.00

228.00

2017

300.00

228.00

2018

300.00

285.00

Q1 2017

250.00

228.00

Q2 2017

245.00

240.00

Q3 2017

280.00

245.00

Q4 2017

300.00

275.00

Q1 2018

300.00

290.00

Q2 2018

290.00

286.00

Q3 2018

290.00

288.00

March,2018

290.00

April,2018

290.00

May, 2018

290.00

289.00

June, 2018

290.00

286.00

July, 2018

290.00

285.00

August, 2018

290.00

September ,2018

290.00

Annual high and low prices for each of the five years

High and low market prices for each financial quarter of the most recent two years

High and low market prices for each of the most recent six months

Source: Bloomberg

Share Price Trend (2013 - 2018)

Share Prie (FRw)

400 300

294.36

287.39

271.1

256.23

2014

2015

2016

2017

201.33

200 100 0

2013

YEARS Source: Bloomberg

292.4

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

2018

SECTION 8: CORPORATE GOVERNANCE 8.1.

Corporate Governance

BK Group endeavours to continue practicing the highest level of corporate governance across all our business functions. The Group believes that good corporate governance is the cornerstone of the its success and therefore strives to create and enhance long-term sustainable value for shareholders through ethically driven business practices. Due to the fact that BK Group Plc is a non-operating holding company, its operational and corporate governance functions are centred at the Bank, which remains the largest contributor to the Group’s operations and revenues. As such, the Board of Bank of Kigali Plc act as the board of the overall Group. Through the Board and the Bank, the Group has put in place systems to ensure that the highest standards of corporate governance and business ethics are maintained at all levels and ensure compliance with the National Bank of Rwanda’s (BNR) Regulations on Corporate Governance. Rwanda’s Law Relating to Companies, the Law Relating to Banking together with the BNR’s Guidelines as well as the Capital Markets Authority laws and regulations.

8.2.

Board of Directors and Relevant Committees

The Board of Directors of BK Group are responsible for the overall leadership of the Group through oversight and guidance on key strategic and risk issues. It plays a pivotal role in setting up the system of corporate governance to ensure safe guard of policies and procedures, ensuring that management conducts its business operations with integrity and in accordance with best corporate governance practices. It ensures that in carrying out its duties, management complies with relevant laws and regulation and risk management while balancing the interests of the various stakeholders. The Board of Directors is chaired by an independent non-executive chairman and is composed of seven members who have a wide range of skills, experience and independent judgment. Their skills, competencies and academic qualifications can be found below. The chairman, who has overall responsibility for the Board, ensures overall leadership and long-term success of the Group. The Board has delegated the authority for day-to-day management of the each of its subsidiaries to the individual chief executive officers, who have an administrative reporting line to the CEO of the Bank. The Managing Directors of each subsidiary have overall responsibility for the performance of the business and provide leadership to facilitate successful planning and execution of the objectives and strategies agreed by the Board. For the successful management of the Board and its functions, the Board is guided by a Board Charter which sets out their powers, roles and responsibilities. The Board meets on a quarterly basis or more frequently as the business demands. In addition to the quarterly meetings, the Board has appointed five sub-committees to assist in achieving its mandate as set out below. Board Committees

Audit Committee

ii)

Credit Committee

iii)

Risk Management Committee

Iv)

Information and Technology Committee

Nominations and Remuneration Committee

This is the principal Board Committee charged with overseeing the Bank’s financial reporting policies and disclosures to ensure that they are produced in accordance with International Financial Reporting Standards and meet all the necessary regulatory requirements. The Audit Committee is responsible for ensuring that the Bank’s internal controls and procedures are adequate and adhered to, making recommendations where necessary. It is also charged with the appointment and review of the work of the external auditors. The Committee comprises of three independent non-executive board members who meet on a quarterly basis or more frequently as its business demands.

The Committee oversees the Bank’s loan portfolio credit risk management. The Committee is charged with reviewing credit facility applications that are beyond the discretionary limits of the Management Credit Committee. The Committee also oversees the Bank’s lending policies and procedures to ensure that there is adequate risk management in addition to monitoring the loan portfolio to maintain high asset quality. The Committee meets monthly or more frequently as its business demands.

The mandate of the Risk Management Committee is to ensure that the Bank’s enterprise risk management policies and procedures are updated to ensure that the risks are properly tackled, effectively controlled and managed. This Committee comprises of three non-executive board members and meets on quarterly basis or more frequently as its business demands.

The Committee is tasked with the responsibility of assisting the Board to oversee IT related Policies, processes and procedures, project and activities. The Committee is responsible for ensuring that business alignment, effective strategic IT planning and oversight of IT division performance. The Committee is responsible for the appointment of and remuneration of the Management and also ensuring that the Bank’s human resources are able to support the development and implementation of the Bank’s strategy. This entails reviewing the Human Resources policies and procedures, organisational structure, senior management composition as well as remuneration. The Committee meets on a quarterly basis or more frequently as its business demands.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 8: CORPORATE GOVERNANCE 8.3.

Board of Directors’ Profiles 5

Name

Profile Mr. Holtzman is the current Chairman of BK Group,has served as a member of the Bank’s Board of Directors since 2009. He was the Chief Executive Officer of Kazkommertsbank (LSE: KKB:LI), Kazakhstan’s largest private bank 2015-2017 and serves as Chairman since March 2015. Previously, Mr. Holtzman was Chairman of Meridian Capital HK, a private equity firm with investments in natural resources, real estate, food, agriculture and transportation. Prior to joining Meridian, Mr. Holtzman served as Vice Chairman of Barclays Capital and as Vice Chairman of ABN Amro Bank. Previously, as co-founder and President of MeesPierson EurAmerica (a firm which was acquired by ABN Amro) and as Senior Adviser to Salomon Brothers, he lived and worked in Eastern Europe and Russia from September 1989 until October 1998. Mr. Holtzman also currently serves as a member of the Board of Directors TeleTech (NASDAQ: TTEC), the world’s leading provider of analytics-driven technology- enabled services.

Marc Holtzman Chairman, Independent

To further assist with the development of Central Asia’s financial sector, Mr. Holtzman was appointed by Kazakhstan’s Prime Minister to serve on the Board of Directors of Kazyna - the nation’s sovereign wealth fund from 2006 – 2008. In addition, Mr. Holtzman served as a member of the Board of Trustees of the United States Space Foundation from 2004 – 2010. From 2003 through 2005, Mr. Holtzman was President of the University of Denver where he was responsible for the development of the Rocky Mountain Center for Homeland Security. The University of Denver has approximately 10,000 students and includes the Daniels College of Business, which, during Mr. Holtzman’s tenure, was ranked by The Wall Street Journal as being among the world’s top fifty MBA programs. Previously, Mr. Holtzman served in the Cabinet of Governor Bill Owens as Colorado’s first Secretary of Technology. In addition, Mr. Holtzman was Chairman of Colorado’s Information Management Commission and Co-Chairman of the Governor’s Commission on Science and Technology. Mr. Holtzman helped guide Colorado’s economic transformation into a fully diversified technology hub. During his tenure, Colorado was consistently ranked first among the fifty states in having the highest percentage of technology workers per thousand in the nation.

Mr Tusabe has recently been appointed as the Chief Executive Officer of the Rwanda Security Board (RSSB). Prior to that he was the Commissioner General of the Rwanda Revenue Authority (RRA), having risen to this rank in 2014 from the position of Deputy Commissioner General and Commissioner for Customs Services. He has vast experience in finance and taxation having held various managerial positions in the RRA, MTN Rwanda as well as Super Cell. He served as a board member of the Rwanda Development Bank for between 2010 and 2013. Mr Tusabe is a full member of the Institute of Certified Public Accountants Rwanda and a Certified Public Accountant of Kenya. He holds an MBA in Strategic Planning from Edinburgh Business SchoolHerriot Watt University. Richard Tusabe 5 Vice Chairman

Mr. Kavaruganda is a practicing lawyer and Managing Partner of K-Solutions & Partners; one of the leading law firms in Rwanda. He has vast experience in Banking and Finance law as well as Commercial and Corporate law. Prior to that, he worked as a corporate lawyer at the Brussels Bar Association. He serves as a Director on the Board of the Rwanda Bar Association, Kigali International Arbitration Centre and New Bugarama Mining Company Ltd. Mr. Kavaruganda was called to the Brussels Bar in 2004 and is a member of the Rwanda Bar Association as well as the East African Law Society. He holds a bachelor’s and a master’s degree in Law from the Université Catholique de Louvain in Belgium.

Julien Kavaruganda Independent Director

Appointed 22 October, 2018 _ Pending regulatory approval

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 8: CORPORATE GOVERNANCE

Name

Profile Mr. Karemera is the Deputy Accountant General in charge of Treasury Management in the Ministry of Finance and Economic Planning, Rwanda. He is a Qualified Accountant with a background in Economics. He has vast experience in the area of taxation especially the International Aspect of Taxation, gained both from formal training and 11 years of working with Rwanda Revenue Authority, where he occupied various positions in the Customs Services Department, the Commissioner General’s Office and finally serving as the Chief Finance Officer. Mr. Karemera is a full member of the Association of Certified Chartered Accountants. He holds a master’s Degree in International Taxation from The University of Sydney - Australia, a bachelor’s Degree in Economics from Makerere University - Uganda and a Diploma in Trade Policy from The University of Nairobi.

Reuben Karemera Non-Executive Director

Ms. Kabbatende is a Government Fellow at the World Economic Forum’s Center for the Fourth Industrial Revolution in San Francisco where she spearheads projects with the Center and the Government of Rwanda, to drive the accelerated adoption of emerging technologies. Her current areas of focus include Drones, Precision Medicine, Blockchain and Artificial Intelligence. Prior to joining the Center, Alline was the Chief Operating Officer at RwandaOnline Platform Ltd, a technology solutions provider in a PPP with the Government of Rwanda to transform government-tocitizen/business service delivery using technology. She previously worked at the Rwanda Development Board; at Samsung Headquarters in Suwon, South Korea; and as an engineer at General Electric Transportation in Erie, Pennsylvania (USA). Alline holds a degree in Electrical & Electronic Engineering from Oklahoma Christian University and a Master’s in Electrical & Electronic Engineering from the University of Pennsylvania. Alline Kabbatende Independent Director

Ms Kyatengwa is presently Chief Strategy Officer at Aviation Travel & Logistics Holding (ATL). She also served as a Board of Director at the National Bank of Rwanda (BNR) from 2009 to 2018. Prior to joining the Aviation Industry, Lilian was a Lecturer and Head of the Department of Finance at the School of Finance & Banking-SFB (now University of Rwanda College of Economics & Management). She has also been a trainer at the Rwanda Capital Market Advisory Council (CMAC) and at the Rwanda Institute of Administration and Management(RIAM) responsible for training Government officials for improvement of managerial and leadership skills. Ms Kyatengwa holds a bachelor’s degree in Finance from Kigali Institute of Science, Technology and Management-KIST (now University of Rwanda), post graduate diploma in Business Management and a master’s degree in Business Administration (MBA) in Strategic Management Practices from the University of KwaZulu-Natal-UKZN South Africa. Lilian Kyatengwa 6 Non-Executive Director

Note: Dr Diane Karusisi, the CEO, also sits on the Board of Directors as an Executive Director 6 7

Appointed 22 October, 2018

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 8: CORPORATE GOVERNANCE 8.5.

Executive Management

Name

Profile Dr Karusisi is the Chief Executive Officer of the BK Group. She is a Seasoned Economist who has held several leadership positions in the past. Prior to joining BK Group. Dr Karusisi was the Head of Strategy and Policy and Chief Economist at the office of the President. Dr Karusisi also served at the National Institute of Statistics of Rwanda where she oversaw the design and implementation of major surveys. Before she moved back to Rwanda, Dr Karusisi worked as a Fixed Income Portfolio Engineer at Credit Suisse in Zurich and taught statistics at the University of Fribourg in Switzerland.

Dr Diane Karusisi Chief Executive Officer

She studied Economics majoring in Econometrics and holds a PhD in Economics from the University of Fribourg. Her research areas mainly concentrated on Risk Modelling and Measurement. Her doctoral thesis entitled “Dependency in credit portfolios: Modelling with Copula Functions” was published in 2009. Dr Karusisi currently serves as non-executive director on several boards including the University of Rwanda and Rwanda Development Board. Ms. Nsinga is the Chief Human Resources and Administration Officer at BK Group and has been with the Bank since 2007. Prior to this, she was Head of Human Resources and Administration. Flora joined the Bank with about ten years’ experience from the Telecommunication industry. She has been responsible for the growth in branch network and the staff of the Bank since then. She was instrumental in leading the Bank through various organizational reforms in 2009. She oversaw the Bank’s strategic human resource restructuring, transforming it from a product-driven to a customerfocused structure.

Flora Nsinga Chief Human Resource

Ms. Nsinga holds a bachelor’s degree in Business Administration with specialization in Human Resources from Kigali Institute of Science, Technology and Management (KIST). She also holds a Master’s in Management, majoring in Leadership and Human Resources from Cambridge College Boston, Massachusetts – USA.

Ms. Mpaka is the Chief Finance Officer. She joined the Bank’s Management team in 2011 as the Financial Reporting and Investors Relations Manager. Prior to joining the Bank, Nathalie studied and worked in the United Kingdom. She has vast experience in financial planning, analysis and reporting, as well as systems implementation. She is dynamic and passionate about Financial Excellence and Value creation. Ms. Mpaka is ultimately responsible for providing high quality accounting and financial services to the Bank, model strategic leadership and professional guidance to both the Finance and Treasury team. She leads the design and implementation of financial risk management, continuously implement control systems to monitor the performance of the bank, its flow of funds, adherence to budgets, and assess credit risk. Nathalie Mpaka Chief Finance Officer

Ms. Mpaka is an ACCA qualified finance professional and also a member of the Certified Public Accountants in Rwanda (ICPAR) where she is currently serving as Governing Council Member. She holds a first-class bachelor’s degree in Accounting and Finance from the University of Birmingham in the U.K. Ms. Mpaka is currently completing her MSc in International Banking and Finance. Mr. Rumanyika has been Bank of Kigali’s Chief Operating Officer since 2017, responsible for the implementation of the bank’s operating model by ensuring a stable, optimal and efficient services delivery ecosystem across the Bank’s expansive branch network and other digital channels. Mr. Rumanyika has an extensive banking experience in the fields of Development Finance, commercial banking, project financing garnered from national, regional and international financial institutions. He worked for the ‘Banque Continentale Africaine’ (BCA) for 2 years, the Rwanda Development Bank (BRD) as Director for Corporate Affairs for 8 years and CEO of BDF for 3 years.

Désiré Rumanyika Chief Operating Officer

In 2009 Mr. Rumanyika joined the Project Finance Department at the London offices of the global Law Firm of Milbank Tweed Hadley McCloy LLP, specialized in project financing and other financial services. He served as Board Director for Banque Populaire du Rwanda (BPR) for 7 years, the Rwanda Housing Bank (RHB) for 4 years, Rwanda Enterprise Investment company (REIC) for 2 years, the Business Development Fund (BDF) for 2 years and AADFIs for 3 years. Prior to joining BK Group (BK) Rumanyika was the Country Manager for Rwanda Office of the East African Development Bank (EADB), a regional Development Finance Institution (DFI) with operations in all East Africa Community (EAC)’s Member States. Mr. Rumanyika holds an MBA with specialization in Banking from the Maastricht School of Management, Netherlands (MSM) and a Master of Laws, LL.M in International Financial Services and Banking granted by the University of Liverpool (UoL) in UK.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 8: CORPORATE GOVERNANCE

Name

Profile Mr. Gatete is the Chief Commercial Officer. He joined BK Group from ISCO Intersec Security where he was the Managing Director for over 2 years, overseeing over 6000 employees. Mr. Gatete was also Chief Executive Officer of Crystal Telecom, a fully listed company on the Rwanda Stock Exchange. Prior to that, Mr. Gatete was Company Secretary for Crystal Ventures Ltd where he provided general legal advice to management and board of Crystal Ventures in addition to be the lead project manager on a couple of mergers, acquisitions and disposals; before Crystal Ventures, Mr. Gatete was at Rwanda Revenue Authority where he held a number of roles in the areas of Legal advisory, customs, regional integration and International affairs coordination. Vincent has also served as a non-executive Director in a number of companies including MTN Rwanda, Ultimate Concepts Ltd, Akagera Aviation Ltd and CVL developers Ltd.

Vincent Gatete Chief Commercial Officer

Mr. Gatete holds a bachelor’s degree in Law, from the National University of Rwanda, and is currently completing his MBA thesis at Strathmore Business School, Strathmore University. Mr Kayihura serves the Bank as the Chief Information Technology Officer where he oversees the development of a full-bodied digital strategy to drive Bank of Kigali’s technology delivered services. He has more than 17 years of high-level experience in Information Technology related business. From 2013, he was the Chief Executive Officer of Broadband Systems Corporation (BSC) an Internet Service Provider in Rwanda focusing on service delivery to Major Corporates using Fiber and 4G connectivity. Prior to this he has served in different Technology positions in Telecommunications companies. Mr. Kayihura holds a bachelor’s degree in Information Technology from the University of Rwanda and is currently pursuing an (online) MBA in International Business at Oklahoma Christian University.

Eddy Mabano Kayihura Chief Information Technology Officer Newly appointed Chief Digital Officer at the Bank of Kigali Plc,Mr. Regis Rugemanshuro was the first Chief Executive Officer of BK TecHouse Ltd, the Tech subsidiary of BK Group Plc where his work in the past two years earned him the 2018 All Africa Business Leaders Award (AABLA) as Finalist for East Africa Innovator of the Year. Under his leadership, BK TecHouse was voted and awarded the 2017 Best Technology Company in Rwanda by the Smart Service Awards. Prior to joining BK Group Plc, Mr. Rugemanshuro spent his career in the United States consulting for the global Tech giants such as Hewlett Packard (HP) as a Program Manager and later with Accenture PLC in Seattle, Washington. During his time there, his main clients included Microsoft and T-Mobile. His area of focus is at the intersection of Business and Technology; his expertise is in helping clients realize the promise of the digital revolution via adoption of modern engineering platforms and practices. He is known for his high energy and contagious passion to solving complex problems. Mr. Regis Rugemanshuro Chief Digital Officer

He is also a Certified Project Management Professional (PMP) by the Global Project Management Institute (PMI) as well as a Certified SAFE Program Consultant (SPC4) by the Global Scaled Agile Academy. He has a bachelor’s degree in science information technologies and an MBA in Management both from M\isericordia University in Pennsylvania.

8.7.

Director and Executive Management Disclosures

· ·

Been the subject of a filing of a petition under any bankruptcy law Been convicted in a criminal proceeding or named subject of a ruling of a court that permanently or temporarily prohibit him or her from acting as a director or employee of a financial institution or engage in any type of business practice or activity

Neither of the Directors nor the Executive Management mentioned above have been directly or indirectly:

Save as disclosed here below, at the date of this IM, none of the Directors has any other direct or indirect beneficial interest in BK Group Plc: Director Name

Shares Held in BK Group Plc*

Marc Holtzman

2,360,000

Diane Karusisi

8,000

* As at the date of the IM Neither of the Directors, at the date of this IM, have the intention to sell any holdings within a period of one year after the conclusion of the Offer; Neither of the Directors have made any material acquisitions or disposals of their holdings within the past one year prior to the Offer; As disclosed in Section 3.7 all the Directors have the option to purchase BK Group shares under the ESOP scheme.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 9: RISK FACTORS 9.1.

Risk Management Framework

Sustainable performance can only be achieved through disciplined risk management. It is part of our corporate culture that every employee at every level of the organization is accountable for risk management. This approach has enabled the Bank to overcome the challenges of a changing global, regional and domestic macroeconomic environment. The Bank’s approach to risk management is characterized through a strong risk oversight at the Board level and a strong risk management culture at all levels and across all functions. Such an approach supports and facilitates the Bank’s decision-making process which not only ensures that the risk reward trade-off is optimized but also that risks assumed are within the overall Risk Appetite and Risk Tolerance levels as laid down by the Board of Directors in the various Policy Documents.

9.2.

General Risks

9.2.1. Macro & Economic Risk

The operational results, income and growth of assets by BK Group may depend to an extent on the stability of the Country’s macro-economy. The Group like all entities operating within Rwanda is exposed to macro-economic risks associated with the country. The Group’s management team has put in place a robust business strategy, systems and procedures to minimise the Group’s exposure to adverse economic conditions; however, this cannot provide an assurance that adverse economic conditions will not hamper the Group’s performance.

9.2.2. Political Risk

Potential political unrest is a risk to the operations of any bank or business operating in Rwanda and in the region, including BK Group as it could adversely impact the economy and the demand for credit and banking services. However, Rwanda has had a stable political system, supported by a prevailing democratic process in the country with the support from the international community which reduces the risk of significant political unrest. While the Group has systems, controls and procedures designed to mitigate political risk, there can be no assurance that any adverse political events will not have a negative impact on the Bank’s business.

9.3.

Specific Risks Relating to the Group

9.3.1. Risks Relating to Banking 9.3.1.1. Credit Risk

Credit risk is the risk of default on a debt that may arise from a borrower failing to make the required payments. The Bank is exposed to credit risk from other banks and financial institutions, as well as credit exposures to customers for outstanding loans and other receivables due. Credit losses incurred by the Bank may have a material adverse effect on the Bank’s financial performance and hence affect the price of its shares. The Bank mitigates credit risk by undertaking the following actions: ·

Ensure adherence to a board approved credit policy which defines the criteria for the nature of businesses undertaken and the minimum risk acceptable; The Bank only deals with creditworthy counter parties, with whom it maintains a relationship to manage and monitor the lending and obtains appropriate collateral; BK structures the level of credit risk it undertakes by placing limits on amounts of risk accepted in relation to one borrower or a group of borrowers; Undertake regular analysis of the ability of borrowers to meet interest and capital repayment obligations and pro-actively takes remedial action where appropriate; The Bank ensures that its loan portfolio is adequately diversified, with no significant concentration of credit risk in any one sector, or customers having similar characteristics, in order to reduce potential negative exposure.

· · · ·

9.3.1.2. Currency Risk

The Bank undertakes transactions in foreign currencies and therefore is exposed to the effects of foreign currency exchange rates fluctuations. The fluctuations in exchange rates affects the financial position and cash flows of the Bank. To demonstrate the exposure, in January 2015, the average exchange rate was FRw 690 to the US dollar. In January 2016, the rate was FRw 757 per US dollar. By January 2017, the rate was at FRw 812, a depreciation of over 20% in a period of two years. An adverse movement in foreign currency exchange rates on an open position could have a negative impact on the Bank’s financial condition. The responsibility for managing the foreign currency risks rests with ALCO, who monitor the overall foreign exchange risk exposure and ensure that the Bank is operating within the Board approved limits.

9.3.1.3. Liquidity Risk

Liquidity risk is the current or prospective risk to earnings and capital arising from a bank’s inability to meet its liabilities when they fall due. Liquidity risk often triggered by consequences of other financial risks such as credit risk, market risk etc. and similarly, liquidity problems may have significant implications on the Bank as a whole. BK addresses liquidity risk through the following measures: · · ·

Ensuring sufficient capitalization to support lending; BK has an aggressive strategy aimed at increasing the customer deposit base; When required, the Bank borrows from the market through inter-bank transactions with other banks, and transactions with pension funds and insurance companies for short term liquidity requirements; Investing in short term liquid instruments, which can easily be sold in the market if the need arises; Ensuring that other long-term investments such as those in property and equipment are in accordance with a board approved budget and only when Bank has sufficient cash flows.

· ·

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 9: RISK FACTORS

9.3.1.4. Interest Rate Risk

The Bank is exposed to the risk that the value of a financial instrument will fluctuate due to changes in market interest rates, as funds are sourced at both fixed and floating rates. In addition to maintaining an appropriate mix between fixed and floating rate deposit base, interest rates on advances to customers and other risk assets are either pegged to the Bank’s base lending rate or Treasury bill rate. The base rate is adjusted from time to time to reflect the cost of deposits. Hedging activities are evaluated regularly in line with the average interest rate and the defined risk appetite. Optimal hedging strategies are applied, by positioning the balance sheet or protecting interest expense through different interest rate cycles. While Interest rates on customer deposits are negotiated with the customer, the Bank retains the discretion to adjust the rates in line with changes in market trends. The interest rates, therefore, fluctuate depending on the movement in the market interest rates. The Bank also invests in fixed interest rate instruments issued by the Government. It holds a considerable portfolio of fixed income instruments both for liquidity purposes, trading as well as investments. When interest rates rise, the value of these instruments fall resulting in a loss. Since the fixed income instruments are marked to market, a loss is realized as a result. In addition, a hike in interest rates means that the cost of funds will also rise leading to a lower interest spread.

9.3.2. Risks Relating to Insurance 9.3.2.1. Insurance Risk

The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the BK Insurance faces under its insurance contracts is that the actual claims and benefit payments exceed the carrying amount of the insurance liabilities. This could occur because the frequency or severity of claims and benefits are greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques. In insurance, the larger the portfolio of similar insurance contracts, the smaller the relative variability on the expected outcome. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. BK Insurance has developed its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome.

9.3.2.2. Price Risk

BK Insurance is exposed to equity securities price risk because of investments in quoted shares classified either at fair value through profit or loss or fair value through other comprehensive income. BK Insurance is not exposed to commodity price risk. To manage its price risk arising from investments in equity and debt securities, BK Insurance diversifies its portfolio which is done in accordance with limits set by its Board and ratified by the BK Group Board.

9.3.2.3. Underwriting Risk

Underwriting risk is defined as the uncertainty at the inception of the contract of the ultimate amount of cash flow from premiums, commissions, claims and claim settlement expenses. Factors which complicate underwriting risk may include collusion between various parties leading to fraudulent claims and price undercutting by underwriters to secure business amongst others. BK Insurance sets policies to ensure proper vetting of potential clients and to guide the process of setting premiums. It also sets guidelines for use in the appointment of reinsurance providers and levels of reinsurance to be assumed for various classes of business.

9.3.3. Risks Relating to General Business 9.3.3.1. Operational Risk

Operational risk arises from inadequate or failed internal processes, people and systems or from external events. The Group strives to ensure that its internal processes are handled professionally, to ensure operations run as smoothly as planned. It maintains a comprehensive operational risk management framework that is subjected to periodic independent reviews by Internal Control and Compliance in order to obtain an independent opinion on the effectiveness and efficiency of the framework. Further, the findings of the Internal Audit department are reviewed by the Board Audit Committee and recommendations made implemented in line with the findings of the department.

9.3.3.2. Technology Risk

The Group’s operations rely heavily on the functionality of its information technology systems. It is therefore imperative that the systems perform optimally at all times. Any disruption to the functionality of the IT system, e.g. during a system upgrade or normal maintenance routines, may lead to important business decisions being delayed or business opportunities forgone. Such a disruption may impact directly on the financial performance of the each of the subsidiaries and therefore impact the share price of the Group on the RSE. BK makes every effort to ensure that its IT systems are always fully functional and will continue to invest in the latest technology to enhance reliability, efficiency and customer experience.

9.3.3.3. Litigation Risk

From time to time some of the subsidiaries may be involved in litigation, receive claims from tax authorities or claim arising from the conduct of its business. The occurrence of potential proceedings, or other claims leading to a substantial legal liability could have a material adverse effect on the Group’s overall business, results, operations, reputation and financial condition. BK Group acts within the applicable laws and thus whilst litigation may arise in the conduct of its business, it is carefully monitored to ensure there isn’t any material impact on the business. The Bank’s, being the longest standing subsidiary, tax compliance has been recognized over the years through various awards from the Rwanda Revenue Authority.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 9: RISK FACTORS 9.3.3.4. Compliance & Regulatory Risk

Compliance and regulatory risk include the risk of bearing the consequences of non-compliance with applicable laws in the various sectors within which the Group’s subsidiaries operate. BK carries its business under the regulations and guidelines laid down by the relevant primary and secondary regulators. Each of those regulations subject the entities to certain requirements, restrictions and guidelines designed to create market transparency between financial institutions and their customers. While the each of the entities always ensures to be in compliance with all laid out rules and regulation, one may inadvertently find itself in non-compliance and therefore risk losing its business license. BK however endeavors at all times to run its business according to the laid down guidelines and thus minimizing the risk of losing any of its licenses.

9.3.3.5. Competition Risk

Increasing competition may mean that the Group is unable to implement its growth strategy fully. A good number of competitors across the financial sector are subsidiaries of regional banks, making the financial industry in Rwanda very competitive. Any erosion of the Group’s market share could result in negative performance and subsequently the price of its shares. BK Group will always strive to remain among the top in all its sectors of operation i.e. banking, insurance, capital markets etc. in Rwanda through enhancing its IT systems to improve efficiencies and providing world class services to attract and retain customers.

9.3.3.6. Reputational Risk

Reputational risk is the potential that negative stakeholder impressions or perceptions, whether true or not, regarding the Group’s business practices, actions or inactions, will or may cause a decline in its value, brand, liquidity or customer base. It is a resultant effect of all other risks highlighted in this IM and therefore cannot be managed in isolation. Therefore, when all the other risks are managed well, this risk is substantially minimised. BK’s reputation is an invaluable business asset essential for optimising shareholder value. The Group’s services and activities, including new ones, ensure its good reputation is always maintained or enhanced. Ultimate responsibility for this risk rests with the Board of Directors and senior management who examine the Group’s overall reputational risk as part of their regular mandate. They are assisted in this aspect by the Corporate Affairs Department. Their purpose is to ensure that all products, services, and activities meet the Group’s reputational risk objectives in line with the Board of Director’s approved appetite. Nonetheless, every employee and representative of the Group has a responsibility to contribute positively to our reputation. Every employee and representative of the Group has a responsibility to contribute in a positive way towards the Group reputation. This is through ensuring ethical practices are always adhered to, interactions with all stakeholders are positive, and compliance with applicable policies, legislation, and regulations. Reputational risk is most effectively managed when every individual works continuously to protect and enhance BK’s reputation.

9.3.3.7. Risks related to Credit Ratings

Credit rating agencies classify the Group to evaluate its ability to fulfill its financial obligations when due. Currently, only the Bank is credit rated, and this has been an important factor in determining the cost of financing for the Bank. Interest rates paid by the Bank for the financing it obtains are affected by its credit rating. Credit rating is reviewed by the relevant rating agency from time to time. In case the credit rating decreases, this could lead to an increase in the Bank’s financing costs which will adversely the Group’s financial position, results of operations and prospects. The Bank has over the past three years being rated as AA-(RW), which is a stable outlook by South African credit rating firm, Global Credit Ratings. To mitigate against risks associated with a downgrade, the Bank and the Group as a whole, strive to maintain strong asset quality, ensuring a capital buffer to support balance sheet risk as week as maintain strong earnings generation.

9.4.

Risks Associated with Shares

9.4.1. Volatility of Price

The market price of the Group’s shares could be subject to significant fluctuations in response to actual, anticipated, or perceived variations in the Group’s operating results, adverse business developments, changes in the regulatory environment in Rwanda or changes in financial estimates by Investment professionals. In particular the markets for emerging market securities, such as Rwanda, may be volatile and are to a varying degree, influenced by stock market conditions in other emerging market countries which may not be in the same geographic region as Rwanda. Although economic conditions are different in each country, investor reactions to the developments in one country may affect shares in other countries, including Rwanda. Accordingly, the market price of the shares may be subject to significant fluctuations, which may not necessarily be related to the financial performance of the Bank. Each investor needs to assess the market for the right time to trade their shares.

9.4.2. Dividend Risk

The Bank has a clear policy of paying dividends whenever the financial performance of the Bank has been good. Payment of dividend will among other things depend on the Bank’s business expansion capital needs as well as regulatory capital requirements. Therefore, there is always the possibility that given the economic climate and performance of the Bank, the Board may propose not to pay dividends.

9.4.3. Dilution Risk

By way of this Rights Issue, the Bank is seeking to raise additional capital from its current shareholders, and potentially new shareholders. Those shareholders that chose not to take up their Rights, risk their shareholding in the Bank being diluted. Further, the Bank may in the future require to raise capital again by issuing additional shares. This may be through a Rights Issue, a secondary offer or by way of inviting a strategic or a financial investor. Such corporate actions may result in the dilution of existing shareholders if they do not participate in the equity issuances. In order to reduce the chances of the Bank’s shareholders being diluted, the Bank will in future always endeavour to raise capital in such a manner that it gives the existing shareholders an opportunity to defend their shareholding. However, the Bank cannot guarantee that the current shareholders will not be diluted in the event that the Bank cannot obtain financing on desirable terms.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 10: STATUTORY AND GENERAL INFORMATION 10.1. Incorporation Details

BK Group PLC is a public limited liability company that was incorporated in the Republic of Rwanda on December 22, 1966 under the Rwanda Companies Act and is domiciled in Rwanda shares under company code 100003458. It was incorporated in the name of Bank of Kigali S.A and later changed its name to Bank of Kigali Limited in 2011 and subsequently to BK Group PLC in 2017. The Company has been a listed entity on the Main Investment Market Segment of the RSE since June 2011. It is also registered as a foreign branch in Kenya with registration number CF/2012/91559 under the provisions of the Kenya Companies Act. The registered address of the Company is Street KN4 AVE No12 PLOT No790, Nyarugenge Sector, Nyarugenge District, Kigali City, P.O Box 175

10.2. Corporate Authorisations

By a resolution of the shareholders passed at the Annual General Meeting of the Company held on May 18, 2018, the Directors of the Company were authorised to undertake a Rights Issue and consider a Cross Listing of the Company’s shares on to the Nairobi Securities Exchange. Pursuant to that members’ resolution, the Board by a resolution dated October 3, 2018 approved a 1 for 3 Rights Issue of 222,222,222 ordinary shares with a nominal value of FRw 10 per ordinary share.

10.3. Authorised and Issued Share Capital

The authorised share capital of the Company is FRw 10,504,600,000 divided into 1,050,460,000 shares with a par value of FRw 10. The Issued Share Capital is FRw 6,745,370,000.

10.4. Director Disclosures

Currently, there are four directors with loans from the Bank in the aggregate outstanding amount of FRw 192,692,754 as below. The loans are adequately secured. None of directors of the Company has disclosed any conflict of interest in relation to the Rights Offer.

10.5. Shareholding

The Company is listed on the RSE and has different shareholders ranging from Government of Rwanda, local and international investors. The Company’s major shareholders are the Government of Rwanda through Agaciro Development Fund and Rwanda Social Security Board. The Company’s top 10 shareholding is illustrated below.

Total No. Shares

% Ownership

Shareholder Rwanda Social Security Board

218,228,900

32.4

Agaciro Development Fund*

198,578,600

29.4

The Rock Creek Group LP -T126 A

45,515,800

6.7

KCB Bank Uganda Ltd A/C123a

42,500,000

6.3

Dunross and Co Aktiebolag

28,520,300

4.2

Stanbic Nominees Limited A/C Nr5156062 - T109 Au

20,937,200

3.1

Kamau Robert Wachira

15,976,700

2.2

RWC Frontier Markets Equity Master Fund Limited

8,575,200

1.3

Frontaura Global Frontier Fund LLC

7,392,200

1.1

The Vanderbilt University - T133

6,095,500

0.9

Others

83,193,300

12.3

674,537,000

100.0

10.6. Licenses and Regulatory Compliance

The Company has the requisite licenses and permits to operate in the Republic of Rwanda as a holding company. Its subsidiaries have also obtained the required licenses to carry on business as follows: (a) The Bank is licensed to exercise banking activities in the Republic of Rwanda and holds a valid banking license dated 20th August 2018; (b) BK General Insurance holds a valid insurance license dated 22nd March 2016; (c) BK Capital holds the following valid licenses: (i) Administration of pension schemes (ii) Investment manager for pension schemes (iii) Securities broker (iv) Member of Rwanda Stock Exchange.

10.7. Indebtedness

The Bank has acquired long term loan facilities from European Investment Bank, Agence Française de Développement, African Development Bank, East African Development Bank, Trade and Development Bank, OPEC Fund for International Development, SBM Bank and BRD-KFW-EGF in the aggregate amount of FRw 58,544,298,000 for financing of its operations. Refer to Reporting Accountants’ Report (Section 11), Note 34 – Long Term Finance, for further details.

10.8. Property

The Company owns different assets, both movable and immovable and holds titles for each of the assets owned. The valuation report conducted on 26th September 2016 reflects an assets value of FRw 29,024,998,471.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 10: STATUTORY AND GENERAL INFORMATION 10.9. Material and Related Party Contracts

As stated in 10.6, the Bank has entered into contracts with financial institutions to acquire long term loan facilities to finance its operations. Other than these contracts, there are no other contracts (not being contracts entered into in the ordinary course of business) which have been entered into by the Company within two years immediately preceding the date of this Information Memorandum or which are expected to be entered into on the date of this Information Memorandum and which are, or may be, material or which have been entered into by the Company and which contain any provision under which the Company has any obligation or entitlement which is, or may be, material to the Company as at the date of this Information Memorandum.

10.10. Material Litigation and Claims

The Company is involved in some litigation and claims and most of the claims are labour related. There are no material claims that may have a significant impact against the Company. There is only one (1) claim where the claimant is claiming a refund of 200,000,000 RWF originating from a deposit of 50,000 RWF made by his father in 1986. It is less likely that the court will award this amount.

10.11. Expenses of the Offer

The estimated costs of the Rights Issue only are:

Item

FRw (Millions)

Transaction Advisor fees Sponsoring Stockbroker fees Legal Advisory fees Reporting Accountant fees Receiving Bank fees Marketing & Advertising (1) Registrar CMA Approval fees RSE Application & listing fees Placement Commission (2) Others TOTAL

526.2 21.9 39.5 21.9 21.9 21.9 15.0 15.0 90.0 900.0 52.6 1,725.9

Figures are exclusive of VAT (where applicable). (1) (2)

Marketing, Communication and Other Expenses are indicative and subject to change. Placing commission shall be set by the issuer at a rate of up to 1.5%. The placing commission shall be payable to members of the RSE appointed as Authorized Agents. Placing commission shall be computed on the value of each successful application accepted in respect of the Entitlement and Acceptance Forms completed and signed by Eligible Shareholders, Renouncees, purchasers of Rights, bearing the stamp of a single Authorized Agent or the Sponsoring Stockbroker.

10.12. Documents Available for Inspection

Copies of the following documents will be available for inspection at the registered offices of BK Group BK Group offices (BK Group Building, KN4 Ave No 12, Plot No 790, Kigali, Rwanda) during normal working hours on any weekday (Saturday, Sundays, and public holidays excluded) from the date of this Information Memorandum up to and including the Rights Issue closure Date: i) ii) iii) iv) v) vi) vii)

A copy of this information Memorandum Certificate of Incorporation; Memorandum and Articles of Association of BK Group PLC; A copy of the Board Resolution approving the Rights Issue; A copy of the Shareholdersâ&#x20AC;&#x2122; Resolution approving the Rights Issue; A copy of the Board Resolution approving the Information Memorandum; Copies of the Information Memorandum, Abridged Information Memorandum, the PAL, the Rump Form, Form A; Form E and Form R; The consolidated audited accounts of BK Group for the financial years ended 2013, 2014, 2015, 2016, and 2017 and reviewed consolidated interim financial statements as at 30 June 2018; A signed copy of the Reporting Accountantâ&#x20AC;&#x2122;s Report in respect to the Rights Issue; A signed copy of the Legal Opinions by the Legal Advisors; A copy of the approval for the Rights Issue and listing of the New Shares from the Capital Markets Authority; A copy of the approval for Listing of the New Shares from the RSE.

viii) ix) x) xi) xii)

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: R EPORTING ACCOUNTANTS’ REPORT

The Directors BK Group PLC Kigali, Rwanda 17th September, 2018

Accountant’s report – BK Group PLC Dear Sirs We are pleased to submit our Accountant’s Report in accordance with Law 17/2018 of 13/April/2018 and Rwanda Stock Exchange Ltd rule book (hereafter referred to as “the Regulations”).

Responsibility of the directors

As directors of BK Group PLC (the “Company”) together with its subsidiaries (the “Group”), you are responsible for the Information Memorandum to be issued on or about 17 September 2018 and for all information contained therein, and for the financial statements and information to which this Accountant’s Report relates and from which it has been prepared. The financial information included in this report was based on the audited consolidated financial statements of the Group for the accounting periods ended 31 December 2017, 2016, 2015, 2014 and 2013.

Our responsibility

You required us to prepare and produce an Accountant’s Report to be included in the Information Memorandum to be issued for BK Group PLC. Our responsibility is detailed in our letter of engagement dated 5 July 2018. The objective of the engagement was to enable us to state whether, on the basis of our review procedures which do not provide all the evidence that would be required in an audit, anything has come to our attention that causes us to believe that the financial statements were not prepared, in all material respects, in accordance with International Financial Reporting Standards.

Criteria and procedures used

The financial information set out in this report has been compiled in accordance with the International Standard on Related Services 4410 – Engagements to Compile Financial Statements (“ISRS 4410”) and the International Standard on Review Engagements 2400 (Revised) – Engagement to review historical financial statements (“ISRE 2400”). To enable us to prepare an Accountant’s Report, we carried out procedures to satisfy ourselves that the information presented in the financial statements was in accordance with Rwanda Stock Exchange rule book in particular section 5B. To this end we carried out the following procedures: * * * * *

Reviewed the financial statements of the Group for each of the five years ended 31 December 2017, 2016, 2015, 2014, and 2013 for compliance with International Financial Reporting Standards (IFRS) and consistency of application of accounting policies; Made enquiries of the Group’s management with respect to significant matters relevant to the financial information; Held in depth discussions with the prior year auditors in respect of areas of significant judgement and their audit approach; Reviewed other evidence relevant to the Group’s financial statements; Reviewed the rest of the Information Memorandum document for consistency with the financial information included in our Accountant’s Report.; and

PricewaterhouseCoopers Rwanda Limited. 5th Floor, Blue Star House, Blvd de l’Umuganda, Kacyiru. P. O. Box 1495 Kigali, Rwanda. Tel.: +250 (252) 588203/4/5/6 | www.pwc.com/rw Directors: F Gatome M Nyabanda B Kimacia P Ngahu

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT Financial information

We have presented the consolidated financial statements of the Group for each of the five years ended 31 December 2017, 2016, 2015, 2014, and 2013, including notes to the financial statements. We identified the following matters during the course of our review:

Presentation of financial information

A number of International Financial Reporting Standards have been amended or introduced in the period under review as summarised in the table below:

Standard

Years affected

Impact

Amendment to IAS 1, Presentation of items of other comprehensive income (OCI)

2010-2012

•

The main change resulting from these amendments is a requirement for entities to group items presented in ‘other comprehensive income’ (OCI) on the basis of whether they are potentially classifiable to profit or loss subsequently (reclassification adjustments).

•

The presentation of the financial statements for periods ended 30 June 2010, 2011 and 2012 have been amended to comply with the amendment.

•

IFRS 10 builds on existing principles by identifying the concept of control as the determining factor in whether an entity should be included within the consolidated financial statements of the parent company. Additional guidance is given to explain when an investor has control over an investee.

•

The application of this standard has had no material impact on the financial statements of the Group.

•

IFRS 12 sets out the required disclosures for entities reporting under IFRS 10 and IFRS 11 and it replaced the disclosure requirements previously found in IAS 28, ‘Investments in associates’. IFRS 12 requires entities to disclose information that helps financial statement readers to evaluate the nature, risks and financial effects associated with the entity’s interests in subsidiaries, associates, joint arrangements and unconsolidated structured entities.

•

The additional disclosures required by the standard for entities with material non-controlling interests have been added to the financial statements for the years 2010 to 2012.

•

The standard aims to improve consistency and reduce complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs.

•

The requirements, which are largely aligned between IFRSs and US GAAP, do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRSs. The adoption of IFRS 13 has increased the extent of fair value disclosures in the financial statements. This has no material impact on the financial statements of the Group.

•

This amendment removed certain disclosures of the recoverable amount of CGUs which had been included in IAS 36 by the issue of IFRS 13.

•

The amendment has no material impact on the financial statements of the Group.

•

IFRS 11 focuses on the rights and obligations of the parties to the arrangement rather than its legal form. There are two types of joint arrangements: joint operations and joint ventures. Joint operations arise where the investors have rights to the assets and obligations for the liabilities of an arrangement. A joint operator accounts for its share of the assets, liabilities, revenue and expenses. Joint ventures arise where the investors have rights to the net assets of the arrangement; joint ventures are accounted for under the equity method. Proportional consolidation of joint arrangements is no longer permitted.

•

The application of this standard has no material impact on the financial statements of the Group.

(effective 1 July 2012)

IFRS 10. ‘Consolidated financial statements’

2010-2012

(effective 1 January 2013)

IFRS 12, ‘Disclosure of interests in other entities’

2010-2012

(effective 1 January 2013)

IFRS 13, ‘Fair value measurement’

2010 -2012

(effective 1 January 2013)

Amendments to IAS 36, ‘Impairment of assets’ on the recoverable amount disclosures for non-financial assets

2010-2012

(effective 1 January 2013) IFRS 11, ‘Joint arrangements’

2010-2012

(effective 1 January 2013)

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT

Standard IAS 24 (Revised) ‘Related party disclosures’

Years affected

Impact

2011-2014

•

The revised standard clarifies and simplifies the definition of a related party and removes the requirement for government-related entities to disclose details of all transactions with the government and other government-related entities. The revised standard requires, the subsidiaries of the Group to disclose any transactions between itself and associates of its parent Company. The additional disclosures required by the standard have no material impact on the financial statements of the Group.

2011-2014

•

The amendments emphasises the interaction between quantitative and qualitative disclosures about the nature and extent of risks associated with financial instruments. The amendment removed the requirement to disclose maximum exposure to credit risk if the carrying amount best represents the maximum exposure to credit risk; Fair value of collaterals; and renegotiated assets that would otherwise be past due but not impaired.

•

The Group has maintained the disclosure for maximum exposures. No impact is expected in terms of collateral and renegotiated assets.

(effective 1 January 2011)

The amendments to IFRS 7, ‘Financial Instruments - Disclosures’

(effective 1 January 2011)

IFRS 9 Financial Instruments (2014) A finalised version of IFRS 9 which contains accounting requirements for financial instruments, replacing IAS 39 Financial Instruments: Recognition and Measurement.

N/A

•

The standard has been applied for the first time in the 2018 financial statements. The Group has adopted the practical expediency and applied the modified retrospective approach to restatement of comparative information as per the standard.

IFRS 15 Revenue from Contracts with Customers

N/A

•

The standard has been applied for the first time in the 2018 financial statements. There is no significant impact on the Group.

IFRS 15 provides a single, principles based five-step model to be applied to all contracts with customers. The five steps in the model are as follows: Guidance is provided on topics such as the point in which revenue is recognised, accounting for variable consideration, costs of fulfilling and obtaining a contract and various related matters. New disclosures about revenue are also introduced. The financial information set out in this report is based on the audited financial statements after making the adjustments, we considered appropriate, to make all the financial statements compliant with International Financial Reporting Standards applicable for the accounting period ended 31 December 2017.

Statement of adjustments

i) Adjustments to Group capital and reserves

Total capital and reserves as per audited financial statements Adjustment due to revaluation surplus restatement adjustment Total capital and reserves as reported in Appendix A Administration and general expenses as per audited financial statements Reclassification to align with accounting policies Administration and general expenses as reported in Appendix A

2017 Frw’000

2016 Frw’000

2015 Frw’000

2014 Frw’000

2013 Frw’000

122,750,132

108,485,600

99,245,545

89,547,733

70,763,684

(510,749)

(408,600)

(306,451)

122,750,132

108,485,600

98,734,796

89,139,133

70,457,233

(14,808,488)

(11,812,051)

(9,779,152)

(9,787,611)

(9,656,130)

(6,751)

(14,815,059)

(11,812,051)

(9,779,152)

(9,787,611)

(9,656,130)

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT ii) Reclassifications made in the financial statements

Interest income Interest income as per audited financial statements Reclassification of integral loan fees from fee and commission income Interest income as reported in Appendix A Fee and commission income Fee and commission income as per audited financial statements Reclassification of integral loan fees to interest income Fee and commission income as reported in Appendix A

Other operating income Other operating income as per audited financial statements Reclassification of insurance related income to net premium income Other assets Other assets as per audited financial statements Reclassification of insurance receivables to their own line item Other as reported in Appendix A Other liabilities Other liabilities as per audited financial statements Reclassification of insurance technical and related liabilities to insurance liabilities Other liabilities as reported in Appendix A

2017

2016

2015

2014

2013

Frw’000

82,223,868

72,254,385

59,966,855

51,909,827

45,210,752

2,483,284

2,087,351

1,786,354

2,180,215

1,604,924

84,707,152

74,341,736

61,753,209

54,090,042

46,815,676

18,341,278

14,160,293

11,884,277

10,899,154

10,801,253

(2,483,284)

(2,087,351)

(1,786,354)

(2,180,215)

(1,604,924)

15,857,994

12,072,942

10,097,923

8,718,939

9,196,329

2017 Frw’000

2016 Frw’000

2015 Frw’000

2014 Frw’000

2013 Frw’000

2,426,510

465,392

292,651

301,838

281,008

(2,104,762)

(283,950)

11,452,009

8,877,766

8,255,500

7,665,385

7,695,005

(1,147,644)

10,304,365

8,877,766

8,255,500

7,665,385

7,695,005

17,390,729

6,286,996

9,656,897

10,860,278

8,705,581

(2,123,038)

15,267,691

6,286,996

9,656,897

10,860,278

8,705,581

Review conclusion

A review carried out in accordance with ISRS 4410 and ISRE 2400 is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. However, based on our review, nothing has come to our attention that causes us to believe that the audited financial statements of BK Group PLC for the five accounting years to 31 December 2017 do not give a true and fair view in accordance with International Financial Reporting Standards. We also confirm that other than as disclosed in our Accountants Report, we are not aware of any material circumstances not mentioned in the Information Memorandum regarding the additional listing, represented to us by the directors, which would influence the evaluation by investors of the assets, liabilities, financial position and prospects of the Group.

Consent

We consent to the inclusion of this report in the Information Memorandum in support of the rights issue of BK Group PLC to be issued on or about 3 October 2018 in the form and context in which it appears. For PricewaterhouseCoopers Rwanda Limited, Kigali

Moses Nyabanda Director 18 October, 2018

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT

Consolidated statement of comprehensive income

Note

2017

2016

2015

2014

2013

Frw’000’

Interest income

84,707,152

74,341,736

61,753,209

54,090,042

46,815,676

Interest expense

(18,315,980)

(16,556,236)

(13,727,086)

(12,654,600)

(10,015,908)

66,391,172

57,785,500

48,026,123

41,435,442

36,799,768

Net interest income Net fees and commission income

15,857,994

12,072,942

10,097,923

8,718,939

9,196,329

Foreign exchange related income

7,786,502

6,583,450

5,301,247

7,724,325

7,476,135

Other operating income

1,231,111

181,442

292,651

301,838

281,008

Net insurance income

2,104,762

283,950

93,371,541

76,907,284

63,717,944

58,180,544

53,753,240

(16,489,292)

(10,448,958)

(7,547,662)

(7,542,957)

(8,993,999)

(1,363,454)

(6,634,811)

(1,816,787)

(909,363)

74,609,432

59,823,515

54,353,495

50,637,587

44,759,241

Operating income before impairment losses Net impairment on loans and advances

Other operational related costs Insurance claims

Net operating income Employee benefits

17(i)

(21,127,700)

(14,075,178)

(15,029,991)

(14,427,737)

(11,707,238)

Depreciation and amortisation

17(ii)

(4,501,210)

(3,955,171)

(3,807,120)

(3,663,534)

(4,639,637)

Administration and general expenses

17(iii)

(14,815,059)

(11,812,051)

(9,779,152)

(9,787,611)

(9,656,130)

Total operating expenses

(40,443,969)

(29,842,400)

(28,616,263)

(27,878,882)

(26,003,005)

Profit before income tax

34,165,463

29,981,115

25,737,232

22,758,705

18,756,236

(10,823,154)

(9,225,249)

(5,253,174)

(4,441,880)

(3,926,001)

23,342,309

20,755,866

20,484,058

18,316,825

14,830,235

23,342,309

20,755,866

20,484,058

18,316,825

14,830,235

5,458,581

23,342,309

26,214,447

20,484,058

18,316,825

14,830,235

Income tax expense

18(a)

Profit for the year

Consolidated statement of other comprehensive income Profit for the year

Other comprehensive income not to be reclassified to profit and loss in subsequent periods; Revaluation of property and equipment net tax Total comprehensive income for the year

Basic earing per share in Frw

34.67

30.87

30.49

27.34

22.20

Diluted earing per share in Frw

30.76

30.38

27.22

22.13

Dividend per share (Frw)

13.87

12.31

12.15

16.33

11.10

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT

Consolidated statement of financial position For the year ended 31 December Note ASSETS

2017

2016

2015

2014

2013

Frw’000

Cash in hand

20(a)

19,731,699

15,032,721

14,951,617

12,020,669

11,110,210

Balances with the National Bank of Rwanda

20(b)

42,583,327

31,832,058

44,572,594

46,938,373

24,855,050

53,055,021

84,634,868

62,568,118

102,988,217

107,377,523

22(a)

94,248,923

77,962,606

93,503,198

58,596,907

50,820,690

Loans and advances to customers

471,704,315

385,824,570

313,925,535

233,439,509

199,025,241

Insurance receivables

1,147,644

Other assets

10,304,365

8,877,766

8,255,500

7,665,385

7,695,005

221,425

218,455

Due from banks Held to maturity investments

Equity investments

22(b)

Property and equipment

33,529,626

33,435,701

22,846,884

20,503,423

21,018,894

Intangible assets

678,355

514,883

381,529

234,056

239,005

727,204,700

638,336,598

561,226,400

482,607,964

422,360,073

TOTAL ASSETS

LIABILITIES Due to banks

42,377,460

28,105,184

22,609,724

15,214,461

17,345,024

Deposits and balances from customers

455,213,393

419,017,263

384,713,700

324,601,160

280,489,463

6,900,698

4,165,830

808,141

692,518

1,828,573

Current income tax Deferred income tax

2,351,802

6,795,553

2,193,269

1,839,991

1,927,101

Dividends payable

9,378,311

8,343,104

34,230

5,469

7,416,579

Insurance liabilities

2,123,038

Other liabilities

15,267,691

6,286,996

9,656,897

10,860,278

8,705,581

Long-term finance

70,842,175

57,137,068

42,475,643

40,254,954

34,190,519

604,454,568

529,850,998

462,491,604

393,468,831

351,902,840

TOTAL LIABILITIES CAPITAL AND RESERVES Share capital

35(i)

6,745,370

6,724,428

6,721,842

6,713,706

6,684,500

Share premium

35(ii)

18,936,176

18,695,343

18,665,604

18,572,040

18,236,171

Revaluation reserves

35(iii)

13,000,149

13,630,625

8,172,043

Retained earnings

35(iv)

84,068,437

69,435,204

65,175,307

55,681,344

37,364,519

TOTAL EQUITY

122,750,132

108,485,600

98,734,796

89,139,133

70,457,233

TOTAL LIABILITIES AND EQUITY

727,204,700

638,336,598

561,226,400

482,607,964

422,360,073

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT

Consolidated statement of changes in equity Issued capital

Share premium

Revaluation reserve

Retained earnings

Total

Frw’000

6,724,428

18,695,343

13,630,625

69,435,204

108,485,600

20,942

240,833

261,775

(9,339,552)

(630,476)

630,476

2017 As at 1 January 2017 Transaction with owners: Increase in share capital Dividend paid/accrued Other comprehensive income: Elimination on disposal

23,342,309

6,745,370

18,936,176

13,000,149

84,068,437

122,750,132

Issued capital

Share premium

Revaluation reserve

Retained earnings

Total

Frw’000

6,721,842

18,665,604

6,129,035

67,729,064

99,245,545

2,586

29,739

Dividend paid 2015

(8,193,623)

Dividend declared 2016

(8,302,346)

5,458,582

Profit for the year As at 31 December 2017

2016 As at 1 January 2016 Transaction with owners: Increase in share capital

32,325

Other comprehensive income: Revaluation reserve 2016 net of tax Profit for the year As at 31 December 2016

2015 As at 1 January 2015 Transaction with owners: Dividend paid Increase in share capital Other comprehensive income: Profit for the year As at 31 December 2015

2014 As at 1 January 2014 Transaction with owners: Increase in share capital Other comprehensive income: Profit for the year As at 31 December 2014

20,755,866

6,724,428

18,695,343

11,587,617

71,988,961

108,996,349

Issued capital

Share premium

Frw’000

Revaluation reserve Frw’000

Retained earnings Frw’000

Frw’000

6,713,706

18,572,040

6,537,638

57,724,349

89,547,733

8,136

93,564

(10,990,095) -

(10,990,095) 101,700

20,484,058

6,721,842

18,665,604

6,537,638

67,218,312

99,143,396

Issued capital

Share premium

Frw’000

Revaluation reserve Frw’000

Retained earnings Frw’000

Frw’000

6,684,500

18,236,171

6,946,241

38,896,772

70,763,684

29,206

335,869

365,075

18,316,825

57,213,597

89,445,584

6,713,706

18,572,040

6,946,241

Total

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT

Issued capital

Share premium

Revaluation reserve

Retained earnings

Total

Frw’000

6,673,370

18,108,176

7,354,844

30,970,903

63,107,293

11,130

127,995

139,125

Profit for the year

14,830,235

Dividend accrued — 2013

(7,415,118)

Elimination of transferred excess depreciation

817,199

(1,021,501)

(204,302)

6,684,500

18,236,171

8,172,043

37,364,519

70,457,233

2013 As at 1 January 2013 Transaction with owners: Increase in share capital Other comprehensive income:

As at 31 December 2013

Statement of cash flows For the year ended 31 December Note

Profit before income tax

2017

2016

2015

2014

2013

Frw’000

34,172,034

29,981,115

25,737,232

22,758,705

18,756,236

Adjusted for: Depreciation of property and equipment

3,884,073

3,513,410

3,503,134

3,469,943

4,303,044

Amortization of intangible assets

617,137

441,761

303,986

193,591

336,593

Gains on disposal of fixed assets

(852,793)

(50,723)

(75,778)

(84,496)

(24,753)

Loss on revaluation of long-term finance/ accrued interest

2,084,387

4,052,702

2,354,123

725,925

392,446

Interest accrued on long-term financing

1,091,939

481,001

(47,651)

(32,427)

(67,614)

(54,254)

40,949,126

38,386,839

31,755,083

27,009,414

23,763,566

(85,879,745)

(71,899,035)

(80,486,026)

(34,414,268)

(13,958,489)

Increase in other assets

(2,574,243)

(622,262)

(590,118)

29,620

4,929,704

Increase in deposits and balances from customers

36,196,130

34,303,563

60,112,540

44,111,697

68,624,395

Increase in cash reserve requirement

(2,529,998)

(1,989,951)

(3,375,390)

(2,325,792)

Increase/ (decrease) in other liabilities

11,103,733

(3,369,901)

(1,347,174)

2,154,695

(6,370,132)

Income tax paid

(12,532,032)

(5,063,962)

(4,640,477)

(5,665,044)

(2,862,521)

Net cash generated from operating activities

(15,267,029)

(10,254,709)

1,428,438

30,900,322

74,126,523

Dividend income Cash flows before changes in working capital

Changes in Working capital Increase in loans and advances

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT

Statement of cash flows For the year ended 31 December Note

2017

2016

2015

2014

2013

Frw’000

INVESTING ACTIVITIES Purchase of intangible assets

(780,609)

(575,115)

(451,459)

(188,642)

(237,478)

Purchase of property and equipment

(5,001,970)

(4,844,962)

(5,846,595)

(3,049,369)

(3,874,221)

1,876,780

50,723

75,778

179,393

205,000

(333,502,798)

(385,606,513)

(307,227,740)

(287,832,102)

317,216,481

401,147,105

272,321,449

280,055,885

47,651

32,427

67,614

54,254

(20,144,465)

10,203,665

(41,060,953)

(10,783,551)

(41,608,064)

(8,304,345)

(8,187,096)

(10,961,334)

(7,411,110)

(5,892,885)

Drawdown of long-term finance

31,362,073

19,958,446

7,250,000

9,261,851

29,154,396

Repayment of long-term finance

(20,833,291)

(9,830,725)

(7,383,434)

(3,923,340)

(1,301,301)

Proceeds from sale of fixed assets Purchase of Held to Maturity Investments Proceeds from Held to Maturity Investments Purchase of equity Investment shares Dividends received

Net cash flows from investing activities

(37,701,365) -

(2,970)

FINANCING ACTIVITIES Dividends paid

Increase in share capital

20,942

2,586

8,136

29,206

11,130

Increase in share premium

240,833

29,739

93,564

335,869

127,995

2,486,212

1,972,950

(10,993,068)

(1,707,524)

22,099,335

(32,925,282)

1,921,906

(50,625,583)

18,409,247

54,617,794

1,277,029

(2,882,861)

502,736

2,832,074

Cash and cash equivalents at 1 January

77,778,531

78,739,486

128,862,333

107,621,012

71,379,965

Cash and cash equivalent at 31 December

46,130,278

77,778,531

78,739,486

128,862,333

125,997,759

Net cash flows from financing activities

Net (Decrease) /increase in cash and cash equivalent Net foreign exchange difference

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 1. CORPORATE INFORMATION BK Group PLC is a group company registered with Rwanda Development Board (RDB) and licensed under Law No. 08/99 relating to companies and regulations governing a non-operating holding company. The Bank is a financial institution licensed under Law No. 08/99 relating to Regulations Governing Banks and other financial institutions, provides corporate and retail banking services. The Group is incorporated in Rwanda and is publicly traded on the Rwanda Stock Exchange. The address of its registered office is as follows: BK Group PLC Building KN4 Ave No 12 Plot No 790 P.O Box 175. Kigali-Rwanda

Representative Office - Nairobi

The Group opened a representative office in Nairobi, Kenya on 19th February 2013 that is wholly owned by BK Group PLC. The representative office acts as a liaison between the bank and its clientele in Kenya seeking to strengthen the Bank’s relationship with existing clients operating in Nairobi as well as establish a relationship with prospective clients. The office however does not directly offer deposit taking or lending facilities.

2. BASIS OF PREPARATION

(a) Basis of accounting These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB). All values are rounded to the nearest thousand (Frw’000) except when otherwise indicated. The Group presents its consolidated statement of financial position broadly in order of liquidity. An analysis regarding recovery or settlement within 12 months after the statement of financial position date (current) and more than 12 months after the statement of financial position date (noncurrent) is presented in Note 4.1(b).

(b) Basis of consolidation i) Subsidiaries

Subsidiaries’ are investees controlled by BK Group PLC as the holding entity. BK Group PLC ‘controls’ an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. BK Group PLC wholly controls Bank of Kigali, BK General Insurance Limited, BK Capital Limited and BK TecHouse Limited, together referenced to as the “Group” as disclosed in Note 38 of these financial statements. BK Group PLC reassesses whether it has control if there are changes to one or more of the elements of control. This includes circumstances in which protective rights held (e.g. those resulting from a lending relationship) become substantive and lead to BK Group PLC having power over an investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases.

ii) Transactions eliminated on consolidation

Intra-group balances and transactions, and any unrealised income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. The subsidiaries indicated in the notes to these financial statements have been consolidated in these financial statements.

The preparation of consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions are based on the Directors’ best knowledge of current events, actions, historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in Note 6.

3. SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these consolidated financial statements have been applied consistently and to all periods presented in these consolidated financial statements.

(a) Recognition of income and expense Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Recognition of income and expense (continued) The following specific criteria must be met before revenue is recognised:

(i) Interest

Interest income and expense are recognised in profit or loss using the effective interest method. The ‘effective interest rate’ is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or financial liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. The calculation of the effective interest rate includes transaction costs and fees and points paid or received that are an integral part of the effective interest rate. Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or financial liability. Interest income and expense presented in the statement of profit or loss and Other Comprehensive Income include: interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest basis interest on available-forsale investment securities calculated on an effective interest basis; and the effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in interest cash flows, in the same period as the hedged cash flows affect interest income/expense Interest income is recognised in the statement of profit or loss and other comprehensive income for all interest bearing instruments on an accrual basis taking into account the effective yield on the asset.

(ii) Fees and commission

Fees and commission income and expense that are integral to the effective interest rate on a financial asset or financial liability are included in the measurement of the effective interest rate Other fees and commission income – including account servicing fees, investment management fees, sales commission, placement fees and syndication fees – are recognised as the related services are performed. If a loan commitment is not expected to result in the draw-down of a loan, then the related loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received. Insurance and investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognized as revenue over the period in which the related services are performed. If the fees are for services provided in future periods, then they are deferred and recognized over those future periods.

(iii) Dividend income

Dividend income is recognised when the right to receive income is established. Usually, this is the ex-dividend date for quoted equity securities. Dividends are presented in net trading income, net income from other financial instruments at fair value through profit or loss or other revenue based on the underlying classification of the equity investment.

(iv) Net trading income

Net trading income’ comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differences.

(v) Gross premiums

Gross insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period. They are recognized on the date on which the policy commences. Premiums included any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods. Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross premium; other are recognized as an expense. Premiums collected by intermediaries, but not yet received, are assessed based on estimates from underwriting or past experience and are included in premiums written. Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned premiums are calculated on a daily pro rata basis. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums.

(vi) Reinsurance premiums

Gross reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into the period and are recognized on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods. Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks- attaching contracts and over the term of reinsurance contract for losses occurring contracts.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (a) Recognition of income and expense (continued) (vii) BK Techouse income

The following specific criteria must be met before revenue is recognised: • The amount of revenue can be measured reliably • it is probable that the economic benefits associated with the transaction at the reporting date can be measured reliably; and • The stage of completion of the transaction at the reporting date can be measured reliably; and • The costs incurred for the transaction and costs to complete the transaction can be measured reliably. When the outcome of the transaction involving the rendering of a service cannot be estimated reliably, revenue shall be recognised only to the extent of the expenses recognised that are recoverable.

b) Property and equipment

Property and equipment are stated at cost or revaluation, less accumulated depreciation and accumulated impairment losses. Costs include expenditure that is directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. Property and equipment is de-recognised upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Gains and losses arising on disposal of an item of property and equipment are determined by comparing the net proceeds from disposal with the carrying amount of the item and are recognised net within ‘other operating income’ in profit or loss. Buildings are measured at revalued amount less accumulated depreciation on buildings and impairment losses recognised at the date of revaluation. Valuations are performed with sufficient frequency to ensure that the carrying amount of a revalued asset does not differ materially from its fair value. Buildings were revalued based on the estimated market value. A revaluation surplus is recorded in other comprehensive income and credited to the asset revaluation reserve in equity. However, to the extent that it reverses a revaluation deficit of the same asset previously recognised in profit or loss, the increase is recognised in profit or loss. A revaluation deficit is recognised in the statement of profit or loss, except to the extent that it offsets an existing surplus on the same asset recognised in the asset revaluation reserve. Accumulated depreciation as at the revaluation date is eliminated against the gross carrying amount of the asset and the net amount is restated to the revalued amount of the asset. Upon disposal, any revaluation reserve relating to the particular asset being sold is transferred to retained earnings. Depreciation is recognised in profit or loss on a straight line basis at annual rates estimated to write off the carrying values of the assets over the estimated useful lives of each part of property and equipment. The annual depreciation rates in use are:• Buildings: 5% • Motor vehicles: 25% • Furniture, Fittings& Equipment: 25% • Computers& IT equipment: 50% • Freehold land is not depreciated as it is deemed to have an indefinite life. Property and equipment are at each reporting date reviewed for impairment. If any such indication exists and where the carrying values exceed the estimated recoverable amount, the assets are written down to their recoverable amount. The recoverable amount is the greater of net selling price and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. Impairment losses are recognised in the statement of profit or loss and other comprehensive income. The asset’s residual values, useful lives and methods of depredation are reviewed, and adjusted if appropriate, at each financial year end. Changes in the expected useful life are accounted for by changing the amortisation period or method prospectively, as appropriate, and treated as changes in accounting estimates. The costs of replacing part of an item of property and equipment is recognised in the carrying amount of the item if it is probable that future economic benefits embodied within the part will flow to the bank and its costs can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred

Work in progress

Work in progress is composed of mainly furniture and fittings and computers purchased towards the year end that have not allocated to branches. Work in progress is not depredated and is capitalized when commissioned for use where after depredation commences

c) Provisions

Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to that liability. The expense relating to any provision is presented in the statement of profit or loss and other comprehensive income net of any disbursement

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) d) Financial instruments

(i)

Recognition

The Group’s consolidated financial position, initially recognises cash, amounts due from/ due to Group companies, equity investments, loans and advances, deposits, debt securities and subordinated liabilities on the date they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair value through profit or loss) are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is initially measured at fair value plus (for an item not subsequently measured at fair value through profit or loss) transaction costs that are directly attributable to its acquisition or issue.

(ii)

De-recognition

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets that is created or retained by the Group is recognised as a separate asset or liability. The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all risks or rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised from the statement of financial position. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. If, as a result of a transfer, a financial asset is derecognised in its entirety but the transfer results in the Group obtaining a new financial asset or assuming a new financial liability, the Group recognises the new financial asset or financial liability at fair value. Where a financial asset is derecognised in its entirety, the difference between the carrying amount and the sum of the consideration received together with any gain or loss previously recognised in other comprehensive income, are recognised in profit or loss. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire.

(iii)

Classification

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss; loans and receivables; heldto-maturity investments; and available-for-sale financial assets. Management determines the classification of its investments at initial recognition.

(a)

(b)

(c)

Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money directly to a debtor with no intention of trading the receivable. Loans and advances are initially measured at fair value plus incremental direct transaction costs, and subsequently measured at their amortized cost using the effective interest method.

Held to maturity

Held-to-maturity investments are non-derivative financial assets with fixed or determinable payments and fixed maturities that the Group’s management has the positive intention and ability to hold to maturity. A sale or reclassification of more than an insignificant amount of held to maturity investments would result in the reclassification of the entire category as available for sale. Held to maturity investments includes treasury bills and bonds. They are subsequently measured at amortized cost.

Available for sale

Available for sale financial investments are those non derivative financial assets that are designated as available for sale or are not classified as any other category of financial assets. Available for sale financial assets are recognized initially at fair value plus any directly attributable transaction costs. Subsequent to initial recognition, they are measured at fair value and changes therein are recognized in other comprehensive income and presented in the available for sale fair value reserve in equity. Where there is no active market for these investments, cost less impairment is deemed the most reasonable basis of measurement. When an investment is derecognized, the gain or loss accumulated in equity is re-classified to profit or loss.

(iv)

Offsetting of financial assets and liabilities

Financial assets and liabilities are offset and the net amount reported on the statement of financial position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRSs, or for gains and losses arising from a Group of similar transactions such as in the Group’s trading activity.

(v)

Fair value of financial instruments

Fair value is the amount for which an asset could be exchanged or liability settled between knowledgeable willing parties in an arm’s length transaction on the measurement date.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTSâ&#x20AC;&#x2122; REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) d) Financial instruments (continued) The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer price quotations for financial instruments traded in active markets. For all other financial instruments fair value is determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models. The Group uses widely recognised valuation models for determining the fair value of common and simpler financial instruments like options, interest rate and currency swaps. For these financial instruments, inputs into models are market observable. For more complex instruments, the Group uses proprietary models, which are usually developed from recognised valuation models. Some or all of the inputs into these models may not be market observable, and are derived from market prices or rates or are estimated based on assumptions. When entering into a transaction, the financial instrument is recognised initially at the transaction price, which is the best indicator of fair value, although the value obtained from the valuation model may differ from the transaction price. This initial difference, usually an increase, in fair value indicated by valuation techniques is recognised in profit or loss depending on the individual facts and circumstances of each transaction and not later than when the market data becomes observable. The value produced by a model or other valuation techniques is adjusted to allow for a number of factors as appropriate, because valuation techniques cannot appropriately reflect all factors. Market participants take into account pricing when entering into a transaction. Valuation adjustments are recorded to allow for model risks, bid-ask spreads, liquidity risks, as well as other factors. Management believes that these valuation adjustments are necessary and appropriate to fairly state financial instruments carried at fair value on the statement of financial position.

(vi)

Identification and measurement of impairment of financial assets

At each reporting date the Group assesses whether there is objective evidence that financial assets carried at amortised cost are impaired. A financial asset or a Group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably. Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter Groupruptcy, the disappearance of an active market for a security, or other observable data relating to a Group of assets such as adverse changes in the payment status of borrowers or issuers in the Group, or economic conditions that correlate with defaults in the Group. The Group considers evidence of impairment for loans and advances and investment securities measured at amortised costs at both a specific asset and collective level. All individually significant loans and advances and investment securities measured at amortised cost are assessed for specific impairment. All individually significant loans and advances and investment securities measured at amortised cost found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances and investment securities measured at amortised cost that are not individually significant are collectively assessed for impairment by Grouping together loans and advances and investment securities measured at amortised cost with similar risk characteristics. In assessing collective impairment the Group uses statistical modelling of historical trends of the probability of default, timing of recoveries and the amount of loss incurred, adjusted for managementâ&#x20AC;&#x2122;s judgement as to whether current economic and credit conditions are such that the actual losses are likely to be greater or less than suggested by historical modelling. Default rates, loss rates and the expected timing of future recoveries are regularly benchmarked against actual outcomes to ensure that they remain appropriate. Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the assetâ&#x20AC;&#x2122;s original effective interest rate. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances. Interest on impaired assets continues to be recognised through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. The Group writes off loans and advances and investment securities when they are determined to be uncollectible. Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income. If, in a subsequent period, the fair value of an impaired available-for-sale debt security increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognised in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognised in other comprehensive income. The Group writes off certain loans and advances and investment securities when they are determined to be uncollectible.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTSâ&#x20AC;&#x2122; REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) Financial instruments (continued) (vii) Insurance receivables

Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost, using the effective interest rate method. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the statement of comprehensive income. Management considers the receivable to be impaired when their indications that the debtors are experiencing significant financial or difficulty default in repayments.. Balances outstanding that are impaired are provided for as an impairment loss in the statement of profit or loss and other comprehensive income. Insurance receivables are derecognised when the derecognition criteria for financial assets have been met.

e) Cash and cash equivalents

Cash and cash equivalents comprise balances with less than three months maturity from the date of acquisition, including: notes and coins on hand, unrestricted balances deposited with the National Bank of Rwanda and highly liquid assets, subject to insignificant risk of changes in their fair value. Cash and cash equivalents are carried at amortised cost in the statement of financial position.

f) Foreign exchange forward and spot contracts

g) Income tax expense

Income tax expense comprises current income tax and deferred income tax. Income tax expense is recognised in profit or loss except to the extent that it relates to items recognised directly in equity or other comprehensive income, in which case it is recognised in equity or in other comprehensive income. Current income tax is the expected tax payable or receivable on the taxable income for the year using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Deferred income tax is recognised on all temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, except differences relating to the initial recognition of assets or liabilities in a transaction that is not a business combination and which affects neither accounting nor taxable profit. Deferred income tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred income tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. Deferred income tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities against current tax assets and they relate to income taxes levied by the same tax authority on the same taxable entity or on different tax entities, but they intend to settle current tax assets and liabilities on a net basis or their tax assets and liabilities will be realised simultaneously.

h) Leasing

The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset. Leases, where a significant portion of the risks and rewards of ownership are retained by the lessor, are classified as operating leases. Payments made under operating leases are charged to the profit and loss account on a straight-line basis over the period of the lease. Leases where substantially all the risks and rewards of ownership of an asset are transferred to the Lessee are classified as finance leases. Upon recognition, the leased asset is measured at the lower of its fair value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted for in accordance with the accounting policy applicable to that asset as follows:

(i) Operating lease

The total payments made under operating leases are charged to profit or loss on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty is recognised as an expense in the period in which termination takes place.

(ii) Finance lease

When assets are held subject to a finance lease, the present value of the lease payments is recognised as a receivable. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) (i) Financial guarantees

In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognised in the financial statements (within other liabilities) at fair value, being the premium received. Subsequent to initial recognition, the Group’s liability under each guarantee is measured at the higher of the amount initially recognised less, when appropriate, cumulative amortisation recognised in the income statement, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. Any increase in the liability relating to financial guarantees is recorded in the statement of profit or loss and other comprehensive income in allowance for impairment losses The premium received is recognised in the statement of profit or loss and other comprehensive income in ‘Net fees and commission income’ on a straight line basis over the life of the guarantee.

(j) Fiduciary assets

(k) Intangible assets

The Group’s intangible assets include the value of computer software. An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates and accounted for prospectively. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss and other comprehensive income in the expense category consistent with the function of the intangible asset. Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives as follows: Computer software: 2 years There are no intangible assets with indefinite useful lives.

l) Dividends on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the BK Group PLC shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the BK Group PLC. Dividends for the year that are approved after the statement of financial position date are disclosed as an event after the reporting date.

m) Employee benefits Retirement benefit costs

The company contributes to a statutory defined contribution pension scheme, the Rwanda Social Security Board (RSSB). Contributions are determined by local statute and are currently limited to 5% of the employees’ gross salary. The company’s CSR contributions are charged to the statement of profit or loss and other comprehensive income in the period to which they relate.

Short-term benefits

Short term benefits consist of salaries, bonuses and any non-monetary benefits such as medical aid contributions and transport allowance. Shortterm employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A provision is recognised for the amount expected to be paid under short-term cash bonus if the Group has a present obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

Employee share ownership plan (ESOP)

The Bank has Employee Share Ownership Plan (“ESOP”) that may be subscribed for by the directors and eligible employees from 1st September 2012 and no later than 31st August 2017. The warrant entitle the holder one newly issued share of the bank for the cash consideration equal to offer price and payable in full at the time of purchase. The Bank does not have a past practice of cash settlement for these awards.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) n) Segment reporting

An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the Group’s Management Committee (being the chief operating decision maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available. The Group’s segmentation reporting is based on the following operating segments: retail banking, corporate banking, and central treasury, and BK subsidiary functions.

o) Contingent liabilities

p) Earnings per share

Basic and diluted earnings per share (EPS) data for ordinary shares are presented in the financial statements. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any.

q) Related parties

In the normal course of business, the Group has entered into transactions with related parties. The related party transactions are at arm’s length.

r) Gross benefits and claims

Insurance claims include all claims occurring during the year, whether reported or not, related internal and external claims handling costs that are directly related to the processing and settlement of claims, a reduction for the value of salvage and other recoveries, and any adjustments to claims outstanding from previous years

Reinsurance claims

Reinsurance claims are recognized when the related gross insurance claim is recognised according to the terms of the relevant contract

s) Reinsurance

The Group cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract. Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the company will receive from the reinsurer. The impairment loss is recorded in the statement of comprehensive income. Gains or losses on buying reinsurance are recognised in the statement of profit or loss immediately at the date of purchase and are not amortised. Ceded reinsurance arrangements do not relieve the Group from its obligations to policyholders. The Group also assumes reinsurance risk in the normal course of business for insurance contracts where applicable. premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets or liabilities are derecognized when the contractual rights are extinguished or expire or when the contract is transferred to another party Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statement of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured. Investment income on these contracts is accounted for using the effective interest rate method when accrued

u) Insurance contract liabilities

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 3. SIGNIFICANT ACCOUNTING POLICIES (continued) u) Insurance contract liabilities (continued) At each reporting date, the Group reviews its unexpired risk and a liability adequacy test is performed to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets relating to the relevant insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognised in the statement of comprehensive income

v) Insurance payables

Insurance payables are recognised when due and measured on initial recognition at the fair value of the consideration received less directly attributable transaction costs. Subsequent to initial recognition, they are measured at amortised cost using the effective interest rate method Derecognition of insurance payable Insurance payables are derecognised when the obligation under the liability is settled, cancelled or expired.

4.1. FINANCIAL RISK MANAGEMENT

The Group’s activities expose it to a variety of financial risks, including credit risk, liquidity risk, market risks, insurance risk, and operational risks, The Bank’s overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Bank’s financial performance. The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Board of Directors of the Group has established the credit, audit, ask, human resources and asset and liability committees, which are responsible for developing and monitoring the Group’s risk management policies in their specified areas. All Board committees have both executive and non-executive members and report regularly to the Board of Directors on their activities. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Fisk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Group’s risk management policies are established to identify and analyse the risks faced by the Group, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Ask management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Group, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment in which all employees understand their roles and obligations. The Audit Committee is responsible for monitoring compliance with the Group’s risk management policies and procedures and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Audit Committee is assisted in these functions by Internal Audit department. Internal Audit personnel undertake both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

a) Credit Risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from the Group’s loans and advances to customers, placement and balances with other counterparties and investment securities. It arises from lending and other activities undertaken by the Group. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure.

Management of credit risk

•

Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements; Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to business unit credit managers. Larger facilities require approval by the Board of Directors; Reviewing and assessing credit risk. The credit department assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process; Limiting concentrations of exposure to counterparties, geographies and industries (for loans and advances), and by issuer, credit rating band, market liquidity and country (for investment securities);Developing and maintaining the Bank’s risk grading in order to categorise exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. The current risk grading framework consists of five grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation;

The Board of Directors has delegated responsibility for the management of credit risk to its Credit Committee. A separate credit department, reporting to the Credit Committee, is responsible for oversight of the Group’s credit risk, including:

• •

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) a)

Credit Risk (continued)

Management of credit risk (continued)

•

Reviewing compliance of business units with agreed exposure limits, including those for selected industries and product types. Regular reports are provided to the Credit Committee on the credit quality of local portfolios and appropriate corrective action is taken; Providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk; Each business unit is required to implement the Group’s credit policies and procedures. Each business unit has a credit manager who reports on all credit related matters to local management and the Credit Committee. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval; and Regular audits of business units and the Group’s credit processes are undertaken by Internal Audit Department.

(ii)

Credit risk measurement

• •

The Group assesses he probability of default of customer or counterparty using internal rating scale tailored to the various categories of counter party. The rating scale has been developed internally and combines data analysis with credit officer judgment and is validated, where appropriate, by comparison with externally available information. Customers of the Group are segmented into five rating classes. The Group’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating scale is kept under review and upgraded as necessary. The Group regularly validates the performance of the rating and their predictive power with regard to default events. The Group’s internal ratings scale is as follows: Grade 1: Normal risk (between 0-30 days) Grade 2: Watch risk (between 31-90 days) Grade 3: Sub-standard risk (between 91-180 days) Grade 4: Doubtful risk (between 181-360 days) Grade 5: Loss (over 360 days)

(iii)

Impairment and provisioning policies

The Group establishes an allowance for impairment losses that represents its estimate of incurred losses in its loans and advances portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures. The second component is in respect of losses that have been incurred but have not been identified in relation to the loans and advances portfolio that is not specifically impaired. The impairment provision recognised in the statement of financial position at year-end is derived from each of the five internal rating grades. However, the impairment provision is composed largely of the bottom two grades. The Group’s exposure to credit risk is analysed as follows:

Individually impaired

2017

2016

2015

2014

2013

Frw’000

15,100,369

8,180,989

5,815,268

5,888,942

3,770,485

7,666,817

7,119,427

5,255,344

6,220,378

4,440,377

Grade 5: Loss risk

10,158,642

6,158,093

7,879,685

4,102,670

6,481,694

Gross amount

32,925,828

21,458,509

18,950,297

16,211,990

14,692,556

(20,702,111)

(9,078,820)

(8,145,955)

(11,569,935)

(9,967,748)

12,223,717

12,379,689

10,804,342

4,642,055

4,724,808

Grade 3: Substandard risk Grade 4: Doubtful risk

Allowance for impairment Specific allowance for impairment Net carrying amount

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) Past due but not impaired loans and advances

Past due but not impaired loans and advances are those for which contractual interest or principal payments are past due, but the Group believes that impairment is not appropriate on the basis of stage of collection of amounts owed to the Group. As at 31 December, the ageing analysis of past due but not impaired loans and advances was as follows:

2017

2016

2015

2014

2013

Frw’000

Grade 1: Normal risk (between 0-30 days)

525,355,552

436,281,462

343,241,835

194,968,496

134,461,313

Grade 2: Watch risk (between 31-90 days)

28,926,847

16,875,142

25,545,694

(1,688,172)

62,706,848

Allowance for collective assessment

(3,305,122)

(2,719,379)

(2,699,044)

(1,688,172)

(2,867,728)

550,977,277

450,437,225

366,088,485

191,592,152

194,300,433

Net carrying amount

Loans and advances graded 3, 4 and 5 in the Bank’s internal credit risk grading system include items that are individually impaired. These are advances for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreements. Loans and advances graded 1 and 2 are not individually impaired. Allowances for impairment losses for these loans and advances are assessed collectively using the Bank’s historical credit loss ratio. The Group also complies with the Central Bank’s prudential guidelines on collective and specific impairment losses. Additional provisions for loan losses required to comply with the requirements of Central Bank’s prudential guidelines are transferred to regulatory reserve. The internal rating scale assists management to determine whether objective evidence of impairment exists, based on the following criteria set out by the Bank: Delinquency in contractual payments of principal or interest; Cash flow difficulties experienced by the borrower; Breach of loan covenants or conditions; Initiation of Bank bankruptcy proceedings; Deterioration of the borrower’s competitive position Deterioration in the value of collateral The Group’s policy requires the review of individual financial assets regularly when individual circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of the impairment at reporting date on a case-by-case basis and are applied to all individually significant accounts. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account.

2017

2016

2015

2014

2013

Frw’000’

Frw’000

Balances with the National Bank of Rwanda

42,583,327

31,832,058

44,572,594

46,938,373

24,855,050

Due from banks

53,055,021

84,634,868

62,568,118

102,988,217

107,377,523

Held to maturity investments

94,248,923

77,962,606

93,503,198

58,596,907

50,820,690

221,425

218,455

10,304,365

8,877,766

8,255,503

7,665,385

7,695,005

Equity investments Other assets Insurance receivables

1,147,644

Net Carrying amount

201,560,705

203,528,723

209,120,838

216,410,307

190,966,723

iv) Credit-related commitment risk

The Group makes available to its customers guarantees which may require the Group to make payments on their behalf and enters into commitments to extend lines to secure their liquidity needs. The Bank enters into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn commitments to lend. Letters of credit and guarantees (including standby letters of credit) commit the Group to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Such commitments expose the Group to similar risks to loans and are mitigated by the same control processes and policies.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) a)

Credit Risk (continued)

Even though these obligations may not be recognised on the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Group. Letters of credit and guarantees (including standby letters of credit) commit the Group to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Guarantees and standby letters of credits carry similar credit risk to loans. The table below shows the Group’s maximum credit risk exposure for commitments and guarantees. The maximum exposure to credit risk relating to a financial guarantee is the maximum amount the Group could have to pay if the guarantee is called upon. The maximum exposure to credit risk relating to a loan commitment is the full amount of the commitment.

Guarantees Acceptances and letter of credit issued Guarantees commitments issued Loans/ lines approved but not yet disbursed

2017

2016

2015

2014

2013

Frw’000 40,993,347 50,242,053 16,647,161 107,882,561

Frw’000 25,415,435 51,136,617 51,687,135 128,239,187

Frw’000 7,016,181.00 55,419,544.00 42,307,138.00 104,742,863

Frw’000 5,310,899 28,151,776 47,590,474.00 81,053,149

Frw’000 49,594,239.00 27,698,321.00 77,292,560

(v) Concentration of credit risk

The Group’s financial instruments do not represent a concentration of credit risk because the Group deals with a variety of customers and its loans and advances are structured and spread among a number of customers. The Group monitors concentrations of credit risk by sector. An analysis of concentrations of credit risk at the reporting date is shown below:

2017

age

2016

age

2015

age

2014

age

2013

age

Frw’000

367,759,825

74%

262,914,896

66%

184,329,796

57%

134,412,278

54%

88,184,482

42%

Small and Medium Enterprises

54,702,928

11%

71,091,493

18%

69,667,433

21%

49,960,333

20%

53,770,343

25%

Non-profit Entities

5,627,590

5,177,490

9,114,479

6,348,545

4,429,132

67,621,305

14%

58,438,890

15%

61,658,825

19%

58,976,460

24%

65,476,760

31%

397,622,769 100%

324,770,533

100%

249,697,616

100%

211,860,717

100%

Large Corporate Clients

Retail Banking

495,711,648 100%

(vi) Fair value of collateral held The Bank holds collateral against loans and advances to customers in the form of cash, residential, commercial and industrial property; fixed assets such as plant and machinery; marketable securities; bank guarantees and letters of credit. The Bank also enters into collateralized reverse purchase agreements. Fisk mitigation policies control the approval of collateral types. Collateral is valued in accordance with the Bank’s risk mitigation policy, which prescribes the frequency of valuation for different collateral types. The valuation frequency is driven by the level of price volatility of each type of collateral. Collateral held against impaired loans is maintained at fair value. The valuation of collateral is monitored regularly and is back tested at least annually. Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse purchase and securities borrowing activity. Collateral usually is not held against investment securities, and no such collateral was held as at 31 December 2017 and 2016. An estimate of fair values of collaterals held against loans and advances to customers at the end of the year was as follows:

Collateral held other credit enhancements and their financial effect

The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks, except when securities are held as part of reverse purchase and securities borrowing activity. Collateral is usually not held against investment securities, and no such collateral was held at 31 December 2017 or 2016.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) a) Credit Risk (continued) The table below sets out the principal types of collateral held against different types of financial assets. Type of credit exposure Loans and advances to Customers Retail Loans& Advances Overdrafts Personal Loans Vehicle Loans Mortgage Loans Credit Cards Corporate Loans

Principal type of security that is subject to collateral requirements Un-secured Un-secured Vehicle Property Un-secured

2017

2016

2015

2014

2013

70 70 -

100

Property, Plant and Equipment, Insurance, Guarantees

Loans and Advances to Bank Repos Other loans and advances to banks

100

Marketable security Un- Secured

(b) Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financial liabilities. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group’s treasury maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to Groups and other inter-Group facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. Details of the reported Group’s ratio of net liquid assets to deposits from customers at the reporting date and during the reporting year were as follows:

2017

2016

2015

2014

2013

At close of the year

42.10%

47.00%

53.0%

64.9%

65.2%

Average for the year

43.90%

45.90%

56.7%

67.8%

53.5%

Maximum for the year

48.70%

51.60%

63.6%

70.3%

65.2%

Minimum for the year

39.80%

36.20%

50.5%

64.9%

44.8%

The table below summarised the Bank’s liquidity risk at 31 December 2017 and 31 December 2016, 31 December 2015, 31 December 2014, 31 December 2013 categorized into relevant maturity ranking on the earlier of the remaining contractual maturities or re-pricing dates

31 December 2017 ASSETS

Up to 1 month

1-3 months

3-12months

1-5 Years

Over Years

Total

Cash in hand

19,731,699

Balances with the National Bank of Rwanda

42,583,327

Due from Banks

52,099,911

112,980

842,130

53,055,021

Held to maturity investments

22,176,846

11,635,975

35,312,355

23,623,747

1,500,000

94,248,923

Loans and advances to customers

40,074,254

36,876,925

76,532,542

83,025,415

235,195,179

471,704,315

Other assets

9,041,548

1,037,109

460,789

25,898

10,565,344

Total Assets

185,707,585

49,662,989

113,147,816

106,675,060

236,695,179

691,888,629

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 31 December 2017 ASSETS

Up to 1 month

1-3 months

3-12months

1-5 Years

Over Years

Total

LIABILITIES AND EQUITY Due to banks

26,670,446

15,669,000

38,014

42,377,460

356,975,202

17,164,569

80,265,577

808,045

455,213,393

38,760

9,339,451

9,378,211

Other liabilities

7,874,667

9,308

7,383,716

15,267,691

Insurance liabilities

2,123,038

Long-term Finance

2,403,156

3,302,626

16,181,084

54,055,945

75,942,812

6,900,698

396,085,269

43,046,201

113,207,842

54,863,990

607,203,303

(210,377,684)

6,616,788

(60,026)

51,811,070

236,695,179

Customers deposits Dividend payable

Tax payable At 31 December 2017 Liquidity Gap 2017

31 December 2016 ASSETS

Up to 1 month

1-3 months

3-12months

1-5 years

Over years

Total

Cash in hand

15,032,721

Balances with the National Bank of Rwanda

31,832,058

Due from Banks

83,101,649

154,725

492,839

885,655

84,634,868

Held to maturity investments

34,752,261

24,463,937

15,853,791

2,392,617

500,000

77,962,606

Loans and advances to customers

21,357,284

24,768,826

31,177,235

85,147,928

223,373,297

385,824,570

7,346,847

227,342

1,277,697

25,880

8,877,766

Other assets Total Assets

193,266,910

49,614,830

48,801,562

88,452,080

223,873,297

604,008,679

LIABILITIES AND EQUITY

Due to banks Other customers deposits Dividend payable

12,779,420

6,027,175

1,228,589

8,070,000

28,105,184

299,387,153

24,885,286

93,306,784

1,438,040

419,017,263

8,343,104

Other liabilities

4,501,044

9,308

1,776,644

6,286,996

Long-term Finance

1,580,017

1,243,432

11,705,940

45,578,807

60,108,196

At 31 December 2016

318,247,634

32,165,201

116,361,061

55,086,847

521,860,743

(124,980,723)

17,449,629

(67,559,499)

33,365,233

223,873,297

Up to 1 month

1-3 months

3-12 months

1-5 years

Over 5 years

Total

Cash in hand

14,951,617

Balances with the National Bank of Rwanda

44,572,594

Due from Banks

62,568,118

Held to maturity investments

65,581,843

17,653,117

10,268,238

93,503,198

Loans and advances to customers

46,651,405

12,511,596

22,112,391

68,761,871

163,888,272

313,925,535

7,340,832

33,443

700,532

12,538

8,087,345

241,666,409

30,198,156

33,081,161

68,774,409

163,888,272

537,608,407

16,792,425

2,036,512

3,780,787

22,609,724

285,457,701

12,373,651

86,707,081

175,267

384,713,700

Liquidity Gap 2016

31 December 2015 ASSETS

Other assets Total Assets LIABILITIES AND EQUITY Due to banks Other customers deposits

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (b) Liquidity risk (continued) 31 December 2015 ASSETS

Up to 1 month

Dividend payable Other liabilities Long-term Finance

1-3 months

3-12 months

1-5 years

Over 5 years

Total

34,230

6,517,050

3,009,308

130,539

9,656,897

579,094

2,096,047

7,352,068

35,209,352

45,236,560

At 31 December 2015

309,346,270

19,515,518

98,004,705

35,384,619

462,251,111

Liquidity Gap 2015

(67,679,861)

10,682,638

(64,923,544)

33,389,790

163,888,272

31 December 2014 ASSETS

Up to 1 month

1-3 months

3-12 months

1-5 years

Over 5 years

Total

Cash in hand

12,020,669

Balances with the National Bank of Rwanda

46,938,373

102,988,217

8,976,834

26,851,823

22,768,250

58,596,907

31,880,289

19,819,438

20,530,590

65,571,333

95,637,859

233,439,509

Due from Banks Held to maturity investments Loans and advances to customers Other assets

5,119,235

1,037,987

868,100

12,532

7,037,854

Total Assets

207,923,617

47,709,248

44,166,940

65,583,865

95,637,859

461,021,529

LIABILITIES AND EQUITY Due to banks

10,472,516

1,742,099

2,835,500

164,346

15,214,461

240,190,387

8,762,179

75,633,022

15,572

324,601,160

5,469

6,882,271

3,727,008

250,999

10,860,278

547,993

752,031

6,396,706

31,599,794

3,575,003

42,871,526

At 31 December 2014

258,093,167

14,983,317

85,121,696

31,779,712

3,575,003

393,552,894

Liquidity Gap 2014

(50,169,549)

32,725,931

(40,954,756)

33,804,153

92,062,856

Other customers deposits Dividend payable Other liabilities Long-term Finance

31 December 2013 ASSETS

Up to 1 month

1-3 months

3-12months

1-5 Years

Over 5 Years

Total

Cash in hand

11,110,210

Balances with the National Bank of Rwanda

24,855,050

Due from Banks

90,195,479

17,182,044

107,377,523

Held to maturity investments

15,068,391

27,060,959

8,691,340

50,820,690

Loans and advances to customers

45,418,046

9,026,682

33,655,483

76,726,627

34,198,403

199,025,241

Other assets

7,354,794

Total Assets

194,001,970

53,269,685

42,346,823

76,726,627

34,198,403

400,543,508

5,532,246

21,500

11,595,500

195,778

17,345,024

221,332,253

3,293,539

55,699,161

164,510

280,489,463

7,416,579

LIABILITIES AND EQUITY

Due to banks Other customers deposits Dividend payable

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (b) Liquidity risk (continued) 31 December 2013 ASSETS

Up to 1 month

1-3 months

3-12months

1-5 Years

Over 5 Years

Total

8,705,581

262,892

3,242,084

27,276,419

4,981,887

35,763,282

At 31 December 2013

235,570,080

3,577,931

77,953,324

27,636,707

4,981,887

349,719,929

Liquidity Gap 2013

(41,568,110)

49,691,754

(35,606,501)

49,089,920

29,216,516

Other liabilities Long-term Finance

(c) Market Risk (i) Currency risk The Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions which are monitored daily and hedging strategies used to ensure that positions are maintained within the established limits. Transactions in foreign currency are recorded at the rate in effect at the date of the transaction. The Group translates monetary assets and liabilities denominated in foreign currencies at the rate of exchange in effect at the reporting date. The Group records all gains or losses on changes in currency exchange rates in profit or loss. The table below summarizes the foreign currency exposure as at 31 December 2017, 2016, 2015, 2014, 2013:

2017

2016

2015

2014

2013

Frw’000

190,349,295

172,807,513

121,246,553

118,568,075

125,031,246

Liabilities in foreign currencies

(206,170,870)

(181,810,921)

(140,285,268)

(135,467,989)

(130,836,020)

Net foreign currency exposure at the end of the year

(15,821,575)

(9,003,408)

(19,038,715)

(16,899,914)

(5,804,774)

Assets in foreign currencies

The various foreign currencies to which the Group is exposed are summarised below;

USD

Euro

GBP

Other Foreign currencies

Total

Frw’000

39,812,867

15,494,441

1,235,868

1,163,836

5,770,712

131,576,935

3,621

7,003

166

131,587,725

1,032,548

10,449

11,260

301

1,054,558

172,422,350

15,508,511

1,254,131

1,164,303

190,349,295

29,427,141

104342

2,378

29,533,861

113,269,930

15449952

825,940

223,062

129,768,884

750,806

4401

1,607

409

757,223

46,110,902

At 31 December 2017

189,558,779

15558695

829,925

223,471

206,170,870

Net currency exposure

(17,136,429)

(50,184)

424,206

940,832

(15,821,575)

Assets Cash, deposit and advances to banks Loans and advances to customers Other assets, property and investments At 31 December 2017 Liabilities and equity Deposits from banks Deposits from customers Other liabilities Long-Term Finance

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk (continued) Assets

USD

Euro

GBP

Other Foreign currencies

Total

Frw’000

Cash, deposit and advances to banks

69,949,692

14,721,402

1,797,008

915,024

87,383,126

Loans and advances to customers

84,750,144

10,572

5,911

266

84,766,893

634,861

13,158

9,414

657,494

155,334,697

14,745,132

1,812,333

915,351

172,807,513

9,324,425

9,795

2,501

9,336,721

108,545,375

13,032,956

1,149,975

219,334

122,947,640

1,139,257

8,320

13,075

187

1,160,839

48,365,721

At 31 December 2016

167,374,778

13,051,071

1,165,551

219,521

181,810,921

Net currency exposure

(12,040,081)

1,694,061

646,782

695,830

(9,003,408)

USD

Euro

GBP

Other foreign currencies

Total

Cash, deposit and advances to banks

47,968,973

10,499,102

1,489,977

2,734,268

62,692,320

Held to maturity investments

29,931,687

Loans and advances to customers

26,589,373

10,046

1,480

248

26,601,147

2,011,981

8,865

313

240

2,021,399

106,502,014

10,518,013

1,491,770

2,734,756

121,246,553

709,082

708,729

44,438

1,462,249

87,047,946

8,793,664

1,533,816

135,854

97,511,280

187,365

196

187,656

41,124,083

At 31 December 2015

129,068,476

9,502,393

1,578,349

136,050

140,285,268

Net currency exposure

(22,566,462)

1,015,620

(86,579)

2,598,706

(19,038,715)

Other assets, property and investments At 31 December 2016

Liabilities and equity Deposits from banks Deposits from customers Other liabilities Long-Term Finance

Assets

Other assets, property and investments At 31 December 2015 Liabilities and equity Deposits from banks Deposits from customers Other liabilities Long-Term Finance

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk (continued) Assets

USD

Euro

GBP

Other Foreign currencies

Total

80,289,710

9,982,369

11,169,877

8,297,155

109,739,111

8,064,455

30,775

2,450

484

8,098,164

671,442

53,410

5,874

730,800

89,025,607

10,066,554

11,178,201

8,297,713

118,568,075

331,510

15,262

346,772

87,731,503

7,043,485

1,639,011

155,834

96,569,833

376,564

3,015

379,601

38,171,783

At 31 December 2014

126,611,360

7,061,762

1,639,033

155,834

135,467,989

Net currency exposure

(37,585,753)

3,004,792

9,539,168

8,141,879

(16,899,914)

Cash, deposit and advances to banks Loans and advances to customers Other assets, property and investments At 31 December 2014 Liabilities and equity Deposits from banks Deposits from customers Other liabilities Long-Term Finance

USD

Euro

GBP

Other foreign currencies

Total

110,920,511

5,752,931

4,764,888

477,493

121,915,823

699,110

14,960

2,133

459

716,662

2,398,761

114,018,382

5,767,891

4,767,021

477,952

125,031,246

1,328,746

78,186

65,482

1,472,414

85,430,047

9,953,754

1,739,209

177,866

97,300,876

395,024

31,667,706

At 31 December 2013

118,821,523

10,031,940

1,804,691

177,866

130,836,020

Net currency exposure

(4,803,141)

(4,264,049)

2,962,330

300,086

(5,804,774)

Assets Cash, deposit and advances to banks Loans and advances to customers Other assets, property and investments At 31 December 2013 Liabilities and equity Deposits from banks Deposits from customers Other liabilities Long-Term Finance

The following table demonstrates the sensitivity to a reasonably possible change in the below mentioned exchange rates of major transaction currencies, with all other variables held constant, of the Bank’s profit before tax (due to changes in the fair value of monetary assets and liabilities).

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk (continued)

Currency

Increase/ decrease in exchange rate

Effect on profit before tax 2017

2016

2015

2014

2013

Frw’000

US:

+/-5%

(856,822)

(602,004)

(1,128,323)

(1,879,288)

(48,031)

GBP

+/-5%

(4,242)

(32,339)

(866)

(95,392)

29,623

EUR

+/-5%

(2,509)

(84,703)

(50,781)

150,240

(42,640)

ii) Interest rate risk

Interest rate is the risk that the future cash flows of financial instruments will fluctuate because of changes in the market interest rates. Interest margin may increase as a result of such changes but may reduce losses in the event that unexpected movement arises. The Bank closely monitors interest rate movements and seeks to limit its exposure by managing the interest rate and maturity structure of assets and liabilities carried on the statement of financial position.

Sensitivity analysis interest rate risk

Except for some borrowings that are tagged to LIBOR all financial instruments entered into by the bank are at fixed rates and therefore not prone to interest rate fluctuations. The impact of fluctuations in the LIBOR (London Interbank Rate) is not expected to have a significant effect on the results of the bank.

Currency

Increase/ decrease in LIBOR rate

Effect on profit before tax 2017

2016

2015

2014

2013

Frw’000

USD

+/-0.23%

101,689

112,692

95,819

46,937

EUR

+/-0.27%

65,011

24,033

3,703

374

The following is an analysis of the Group’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position:

Balance as at 31 December 2017

Weighted interest rate

Effect on Interest income

+/ - 100bp

Frw’000’

Balances with the National Bank of Rwanda

9.60%

19,012,423

190,124

Balances and placements with other banks

0.20%

51,833,407

518,334

Treasury bills and bonds

9.60%

94,248,923

942,489

Loans and advances- net

16.20%

TOTAL ASSETS INCREASE

472,976,237

4,729,762

638,070,990

6,380,709

Effect on Interest expense Balances and placements due to banks

3.40%

31,200,214

312,002

Customer deposits

8.90%

140,381,856

1,403,819

Long-term finance

7.20%

70,842,175

708,422

TOTAL LIABILITIES INCREASE

242,424,245

2,424,243

EFFECT ON PROFITS

395,646,745

3,956,466

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk (continued) ii) Interest rate risk (continued) Balance as at 31 December 2016

Weighted interest rate

Effect on Interest income

+/ - 100bp Frw’000

Frw’000

Balances with the National Bank of Rwanda

4.50%

3,260,000

32,600

Balances and placements with other banks

0.40%

84,634,868

846,349

Treasury bills and bonds

9.60%

77,962,606

779,626

Loans and advances- net

17.50%

385,824570

3,858,245

551,682,044

5,516,820

TOTAL ASSETS INCREASE

Effect on Interest expense

Balances and placements due to banks

7.50%

19,361,005

193,610

Customer deposits

9.50%

147,753,025

1,477,530

Long-term finance

5.30%

57,137,068

571,371

TOTAL LIABILITIES INCREASE

224,251,098

2,242,511

EFFECT ON PROFITS

327,430,946

3,274,309

Balance as at 31 December 2015

Weighted interest rate

Effect on Interest income

+/ - 100bp Frw’000

Frw’000

Balances with the National Bank of Rwanda

1.80%

12,000,000

120,000

Balances and placements with other banks

1.70%

62,568,118

625,681

Treasury bills and bonds

4.40%

93,503,198

935,032

Loans and advances- net

19.20%

313,925,535

3,139,255

481,996,851

4,819,968

TOTALASEETS INCREASE

Effect on Interest expense

Balances and placements due to banks

8.90%

12,242,046

122,420

Customer deposits

9.60%

121,173,955

1,211,740

Long-term finance

6.60%

42,475,643

424,756

TOTAL LIABILITIES INCREASE

175,891,644

1,758,916

EFFECT ON PROFITS

306,105,207

3,061,052

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk (continued) Weighted interest rate

Balance as at 31 December 2014

+/ - 100bp

Effect on Interest income

Frw’000

Balances with the National Bank of Rwanda

8.50%

15,000,000

150,000

Balances and placements with other banks

0.90%

102,987,376

1,029,874

Treasury bills and bonds

5.90%

58,596,907

585,969

Loans and advances- net

20.10%

233,219,355

2,332,193

409,803,638

4,098,036

TOTAL ASEETS INCREASE

Effect on Interest expense

Balances and placements due to banks

10.50%

9,687,737

96,877

Customer deposits

12.90%

88,433,788

884,338

Long-term finance

6.50%

40,254,954

402,550

TOTAL LIABILITIES INCREASE

138,376,479

1,383,765

EFFECT ON PROFITS

271,427,159

2,714,271

The table below summarizes the interest rate risk of the Bank as at 31 December 2017, 31 December 2016, 31 December 2015, 31 December 2014, 31 December 2013: 31 December 2017

Weighted interest rate

On Demand

Less than 3 months

3-12 Months

1 to 5 Years

Over 5 Years

Total

Frw’000’

Assets Balances with the National Bank of Rwanda

9.60%

19,012,423

Balances and placements with other banks

0.20%

45,873,406

5,117,871

842,130

51,833,407

Treasury bills and bonds

9.60%

33,812,821

35,312,355

23,623,747

1,500,000

94,248,923

Loans and advances - net

16.20%

76,951,178

76,532,542

83,025,415

235,195,180

471,704,315

45,873,406

134,894,293

112,687,027

106,649,162

236,695,180

636,799,068

Total assets

Liabilities Balances and placements due to other banks

4.50%

31,162,200

38,014

31,200,214

Customer deposits

8.70%

32,652,435

26,655,799

80,265,577

808,045

140,381,856

Long-term finance

7.20%

5,322,558

15,094,295

50,425,322

70,842,175

TOTAL LIABILITIES

32,652,435

63,140,557

95,397,886

51,233,367

Total interest sensitivity gap

13,220,971

71,753,736

17,289,141

55,415,795

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

242,424,245 236,695,180

394,374,823

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk (continued) 31 December 2016

Weighted interest rate

On Demand

Less than 3 months

3-12 Months

1to 5 Years

Over 5 Years

Total

Frw’000’

Assets Balances with the National Bank of Rwanda

4.50%

3,260,000

Balances and placements with other banks

0.40%

79,361,649

3,894,725

492,839

885,655

84,634,868

Treasury bills and bonds

9.60%

24,463,937

53,498,669

77,962,606

Loans and advances - net

17.50%

46,126,110

31,177,235

85,147,928

223,373,297

385,824,570

79,361,649

77,744,772

85,168,743

86,033,583

223,373,297

551,682,044

Total assets

Liabilities Balances and placements due to other Banks

7.50%

10,062,416

1,228,589

8,070,000

19,361,005

Customer deposits

9.50%

17,361,649

35,749,020

93,306,784

1,438,040

147,855,493

Long-term finance

5.30%

2,683,886

11,127,319

43,325,863

57,137,068

TOTAL LIABILITIES

17,361,649

48,495,322

105,662,692

52,833,903

224,353,566

Total interest sensitivity gap

62,000,000

29,249,450

(20,493,949)

33,199,680

223,373,297

327,328,478

31 December 2015

Weighted interest rate

On Demand

Less than 3 months

3-12 Months

1to 5 Years

Over 5 Years

Total

Frw’000’

Assets Balances with the National Bank of Rwanda

1.80%

12,000,000

Balances and placements with other banks

1.70%

44,206,278

18,361,840

62,568,118

Treasury bill and bonds

4.40%

17,653,117

75,850,081

93,503,198

Loans and advances - net

19.20%

59,163,001

22,112,391

68,761,871

163,888,272

313,925,535

44,206,278

107,177,958

97,962,472

68,761,871

163,888,272

481,996,851

Total assets

LIABILITEIS Balances and placements due to other banks

8.90%

8,461,260

3,780,786

12,242,046

Customer deposits

9.60%

6,946,571

27,345,036

86,707,081

175,267

121,173,955

Long-term finance

6.60%

2,511,869

6,903,350

33,060,424

42,475,643

6,946,571

38,318,165

97,391,217

33,235,691

175,891,644

37,259,707

68,859,793

571,255

35,526,180

163,888,272

306,105,207

TOTAL LIABILITIES Total interest sensitivity gap

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.1. FINANCIAL RISK MANAGEMENT (continued) (c) Market Risk (continued) 31 December 2014

Weighted interest rate

On Demand

Less than 3 months

3-12 Months

1to 5 Years

Over 5 Years

Total

Frw’000’

Assets Balances with the National Bank of Rwanda

8.50%

15,000,000

Balances and placements with other banks

0.90%

63,221,501

39,765,875

102,987,376

Treasury bills and bonds

5.90%

35,828,657

22,768,250

58,596,907

Loans and advances - net

20.10%

51,479,573

20,530,590

65,571,333

95,637,859

233,219,355

63,221,501

142,074,105

43,298,840

65,571,333

95,637,859

409,803,638

Total assets

LIABILITEIS Balances and placements due to other Banks

10.50%

6,065,138

3,622,599

9,687,737

Customer deposits

12.90%

4,086,890

17,316,577

67,014,750

15,572

88,433,789

Long-term finance

6.50%

1,220,680

6,006,297

29,671,168

3,356,808

40,254,953

4,086,890

24,602,395

76,643,646

29,686,740

3,356,808

138,376,479

59,134,611

117,471,710

(33,344,806)

35,884,593

92,281,051

271,427,159

On Demand

Less than 3 months

3-12 Months

1to 5 Years

Over 5 Years

Total

Frw’000’

TOTAL LIABILITIES Total interest sensitivity gap

31 December 2013

Weighted interest rate

Assets Balances with the National Bank of Rwanda

7.30%

3,200,000

Balances and placements with other Banks

0.40%

87,674,795

19,692,392

107,367,187

Treasury bill and bonds

6.10%

42,129,350

8,691,340

50,820,690

Loans and advances - Net

21.80%

54,425,130

33,655,483

74,946,976

34,719,148

197,746,737

87,674,795

119,446,872

42,346,823

74,946,976

34,719,148

359,134,614

21,500

11,595,500

20,000

175,778

11,812,778

4,934,843

13,934,049

50,791,954

164,510

69,825,356

251,331

3,099,507

26,076,882

4,762,799

34,190,519

4,934,843

14,206,880

65,486,961

26,261,392

4,938,577

115,828,653

82,739,952

105,239,992

(23,140,138)

48,685,584

29,780,571

243,305,961

Total assets

LIABILITIES Balances and placements due 13.60% to other Banks Customer deposits

14.80%

Long-Term Finance

1.60%

TOTAL LIABILITIES Total interest sensitivity gap

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.2 OPERATIONAL RISK MANAGEMENT Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations and are faced by all business units. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit_ This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: • Requirements for appropriate segregation of duties, including the independent authorisation of transactions. • Requirements for the reconciliation and monitoring of transactions • Compliance with regulatory and other legal requirements • Documentation of controls and procedures • Requirements for the yearly assessment of operational risks faced and the adequacy of controls and procedures to address the risks identified. • Requirements for the reporting of operational losses and proposed remedial action. • Development of contingency plans. • Training and professional development. • Ethical and business standards. • Risk mitigation, including insurance where this is effective. Compliance with Group’s standards is supported by a programme of regular reviews undertaken by both the Internal Audit and Risk and Compliance department. The results of internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group.

(i) Insurance risk management

The Group’s activities expose it to a variety of financial risks, including its portfolio of risks covered and perils insured. The Group’s overall risk management programme focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the approval of intermediaries and reinsurers. The Group has policies in place to ensure that insurance is sold to customers with an appropriate claim and credit history. The risk exposure is mitigated by diversification across a large portfolio of insurance contracts in different product classes which are fire, marine, motor, accident, bonds and aviation. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. The Group purchases reinsurance as part of its risks mitigation programme. Reinsurance ceded is placed on both a proportional and non-proportional basis. The majority of proportional reinsurance is quota share reinsurance which is taken out to reduce the overall exposure of the company to certain classes of business. Nonproportional reinsurance is primarily excess-of-loss reinsurance designed to mitigate the company’s net exposure to catastrophe losses. Retention limits for the excess-of-loss reinsurance vary by product line. The Group manages the insurance risk in the manner briefly outlined below: The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of insurance, risk is random-and therefore unpredictable. Risks must be evitable. Inevitable makes it certain hence not insurable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and payments exceed the carrying amount of the insurance liabilities. This could occur if the frequency or severity of claims is greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group has its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location, the nature of industry covered and likelihood of a catastrophe.

Insurance Risk

Claims are payable on claims occurrence basis.

The Group is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term. As a result, liability claims are settled over a long period of time and a larger element of the claims provision relates to incurred but not reported claims (IBNR).

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.2 OPERATIONAL RISK MANAGEMENT (continued) For certain contracts, the 0-oup has limited the number of claims that can be paid in any policy year or introduced a maximum amount payable for claims in any policy year. The Group also has the right to re-price the risk at renewal. It also has the ability to impose deductibles and reject fraudulent claims. Reinsurance is used to manage insurance risk. This does not, however, discharge the Company’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Company remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. The Group reinsurance placement policy assesses the creditworthiness of all reinsurers and intermediaries by reviewing credit grades provided by rating agencies and other publicly available financial information.

Technical provision

Gross claims reported, claims handling expenses liability and the liability for claims incurred but not reported (IBNR) are net of expected recoveries from salvages. The Group uses the most reliable technique to estimate the ultimate cost of claims including IBNR provision. The company has estimated IBNR as 15% of outstanding claims. Management has determined that the estimate is adequate for purposes of covering the risk and will ensure the Group will remain profitable in the future. As such management does not review claims development (i.e. actual claims compared with previous estimates) to manage its insurance risk.

Reinsurance risk

In common with other insurance companies, in order to minimize financial exposure arising from large insurance claims, the Group, in the normal course of business, enters into arrangements with other parties for reinsurance purposes. Such reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth. A significant portion of the reinsurance is effected under excess of loss reinsurance contracts. To minimise its exposure to significant losses from reinsurer insolvencies, the Group evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristic of the reinsurers. Reinsurance contracts do not relieve the Company from its obligations to cedants and as a result the Group remains liable for the portion of outstanding claims reinsured to the extent that the reinsurer fails to meet the obligations under the reinsurance agreements.

4.3 Capital management The primary objective of the Bank’s capital management is to ensure that the Bank complies with capital requirements and maintains healthy capital ratios in order to support its business and to maximise shareholders’ value. The Bank maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the Bank’s capital is monitored using, among other measures, the rules and ratios established by the National Bank of Rwanda. The National Bank of Rwanda sets and monitors capital requirements for the banking industry as a whole. In implementing current capital requirements, the National Bank of Rwanda requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets. The Bank’s regulatory capital is analysed into two tiers: ·

Core Capital (Tier 1) capital, which includes ordinary share capital, share premium, retained earnings, after deductions for investments in financial institutions, and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes; and Supplementary capital (Tier 2) includes the regulatory reserve.

Various limits are applied to elements of the capital base. The Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 4.3 CAPITAL RISK MANAGEMENT (continued) The Group’s regulatory capital position at 31 December was as follows:

Core Capital (Tier 1): 2017

2016

2015

2014

2013

Frw’000’

6,745,370

6,724,428

6,721,842

6,713,706

6,684,500

Retained earnings and reserves

84,068,437

69,435,204

67,729,066

57,724,350

38,896,772

Share premium

18,936,176

18,695,343

18,665,604

18,572,040

18,236,171

109,749,983

94,854,975

93,116,512

83,010,096

63,817,443

3,250,037

3,407,656

1,532,259

1,634,410

1,736,560

113,000,020

98,262,631

94,648,771

84,644,506

65,554,003

4,803,463

1,400,000

2,400,000

3,000,000

640,000

Ordinary share capital

Total Supplementary Capital( Tier 2) : Total qualifying capital Risk % BNR Repo

20%

Due From Banks

20%

9,610,026

15,526,974

11,513,624

20,597,643

21,475,505

Financial Instruments

100%

19,606,606

29,931,686

Loans & Advances ( Net excl. residential mortgage)

100%

412,878,286

340,245,045

278,867,168

198,605,312

153,151,988

Loans & Advances ( Net Residential mortgage)

50%

30,043,879

22,789,762

17,529,184

17,417,099

22,936,626

Equity Investments

100%

221,425

218,455

Fixed Assets & Other assets

100%

45,659,989

42,828,351

31,483,915

28,402,864

28,952,904

Financing Commitments given to customers

100%

57,640,509

77,102,570

49,323,319

53,598,869

49,501,869

580,464,183

500,114,127

421,270,321

321,843,212

276877347

15%

Total Risk weighted assets Regulatory reserve Capital ratios Total qualifying capital expressed as a percentage of total -weighted assets

19.47%

19.60%

22.50%

26.43%

23.70%

Total tier 1 capital expressed as a percentage of total risk- weighted assets

18.91%

19.00%

22.10%

25.80%

23.00%

5. CONCENTRATION RISK

The Group as per banking regulations has a policy limiting the total of the exposure values of the Group to a single counterparty or to a group of connected counterparties to not exceed 20% of the Bank’s core capital in accordance with the Group’s risk appetite (the threshold required by BNR regulation is 25%). The exposure shall include on- and off-balance sheet exposures included in the banking book, as in the risk weighted assets (RWA) measure for credit risk; on- and off-balance sheet exposures included in the trading book, as in the RWA measure for market risk; and exposure from positions that give rise to counterparty credit risk. The table below shows the concentration of deposits and loans amongst the top 10 and top 20 customers.

Concentration risk 2017

2016

2015

2014

2013

Top 10 depositors Top 20 depositors

28% 35%

31% 37%

33% 41%

34% 39%

30% 34%

Top 10 borrowers Top 20 borrowers

35% 51%

43% 55%

33% 41%

25% 30%

12% 16%

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 6. USE OF ESTIMATES AND JUDGEMENTS

In determining the carrying amounts of certain assets and liabilities, the Bank makes assumptions of the effects of uncertain future events on those assets and liabilities at the reporting date. The Bank’s estimates and assumptions are based on historical experience and expectation of future events and are reviewed periodically. This disclosure excludes uncertainty over future events and judgments in respect of measuring financial instruments. Further information about key assumptions concerning the future, and other key sources of estimation uncertainty are set out in the notes.

(a)

Impairment losses on loans and advances

The Bank’s loan loss provisions are established to recognize incurred impairment losses either on loans or within a portfolio of loans and receivable. The Bank reviews its loans and advances at each reporting date to assess whether an allowance for impairment should be recognised in profit or loss. In particular, judgment by the directors is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on the assumptions about a number of factors and actual results may differ, resulting in future changes in the allowance. In addition to specific allowances against individual significant loans and advances, the Bank makes a collective impairment allowance against exposures which, although not specifically identified as requiring a specific allowance, have a greater risk of default than when originally granted. This takes into consideration such factors as any deterioration in industry, technological obsolescence, as well as identified structural weaknesses or deterioration in cash flows and past loss experience and defaults based on portfolio trends. Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premises used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The Bank uses widely recognised valuation models for determining the fair value of common and more simple financial instruments, such as interest rate and currency swaps that use only observable market data and require little management judgement and estimation. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter derivatives such as interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgement and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets

7. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorized. As at 31 December 2017 Cash on hand Balances with the National Bank of Rwanda Due from banks Held to maturity investments Loans and advances to customers Equity Investments Insurance receivables Other assets

As at 31 December 2016 Cash on hand Balances with the National Bank of Rwanda Due from banks Held to maturity investments Loans and advances to customers Equity Investments Other assets

Level 1

Level 2

Level 3

Total fair value

Frw’000 -

Frw’000 19,731,699

Frw’000 -

Frw’000 19,731,699

Total carrying amount Frw’000 19,731,699

42,583,327

53,055,021 94,248,923 209,618,970

471,704,315 221,425 1,147,644 10,304,365 483,377,749

53,055,021 94,248,923 471,704,315 221,425 1,147,644 10,304,365 692,996,719

Level 1

Level 2

Level 3

Total fair value

Total carrying amount

Frw’000 0 0

Frw’000 15,032,721 31,832,058

Frw’000 0 0

Frw’000 15,032,721 31,832,058

0 0 0 0 0 0

84,634,868 77,962,606 0 0 0 209,462,253

0 0 385,824,570 221,425 8,877,766 394,923,761

84,634,868 77,962,606 385,824,570 221,425 8,877,766 604,386,014

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 7. FAIR VALUE OF FINANCIAL INSTRUMENTS (continued) As at 31 December 2015 Cash on hand Balances with the National Bank of Rwanda Due from banks Held to maturity investments Loans and advances to customers Equity Investments Other assets

As at 31 December 2014

Level 1

Level 2

Level 3

Total fair value

Total carrying amount

Frw’000 -

Frw’000 14,951,617

Frw’000 -

Frw’000 14,951,617

44,572,594

62,568,118 93,503,198 215,595,527

313,925,535 221,425 8,255,500 322,402,460

62,568,118 93,503,198 313,925,535 221,425 8,255,500 537,997,987

Total fair value

Total carrying amount

Level 1

Level 2

Level 3

Frw’000

Cash on hand Balances with the National Bank of Rwanda Due from banks Held to maturity investments

12,020,669

46,938,373

102,988,217 58,596,907

Loans and advances to customers

233,439,509

Equity Investments Other assets

220,544,166

221,425 7,665,385 241,326,319

221,425 7,665,385 461,870,485

Level 1 Frw’000 -

Level 2 Frw’000 11,110,210 24,855,050

Level 3 Frw’000 -

Total fair value Frw’000 11,110,210 24,855,050

Total carrying amount Frw’000 11,110,210 24,855,050

107,377,523 50,820,690 194,163,473

199,025,241 218,455 7,695,005 206,938,701

107,377,523 50,820,690 199,025,241 218,455 7,695,005 401,102,174

As at 31 December 2013 Cash on hand Balances with the National Bank of Rwanda Due from banks Held to maturity investments Loans and advances to customers Equity Investments Other assets

Where available, the fair value of loans and advances is based on observable market transactions. Where observable market transactions are not available, fair value is estimated using valuation models, such as discounted cash flow techniques. Input into the valuation techniques includes expected lifetime credit losses, interest rates, prepayment rates and primary origination or secondary market spreads. For collateral-dependent impaired loans, the fair value is measured based on the value of the underlying collateral. Input into the models may include data from third party brokers based on Over the Counter (OTC) trading activity, and information obtained from other market participants, which includes observed primary and secondary transactions. The fair value of deposits from banks and customers is estimated using discounted cash flow techniques, applying the rates that are offered for deposits of similar maturities and terms. The fair value of deposits payable on demand is the amount payable at the reporting date. Management estimates that the amortised cost equates to the fair value. The fair values of equity investments were estimated using equity dividend yields. Equity dividend yields represent the future dividends and are usually expressed in annualised percentage terms. They are usually unobservable for less liquid instruments with little with historical data.

8. SEGMENT REPORTING The Bank’s main business comprises of the following reportable segments: Central Treasury — Funding and centralised risk management activities through borrowings, issues of debt securities and investing in liquid assets such as short-term placements and corporate and government debt securities. BK Group subsidiaries — The Group is consisted of the following subsidiaries: Bank of Kigali Limited which is a wholly owned subsidiary of BK Group PLC, incorporated on 21 December 2017. It is a commercial banking unit with the license to collect customer deposits and issue lending facilities.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 8. SEGMENT REPORTING (continued) BK General Insurance Limited is a wholly owned subsidiary of BK Group PLC, incorporated on 16 September 2015. It offers non-life insurance services. BK Capital Limited which is a wholly owned subsidiary of BK Group PLC, incorporated on 28 January 2013. BK Securities offers services brokerage services for all stocks listed on the Rwanda Stock Exchange including The Group shares. BK Tec-House Limited is a wholly owned subsidiary of BK Group PLC, incorporated on 10 August 2015. It offers internet and digital services to customers. The table below shows analysis of the breakdown for segmental assets, liabilities, income and expenses. Statement of profit or loss and other comprehensive income For the year ended 31 December 2017

Corporate Banking

Retail Banking

Central Treasury

BK Subsidiaries

Total

Frw’000

Interest income

60,124,241

11,752,572

10,209,831

137,224

82,223,868

Interest expense

(3,890,815)

(1,074,548)

(13,374,706)

24,089

(18,315,980)

Net interest income

56,233,426

10,678,024

(3,164,875)

161,313

63,907,888

5,306,464

6,134,386

15,817,997

1,295,444

28,554,290

(13,191,434)

(3,297,858)

(16,489,292)

(477,502)

(885,952)

(1,363,454)

Total operating expenses

(4,040,187)

(4,072,717)

(31034,758)

(1,289,736)

(40,437,398)

Profit before income tax

43,830,767

8,555,883

(18,381,637)

167,021

34,172,034

(13,149,231)

(2,566,762)

4,957,901

(65,062)

(10,823,154)

30,681,536

5,989,121

(13,423,736)

101,959

23,348,880

Net Non-interest Income Net impairment on loans and advances Account maintenance fees

Income tax expense Profit for the year For the year ended 31 December 2016

Corporate Banking

Retail Banking

Central Treasury

BK Subsidiaries

Total

Frw’000

Interest income

51,702,943

11,458,156

9,082,629

10,657

72,254,385

Interest expense

(4,628,493)

(1,058,527)

(10,869,216)

(16,556,236)

Net interest income

47,074,450

10,399,629

(1,786,587)

10,657

55,698,149

5,029,430

4,602,739

11,293,016

283,950

21,209,135

Net impairment on loans and advances

(7,461,598)

(2,013,977)

(973,383)

(10,448,958)

Account maintenance fees

(2,872,560)

(3,762,251)

(6,634,811)

Total operating expenses

(13,124,501)

(4,724,820)

(11,894,003)

(99,076)

(29,842,400)

Profit before income tax

28,645,221

4,501,320

(3,360,957)

195,531

29,981,115

Income tax expense

(5,729,045)

(900,264)

(2,537,280)

(58,659)

(9,225,247)

Profit for the year

22,916,176

3,601,056

(5,898,237)

136,872

20,755,866

Corporate Banking

Retail Banking

Central Treasury

BK Subsidiaries

Total

Frw’000

Interest income

42,350,376

12,573,252

5,020,817

22,410

59,966,855

Interest expense

(2,817,436)

(886,267)

(10,023,383)

(13,727,086)

Net interest income

39,532,940

11,686,985

(5,002,566)

22,410

46,239,769

3,893,572

4,297,207

9,078,100

209,297

17,478,176

Net Non-interest Income

For the year ended 31 December 2015

Net Non-interest Income

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 8. SEGMENT REPORTING (continued) For the year ended 31 December 2015 Net impairment on loans and advances Total operating expenses

Corporate Banking

Retail Banking

Central Treasury

BK Subsidiaries

Total

Frw’000

(4,677,520)

(2,870,142)

(7,547,662)

(17,839,911)

(5,797,971)

(6,746,062)

(49,107)

(30,433,050)

Profit before taxation

20,909,081

7,316,079

(2,670,528)

182,600

25,737,232

Taxation

(3,740,233)

(1,021,633)

(441,583)

(49,725)

(5,253,174)

Profit after taxation

17,168,848

6,294,446

(3,112,111)

132,875

20,484,058

Corporate Banking

Retail Banking

Central Treasury

BK Subsidiaries

Total

Frw’000

Interest income

33,882,960

12,897,735

5,129,132

51,909,827

Interest expense

(2,553,495)

(560,495)

(9,540,610)

(12,654,600)

Net interest income

31,329,465

12,337,240

(4,411,478)

39,255,227

7,521,050

2,362,892

9,041,375

18,925,317

(4,659,674)

(2,883,284)

(7,542,958)

(18,197,307)

(6,926,904)

(2,754,670)

(27,878,881)

Profit before taxation

15,993,534

4,889,944

1,875,227

22,758,705

Taxation

(3,121,503)

(954,384)

(365,993)

(4,441,880)

Profit after taxation

12,872,031

3,935,560

1,509,234

18,316,825

Corporate Banking

Retail Banking

Central Treasury

BK Subsidiaries

Total

For the year ended 31 December 2014

Net Non-interest Income Net impairment on loans and advances Total operating expenses

For the year ended 31 December 2013

Frw’000

Interest income

28,849,909

12,734,910

3,625,933

45,210,752

Interest expense

(2,101,608)

(226,775)

(7,687,525)

(10,015,908)

Net interest income

26,748,301

12,508,135

(4,061,592)

35,194,844

6,513,988

2,875,401

9,169,008

18,558,397

(3,532,034)

(5,461,965)

(8,993,999)

(16,593,052)

(7,342,495)

(2,067,459)

(26,003,006)

Profit before taxation

13,137,203

2,579,076

3,039,957

18,756,236

Taxation

(2,749,841)

(543,613)

(632,547)

(3,926,001)

Profit after taxation

10,387,362

2,035,463

2,407,410

14,830,235

Net Non-interest Income Net impairment on loans and advances Total operating expenses

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 8. SEGMENT REPORTING (continued) Statement of financial position

Corporate Banking

Retail Banking

Central Treasury

BK subsidiaries

Total

Frw’000

428,090,343

67,621,306

495,711,649

19,731,699 42,583,327 51,852,516 94,248,923

1,202,505 -

19,731,699 42,583,327 53,055,021 94,248,923

4,780,500

221,470

5,001,970

715,994

64,615

780,609

240,803,014

113,728,500

143,059,338

497,590,852

Number of customers

24,229

257,990

261

282,480

Current Accounts

30,843

208,592

568

As at 31 December 2017

Gross loans & advances to customers Cash in hand Balances with central bank Due from banks Held to maturity investment Additions to property and equipment Additions to intangible assets Total Deposits

As at 31 December 2016

240,003

Corporate Banking

Retail Banking

Central Treasury

BK subsidiaries

Total

Frw’000 339,183,879

Frw’000 58,438,890

Frw’000 -

Frw’000 397,622,769

15,032,721

Balances with the Central Bank

31,832,058

Due from banks

84,634,868

Held to maturity investments

77,962,606

Additions to property and equipment Additions to intangible assets

4,844,962

575,115

235,718,826

92,225,975

119,177,646

447,122,447

Number of customers

25,477

236,545

262

262,284

Current Accounts

33,360

198,067

583

232,010

Corporate Banking

Retail Banking

Central Treasury

BK subsidiaries

Frw’000

Gross loans & advances to customers Cash in hand

Total Deposits

As at 31 December 2015 Gross loans & advances to customers

Total

263,111,708

61,658,826

324,770,534

Cash in hand

14,951,617

Balances with the Central Bank

44,572,594

Due from banks

62,568,118

Held to maturity investments

93,503,198

Additions to property and equipment

5,846,595

Additions to intangible assets

390,321

218,053,941

84,336,910

104,932,573

407,323,424

Number of customers

29,818

327,441

267

357,526

Current Accounts

38,711

312,863

662

352,236

Total Deposits

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 8. SEGMENT REPORTING (continued) As at 31 December 2014

Corporate Banking

Retail Banking

Central Treasury

BK subsidiaries

Total

Frw’000

187,721,156

58,976,460

246,697,616

Cash in hand

12,020,669

Balances with the Central Bank

46,938,373

Due from banks

102,988,217

Held to maturity investments

58,596,907

Additions to property and equipment

3,049,369

Additions to intangible assets

188,642

185,869,809

73,352,999

80,592,813

339,815,621

Number of customers

24,165

288,022

312,215

Current Accounts

32,551

266,239

177

298,967

Corporate Banking

Retail Banking

Central Treasury

BK subsidiaries

Gross loans & advances to customers

Total Deposits

As at 31 December 2013

Total

Frw’000

146,383,957

65,476,760

211,860,717

Cash in hand

11,110,210

Balances with the Central Bank

24,855,050

Due from banks

107,377,523

Held to maturity investments

50,820,690

Additions to property and equipment

3,874,221

Additions to intangible assets

237,478

168,354,345

68,185,263

61,294,879

297,834,487

Number of customers

20,485

239,510

260,014

Current Accounts

27,712

231,409

142

259,263

Gross loans & advances to customers

Total Deposits

9. INTEREST INCOME 2017

2016

2015

2014

2013

Frw’000

Interest on overdrawn accounts

5,539,899

8,436,244

9,333,946

10,016,733

9,882,349

Interest on treasury loans

7,684,732

6,463,926

6,692,148

5,333,693

4,235,125

40,235,590

30,861,166

22,572,947

12,325,148

3,838,218

Interest on consumer loans

7,303,342

5,737,104

5,819,126

7,680,079

6,465,347

Interest on mortgage loans

11,584,080

8,650,153

8,998,060

9,131,831

12,259,456

Other interest on loans to clients

226,225

3,217,760

1,557,059

2,448,266

4,904,323

Interest on deposits with banks

288,714

295,622

1,407,046

980,580

262,585

Interest received from reverse purchase

1,074,168

343,926

238,092

771,890

1,423,824

Interest on assets held to maturity

8,287,118

8,248,484

3,348,431

3,221,607

1,939,525

Credit related fees and commission income

2,483,284

2,087,351

1,786,354

2,180,215

1,604,924

84,707,152

74,341,736

61,753,209

54,090,042

46,815,676

Interest on equipment loans Interest

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 10. INTEREST EXPENSE 2017

2016

2015

2014

2013

Frw’000’

10,621,323

11,316,716

8,932,051

8,376,498

7,304,289

Interest on current accounts and saving accounts

1,960,674

1,430,193

1,117,966

981,936

1,089,855

Interest on long term credit lines

4,597,333

2,627,403

2,701,527

2,416,371

Interest on transactions with other banks

1,136,650

1,181,924

975,542

879,795

1,621,764

18,315,980

16,556,236

13,727,086

12,654,600

10,015,908

2017 Frw’000’ 2,224,430 7,636,280 1,097,040 1,781,148

2016 Frw’000’ 2,083,739 4,471,441 1,415,675 782,092

2015 Frw’000’ 2,262,179 3,270,229 936,950 495,065

2014 Frw’000’ 2,358,216 2,718,969 632,486 498,853

2013 Frw’000’ 2,639,702 3,198,971 563,108 595,613

1,695,631

1,802,174

1,386,676

989,272

1,078,380

187,909 2,207,420 16,829,858

166,804 2,021,799 12,743,724

328,913 1,649,971 10,329,983

321,348 1,387,494 8,906,638

309,383 1,206,525 9,591,682

(444,158) (371,463) (156,243)

(391,756) (197,776) (81,250)

(147,968) (84,092) -

(86,304) (101,395) -

(320,524) (74,829) -

(971,864) 15,857,994

(670,782) 12,072,942

(232,060) 10,097,923

(187,699) 8,718,939

(395,353) 9,196,329

2017 Frw’000’

2016 Frw’000’

2015 Frw’000’

2014 Frw’000’

2013 Frw’000’

7,786,502

6,583,450

5,301,247

7,724,325

7,476,135

2017 Frw’000’ 137,646 47,651 932,128 48860 1,166,285

2016 Frw’000’ 91,433 32,427 50,724 6858 181,442

2015 Frw’000’ 137,979 67,614 75,778 11,280 292,651

2014 Frw’000’ 154,064 54,254 84,496 9,024 301,838

2013 Frw’000’ 256,149 24,753 106 281,008

435,015 (109,109) (261,080) 64,826 1,231,111

73,541 (73,541) 181,442

292,651

301,838

281,008

Interest on customer term deposit

11. NET FEES AND COM MISSION INCOME Fees and commission income Commissions on operations of accounts Commissions on payment facilities Commissions on loan services Commissions received from financing commitments Commissions received from guarantees commitments Income from transactions with other banks Other fees from services Fees and commission expense Commissions on credit services Commissions on payment facilities Commissions on other financial instruments operations Net fees and commission

12. FOREIGN EXCHANGE RELATED INCOME

Forex income

13. OTHER OPERATING INCOME

Rental income Dividend received from investment Gain on asset disposal BK Securities brokerage commission

BK Telecom Income Gross sales Cost of sales Elimination of intercompany sales Other operating income

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 14. NET INSURANCE INCOME Net premium earned Brokers commission paid Investment income Elimination of intercompany sales

2,161,550 (20,784) 167,952 (203,956) 2,104,762

159,418 124,532 283,950

2017 Frw’000 16,489,292

2016 Frw’000 10,448,958

2015 Frw’000 7,547,662

2014 Frw’000 7,542,957

2013 Frw’000 8,993,999

2017 Frw’000 909,363

2016 Frw’000 -

2015 Frw’000 -

2014 Frw’000 -

2013 Frw’000 -

2017

2016

2015

2014

2013

19,083,777

12,603,861

13,625,611

13,139,596

10,768,740

696,485

464,010

459,638

401,361

267,395

1,092,079

886,193

747,129

612,140

501,736

255,359

121,114

197,613

274,640

169,367

21,127,700

14,075,178

15,029,991

14,427,737

11,707,238

3,884,073

3,513,410

3,503,134

3,469,943

4,303,044

617,137

441,761

303,986

193,591

336,593

4,501,210

3,955,171

3,807,120

3,663,534

4,639,637

415,368

309,182

334,521

357,209

400,945

15. NET IMPAIRMENT LOSSES ON FINANCIAL ASSETS

Net impairment on financial assets

16. INSURANCE CLAIMS

Insurance claims

17. OPERATING EXPENSES (i) Employee benefits Salaries and wages Medical expenses Pension scheme contributions Other benefits (ii) Depreciation and amortisation Depreciation of property and equipment (Note 25) Amortisation of intangible assets (Note 26) (iii) Administration and general expenses Directors’ remuneration Audit fees

43,351

132,258

43,252

38,263

50,485

1,575,620

1,464,546

1,262,234

1,126,239

989,909

Utilities

628,335

551,030

486,903

424,148

413,575

Postage, photocopying and printing

799,715

938,067

950,497

1,019,184

976,003

Travel and accommodation expenses

524,016

423,949

457,668

387,965

365,550

1,750,162

1,352,194

1,338,576

1,318,946

1,075,778

Insurance

212,620

160,235

138,064

104,423

94,716

Marketing and publicity

715,545

568,599

523,442

583,618

468,987

Statutory fees

598,476

343,968

302,540

Legal and consultancy fees

761,064

742,677

433,516

405,289

362,978

Unclaimed VAT on expenditure

1,245,824

903,068

827,200

727,212

721,802

Telephone and internet costs

1,292,596

722,020

608,603

774,395

737,361

269,993

223,710

127,067

2,697,781

1,949,610

1,743,850

1,256,392

1,179,237

Rent, repairs and maintenance

Security and cash in transit costs

Charitable donation Credit and visa card costs Other general expenses

1,284,593

1,026,938

201,219

1,264,328

1,818,804

14,815,059

11,812,051

9,779,152

9,787,611

9,656,130

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 18 (a) INCOME TAX EXPENSE

The components of income tax expense for the year ended 31 December 2017 and 2016 are: Income tax expense

2017

2016

2015

2014

2013

FRW’000

Current tax

14,906,006

8,421,651

4,756,100

4,528,989

4,370,349

Deferred tax debit/(credit)

(4,443,752)

803,598

353,280

(87,109)

(444,348)

360,900

143,794

10,823,154

9,225,249

5,253,174

4,441,880

3,926,001

Prior year adjustment Under provision in the prior year Net tax charge

The income tax charge on the Bank’s profit differs from the theoretical amount that would arise using the basic tax rates as follows: Income tax expense

2017 Effective rate

2016

Effective FRW’000 rate

2015

Effective FRW’000 rate

Current tax

14,906,006

8,421,651

4,756,100

Deferred tax charge/ (credit)

(4,443,752)

803,598

353,280

Prior year adjustment

143,794 31.70%

Accounting profit before tax Tax calculated at tax rate of 30%. in 2015and 2014 tax rate is 20%

2013

Effective FRW’000 rate

FRW’000

4,528,989

4,370,349

(87,109)

(444,348)

360,900

Under provision in the prior year Net tax charge

2014

Effective FRW’000 rate

10,823,154

30.80%

34,172,036

9,225,249

20.40%

29,981,115

5,253,174

19.50%

25,737,232

4,441,880

20.90%

22,758,705

3,926,001

18,756,236

30.0%

10,251,611

30.0%

8,994,335

20.10%

5,165,706

20.00%

4,551,741

20.00%

3,751,247

Items of income not subject to tax

-0.4%

(121,412)

-7.4%

(2,214,221)

-3.30%

(855,597)

-3.20%

(730,798)

Tax effects on non-taxable items

13.9%

4,775,807

5.5%

1,641,537

3.10%

806,891

4.60%

1,048,344

5.10%

948,053

-1.40%

(360,900)

-1.50%

(340,298)

-1.845

(328,951)

18.50%

4,756,100

19.90%

4,528,989

23.30%

4,370,349

Tax discount - staff & other adjustments 43.60%

14,906,006

28.10%

8,421,651

19 EARNINGS PER SHARE

Basic earnings per share is calculated on the profit attributable to ordinary shareholders of 2017: Frw23.3 billion, 2016: Frw20.8 billion, 2015: Frw20.5 billion, 2014: Frw18.3 billion, 2013: Frw 14.8 billion. The weighted average number of ordinary shares outstanding is shown in the table below. The Bank had dilutive shares equal to 7,200,000 offer shares under the Employee S-iare Ownership Ran (“ESOP’) that was subscribed for by the directors and eligible employees from September 2012 and expired on 31 August 2017. The warrant entitled the holder one newly issued share of the bank for the cash consideration equal to offer price (Frw125) and payable in full at the time of purchase. At the period end date 7,200,000 shares had been fully exercised under this ESOP scheme The calculations of diluted earnings per share was based on profit attributable to ordinary shareholders, and a weighted average number of ordinary share outstanding during the period ended 31 December 2017:673,425,250, 31 December 2016:674,699,369, 31 December 2015: 674,355,227, 31 December 2014: 672,902,326, 31 December 2013: 670,212,509.

Profit for the year attributable to equity shareholders - Frw’000 Weighted average number of shares Effect of dilution: Share option (Employee share ownership plan) Weighted average number of ordinary shares adjusted for the effect of dilution

100

2017

2016

2015

2014

2013

23,348,880

20,755,866

20,484,058

18,316,825

14,830,235

673,425,250

672,313,500

671,777,400

669,910,300

667,893,500

673,425,250

2,385,869 674,699,369

2,577,827 674,355,227

2,992,026 672,902,326

2,319,009 670,212,509

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 19 EARNINGS PER SHARE (continued)

Profit for the year attributable to equity shareholders - Frw’000 Earnings per share: Basic earnings per share— Frw Diluted earnings per share — Frw Dividend per share — proposed Frw

2017

2016

2015

2014

2013

23,348,880

20,755,866

20,484,058

18,316,825

14,830,235

34.67 0 13.87

30.87 30.76 12.31

30.49 30.38 12.15

27.34 27.22 16.33

22.2 22.13 11.06

20 ANALYSIS OF CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the statement of cash flow comprise the following statement of financial position accounts: (a)

Cash in hand Cash in foreign currency Cash in local currency

(b)

2017

2016

2015

2014

2013

Frw’000

10,619,960

7,362,860

5,954,591

5,191,160

5,088,980

9,111,739

7,669,861

8,997,026

6829509

6,021,230

19,731,699

15,032,721

14,951,617

12,020,669

11,110,210

24,879,543

22,356,122

20,366,171

16,990,781

14,664,989

Balances with National Bank of Rwanda Restricted balances (Cash reserve Ratio) Unrestricted balances

17,703,784

9,475,936

24,206,423

29 947,592

10,190,061

42,583,327

31,832,058

44,572,594

46,938,373

24,855,050

The Cash Reserve Ratio is non-interest earning and is based on the value of deposits as adjusted per the National Bank of Rwanda requirements. The Cash Reserve Ratio requirement was 5% of all deposits. Mandatory cash reserve ratio is not available for use in the Bank’s day-to-day operations. The unrestricted balances include Cash balances on nostro accounts in BNR, as well as reverse purchase agreements- REPO balances..

21. DUE FROM BANKS

Placements with local banks Placements with foreign banks Current accounts with foreign banks

2017 Frw’000 6,226,505 45,873,406 955,110 53,055,021

2016 Frw’000 3,755,994 79,284,730 1,594,144 84,634,868

2015 Frw’000 5,005,157 39,201,121 18,361,840 62,568,118

2014 Frw’000 3,527 63,221,501 39,763,189 102,988,217

2013 Frw’000 2,520,684 17,182,044 87,674,795 107,377,523

The credit ratings of the financial institutions where the bank’s placements are held are shown below. Where individual bank ratings were not available, the parent bank’s rating or country ratings have been adopted, in order of preference. Credit Ratings A A+ AAA B B+

2017 Frw’000 242,819 51,130,030 0 106,712 1,575,460 53,055,021

2016 Frw’000 229,455 78,770,897 0 99,278 5,535,238 84,634,868

2015 Frw’000 206,140 18,906,134 2 6,370,539 37,085,303 62,568,118

2014 Frw’000 195,333 77,698,783 3,090,880 22,003,221 102,988,217

2013 Frw’000 80,111,147 45,648 2,771,823 24,448,905 107,377,523

The weighted average effective interest rate on placements and balances with other banks was 2017:0.5%, 2016:0.4%, 2015:1.7%, 2014:0.4%, 2013:0.5%

22. INVESTMENTS a) Held to Maturity Investments Treasury bills T-Bonds Other financial Instruments Total

2017 Frw’000 67,415,533 7,226,785 19,606,605 94,248,923

Maturing between 3-12 months Maturing between 1-5 years

70,625,176 23,623,747

2016 Frw’000 74,355,403 3,607,203 77,962,606

2015 Frw’000 60,935,402 2,636,110 29,931,686 93,503,198

2014 Frw’000 58,596,907 58,596,907

2013 Frw’000 50,820,690 50,820,690

75,569,988 2,392,618

93,503,198 0

58,596,907 -

42,129,350 8,691,340

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

101

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 22. INVESTMENTS (continued)

a) Held to Maturity Investments

1 January Additions Maturities 31 December

2017 Frw’000 94,248,923

2016 Frw’000 77,962,606

2015 Frw’000 93,503,198

2014 Frw’000 58,596,907

2013 Frw’000 50,820,690

2017 Frw’000 77,962,606 333,502,798 (317,216,481)

2016 Frw’000 63,571,512 385,606,513 (371,215,419)

2015 Frw’000 58,596,907 307,227,740 (272,321,449)

2014 Frw’000 50,820,690 287,832,102 (280,055,885)

2013 Frw’000 13,119,324 256,932,372 (219,231,006)

94,248,923

77,962,606

93,503,198

58,596,907

50,820,690

Treasury bills are debt securities issued by the Government of the Republic of Rwanda. The bills are categorised as amounts held to maturity and are carried at amortised cost. Other financial Instruments include short-term securities to clients renewable monthly. The change in the carrying amount of government and other securities held for trading is as shown below: The weighted average effective interest rate on government securities held to maturity at 2017 was 9.6%, 2016 was 9.6%, 2015 was 4.4%, 2014 was 5.9%, 2013 was 6.1%. b) Equity Investments Development Bank of Rwanda (BM)

2017

2016

2015

2014

2013

Frw’000

96,975

MAGERWA

5,000

Investments in SWIFT

2,970

R-Switch(SIMTEL)

116,480

221,425

218,455

The equity investment in unquoted entities is recorded at cost less impairment since there is no active market for these investments. In the absence of the most reliable basis of determining fair value, cost less impairment is deemed the most reasonable basis of measurement. The entity will continue to hold onto the equity investment and will dispose when appropriate opportunity arises to dispose at a gain. Accounting classification and fair values

Development Bank of Rwanda (BM)

2017

2016

2015

2014

2013

Frw’000

96,975

MAGERWA

5,000

Investments in SWIFT

2,970

R-Switch (SIMTEL)

116,480

221,425

218,455

23. LOANS AND ADVANCE (a) Net loans and advances Corporate Small and Medium Enterprises Non-Profit Entities Total Corporate Loans Gross Retail Banking Discount on staff Loans

102

2017

2016

2015

2014

2013

Frw’000

367,759,825

262,914,896

184,329,796

134,412,278

88,184,482

54,702,928

71,091,493

69,667,433

46,960,333

53,770,343

5,627,590

5,177,490

9,114,479

6,348,545

4,429,132

428,090,343

339,183,879

263,111,708

187,721,156

146,383,957

67,882,474

58,879,183

62,194,521

59,715,792

65,476,760

(261,169)

(440,293)

(535,695)

(739,332)

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 23. LOANS AND ADVANCE (continued) (a) Net loans and advances

2017

2016

2015

2014

2013

Frw’000

67,621,305

58,438,890

61,658,826

58,976,460

65,476,760

Total Gross loans

495,711,648

397,622,769

324,770,534

246,697,616

211,860,717

Allowance for Impairment - Specific assessment

(20,702,211)

(9,078,820)

(8,145,955)

(11,569,935)

(9,967,748)

(3,305,122)

(2,719,379)

(2,699,044)

(1,688,172)

(2,867,728)

471,704,315

385,824,570

313,925,535

233,439,509

199,025,241

2017

2016

2015

2014

2013

Total Retail Loan Book

Allowance for Impairment - Collective assessment Net carrying amount (b) LCs and Bank Guarantees

Frw’000

Corporate

80,219,188

65,080,690

57,869,054

31,170,306

38,190,578

Small and Medium Enterprises

10,906,518

11,287,946

4,438,330

2,025,314

2,227,748

Non-profit Entities

43,548

150,812

89,388

100,337

142,519

Retail Banking

66,146

32,604

38,953

166,717

163,546

91,235,400

76,552,052

62,435,725

33,462,674

40,724,391

2017

2016

2015

2014

2013

Frw’000

9,078,820

8,145,955

11,569,935

9,967,748

5,479,956

Revisions made during the year

19,123,225

14,105,956

8,737,347

10,499,493

11,152,467

Loans written off during the year

(7,499,834)

(13,173,091)

(12,161,327)

(8,897,306)

(6,664,675)

As at 31 December

20,702,211

9,078,820

8,145,955

11,569,935

9,967,748

2014

2013

(d) Collective provisions for impairment At 1 January Provisions made during the year As at 31 December e) Maturity analysis of gross loans and advances to customers

2017

2016

2015

Frw’000

2,719,379

2,699,044

1,688,172

2,867,728

1,375,819

585,743

20,335

1,010,872

(1,179,556)

1,491,909

3,305,122

2,719,379

2,699,044

1,688,172

2,867,728

2017

2016

2015

2014

2013

Frw’000

Maturing within 1 month

40,074,254

21,357,285

46,651,405

31,880,289

45,418,047

Maturing after 1 month, but before 3 months

36,876,925

24,768,826

12,511,596

19,819,438

9,026,682

Maturing after 3 months, but within 1 year

76,532,542

31,177,235

22,112,391

20,530,590

33,655,483

Maturing after 1 year, but within 5 years

83,025,415

97,386,419

79,699,318

78,829,439

89,562,102

Maturing after 5 years

259,202,512

222,933,004

163,795,824

95,637,860

34,198,403

495,711,648

397,622,769

324,770,534

246,697,616

211,860,717

2017

2016

2015

2014

2013

Frw’000

Private sector and individuals

495,607,615

397,513,403

324,631,642

246,643,295

210,704,898

Government and parastatals

104,033

109,366

138,892

54,321

1,155,819

495,711,648

397,622,769

324,770,534

246,697,616

211,860,717

(f) Sectoral analysis of gross Loans and advances to customers

The weighted average effective interest rate on gross loans and advances for 2017 was 16.2%, 2016 was 17.5%, 2015 was 19.2%, 2014 was 20.5%, 2013 was 20.5%.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

103

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 23. LOANS AND ADVANCE (continued) As at 31 December, the ageing analysis of past due but not impaired loans and advances is as follows: 2017

2016

2015

2014

2013

Frw’000

2,560,534

673,192

2,867,510

18,568,312

54,194,023

19,914,521

16,201,950

22,678,184

16,962,457

8,512,825

22,475,055

16,875,142

25,545,694

35,530,769

62,706,848

2017

2016

2015

2014

2013

Frw’000

852,933

29,727

Interest receivable

120,557

Other receivables

144,427

1,147,644

2017

2016

2015

2014

2013

Frw’000

Prepayments and other receivables

1,350,297

2,824,103

2,040,993

2,311,757

1,208,932

BK subsidiaries other assets

2,690,131

297,445

Clearing accounts

6,263,937

5,756,218

6,214,507

5,353,628

6,486,073

10,304,365

8,877,766

8,255,500

7,665,385

7,695,005

Less than 60 days Between 61— 90 days

24. INSURANCE RECEIVABLES

Loans and receivables Reinsurance share in claims

25. OTHER ASSETS

Clearing accounts are temporary and transitory accounts pending compensation house clearing; including cheques in transit to other banks. Other receivables are current and non-interest bearing and are generally between 30 to 90 days’ terms.

26. PROPERTY AND EQUIPMENT Land and Building 2017

Computer and Motor vehicles IT equipment

Furniture and fittings

Work in progress

Total

Frw’000

28,581,585

6,585,355

1,054,808

12,982,551

1,743,480

50,947,779

COST/VALUATION At 1 January 2017 Additions

333,237

1,100,522

460,984

2,310,069

797,158

5,001,970

Disposal

(1,112,670)

At 31 December 2017

27,802,152

7,685,877

1,515,792

15,292,620

2,540,638

54,837,079

DEPRECIATION At 1 January 2017

336,401

5,934,718

605,302

10,635,657

17,512,078

1,698,297

735,712

239,952

1,210,113

3,884,073

(88,698)

At 31 December 2017

1,946,000

6,670,430

845,254

11,845,770

21,307,453

CARRYING AMOUNT

25,856,152

1,015,447

670,538

3,446,851

2,540,638

33,529,627

Computer and Motor vehicles IT equipment

Furniture and fittings

Work in progress

Total

Charge for the year Disposal

Land and Building

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 26. PROPERTY AND EQUIPMENT (continued) 2016

Frw’000

COST/VALUATION At 1 January 2016

24,630,286

6,105,189

937,875

11,498,834

1,539,300

44,711,484

Additions

2,404,309

480,166

253,041

1,503,266

204,180

4,844,962

Revaluation

9,257,265

(136,108)

(19,549)

(155,657)

28,581,585

6,585,355

1,054,808

12,982,551

1,743,480

50,947,779

At 1 January 2016

6,911,682

5,065,860

599,838

9,287,220

21,864,600

Charge for the year

1,134,994

868,858

141,572

1,367,986

3,513,410

(7,710,275)

(136,108)

(19,549)

(155,657)

336,401

5,934,718

605,302

10,635,657

17,512,078

28,245,184

650,637

449,506

2,346,894

1,743,480

33,435,701

Elimination of depreciation on revaluation

(7,710,275)

Disposal At 31 December 2016

(7,710,275)

DEPRECIATION

Elimination of depreciation on revaluation Disposal At 31 December 2016 CARRYING AMOUNT

Land and Building

Computer and IT equipment

Motor vehicles

Furniture and fittings

Work in progress

Total

Frw’000

22,712,900

5,043,410

810,406

10,648,248

39,214,964

1,917,386

1,201,280

323,683

864,946

1,539,300

5,846,595

(139,501)

(196,214)

(14,360)

(350,075)

24,630,286

6,105,189

937,875

11,498,834

1,539,300

44,711,484

At 1 January 2015

5,804,912

4,489,976

685,586

7,731,067

18,711,541

Charge for the year

1,106,770

715,385

110,466

1,570,513

3,503,134

(139,501)

(196,214)

(14,360)

(350,075)

At 31 December 2016

6,911,682

5,065,860

599,838

9,287,220

21,864,600

CARRYING AMOUNT

17,718,604

1,039,329

338,037

2,211,614

1,539,297

22,846,884

Land and Building

Computer and IT equipment

Motor vehicles

Furniture and fittings

Work in progress

Total

Frw’000

21,744,982

4,603,143

707,517

9,204,953

36,260,595

1,062,918

440,267

102,889

1,443,295

3,049,369

(95,000)

22,712,900

5,043,410

810,406

10,648,248

39,214,964

At 1 January 2014

4,712,467

3,980,947

598,164

5,950,123

15,241,701

Charge for the year

1,092,548

509,029

87,422

1,780,944

3,469,943

(103)

At 31 December 2014

5,804,912

4,489,976

685,586

7,731,067

18,711,541

CARRYING AMOUNT

16,907,988

553,454

124,820

2,917,181

20,503,423

2015 COST/VALUATION At 1 January 2015 Additions Disposal At 31 December 2015 DEPRECIATION

Disposal

2014 COST/VALUATION At 1 January 2014 Additions Disposal At 31 December 2014 DEPRECIATION

Disposal

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 26. PROPERTY AND EQUIPMENT (continued) Computer and IT equipment Frw’000

Motor vehicles

2013 COST/VALUATION At 1 January 2013 Additions Reclassification Disposal At 31 December 2013

Land and Building Frw’000

Frw’000

Furniture and fittings Frw’000

Work in progress Frw’000

20,409,607 1,540,375 (205,000) 21,744,982

DEPRECIATION At 1 January 2013 Charge for the year Reclassification Disposal At 31 December 2013 CARRYING AMOUNT

Total

3,742,859 860,284 4,603,143

615,712 91,805 707,517

7,604,759 1,381,757 218,437 9,204,953

218,437 (218,437) -

32,591,374 3,874,221 (205,000) 36,260,595

3,644,221 1,073,944 19,055 (24,753) 4,712,467

2,883,784 1,097,163 3,980,947

419,899 178,265 598,164

4,015,506 1,953,672 (19,055) 5,950,123

10,963,410 4,303,044 (24,753) 15,241,701

17,032,515

622,196

109,353

3,254,830

21,018,894

Frw’000

Buildings were revalued by management in 2010 based on the estimated market value. The revaluation was carried out by an independent value, Architectural & Urban Solutions (ARCHUS).

27. INTANGIBLE ASSETS COST At 1 January Additions Work in progress At 31 December

2017 Frw’000 2,447,534 780,609 3,228,143

2016 Frw’000 1,872,419 575,115 2,447,534

2015 Frw’000 1,420,960 390,321 61,138 1,872,419

2014 Frw’000 1,232,318 188,642 1,420,960

2013 Frw’000 994,840 237,478 1,232,318

AMORTISATION At 1 January Amortisation At 31 December

1,932,651 617,137 2,549,788

1,490,890 441,761 1,932,651

1,186,904 303,986 1,490,890

993,313 193,591 1,186,904

656,720 336,593 993,313

678,355

514,883

381,529

234,056

239,005

Net book value

28. DUE TO BANKS 2017

2016

2015

2014

2013

Frw’000

Deposits and balances from other Banks/ current accounts

23,599,194

6,911,747

11,916,823

6,313,823

5,708,024

Term Treasury borrowings

18,778,266

21,193,437

10,692,901

8,900,638

11,637,000

42,377,460

28,105,184

22,609,724

15,214,461

17,345,024

Payable within 1 month

23,432,102

12,779,421

16,792,426

10,472,516

5,532,246

Payable after 1 month

18,945,358

15,325,763

5,817,298

4,741,945

11,812,778

Total

42,377,460

28,105,184

22,609,724

15,214,461

17,345,024

Maturing as follows:

The weighted average effective interest rate on deposits and balances from other banks as at 31 December 2017 was 4.5%(2016: 7.5%). The weighted average effective interest rate on deposits and balances from other banks as at 31 December 2015 was 8.9% (2014: 9.1%) The weighted average effective interest rate on deposits and balances from other banks as at 31 December 2014 was 9.1% (2013: 10.6%)

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 29. DEPOSITS AND BALANCES FROM CUSTOMERS 2017

2016

2015

2014

2013

Frw’000

Current accounts

321,141,412

271,439,791

256,728,781

227,750,108

204,953,080

Fixed deposit accounts

107,729,421

130,493,844

114,227,384

84,246,898

64,779,760

14,874,833

10,083,474

6,946,571

4,086,890

2,249,528

7,658,128

1,823,429

2,183,646

3,992,523

3,972,395

Savings accounts Collateral and other deposits Interest Payable

3,809,599

5,176,725

4,627,318

4,524,741

4,534,700

455,213,393

419,017,263

384,713,700

324,601,160

280,489,463

The weighted average effective interest rate on interest bearing customer deposits as at 31 December 2017 was 8.7% (2016: 9.5%). The weighted average effective interest rate on interest bearing customer deposits as at 31 December 2015 was 8.6% (2014: 10.6%) The weighted average effective interest rate on interest bearing customer deposits as at 31 December 2014 was 1.6% (2013: 3.5%)

30. DEFERRED INCOME TAX

The following table shows deferred tax recognized in the statement of financial position and changes recorded in the income tax expense:

Revaluation of assets-property Capital Allowance Other temporary differences

2017

2016

2015

2014

2013

Frw’000

5,571,446

5,841,693

2,043,007

2,043,009

2,043,010

851,045

632,002

854,939

761,781

779,878

(4,070,689)

321,858

(704,677)

(964,799)

(895,787)

2,351,802

6,795,553

2,193,269

1,839,991

1,927,101

Other temporary differences arise from leave accruals and bonus provisions and IFRS provision on loans and advances.

31. DIVIDEND PAYABLE

At 1 January

2017

2016

2015

2014

2013

Frw’000

8,343,104

34,230

5,469

7,416,579

5,894,345

8,193,623

10,990,095

(8,304,345)

(8,187,096)

(10,961,334)

(7,411,110)

(5,892,885)

Approved dividend Dividends paid during the year Dividend accrued

9,339,552

8,302,347

7,415,119

At 31 December

9,378,311

8,343,104

34,230

5,469

7,416,579

2017

2016

2015

2014

2013

32. INSURANCE LIABILITIES Frw’000

Frw’000

1,162,911

Claims incurred but not reported

455,291

Reinsurance liabilities

284,164

Trade and other payables

220,672

2,123,038

2017

2016

2015

2014

2013

Frw’000

Unearned premiums Reported claims

33. OTHER LIABILITIES

Clearing accounts

1,592,415

915,069

3,483,396

4,622,257

3,001,043

Other payables

1,752,374

1,996,163

1,475,826

315,219

157,483

Deferred revenue

6,380,328

1,771,733

Accrued General expenses

5,542,574

1,604,031

4,697,675

5,922,802

5,547,055

15,267,691

6,286,996

9,656,897

10,860,278

8,705,581

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 34. LONG TERM FINANCE

EIB Loan (8.01%- 11.4%) AFD Loan (Libor +3.74% pa) AFDB Loan (Libor +4.15% EADB (Libor +6.65 pa) PTA Loan (8% pa) OFID Loan (Libor +4.0% pa) Shelter Afrique (6.44% pa) SBM -USD 10M (+4.5% Libor) BRO-KFW EGF(8%pa) Total

2017 Frw’000 24,078,272 7,508,156 5,244,710 2,146,776 1,898,299 17,714,041 11,599,921 652,000 70,842,175

2016 Frw’000 8,771,347 9,122,070 6,168,565 4,057,255 3,587,455 5,958,612 7,366,764 12,105,000 57,137,068

2015 Frw’000 1,351,559 10,016,316 6,650,125 5,466,615 4,833,334 6,679,006 7,478,688 42,475,643

2014 Frw’000 1,781,766 11,192,523 7,345,910 6,897,368 6,098,338 6,939,049 40,254,954

2013 Frw’000 2,522,813 12,566,550 4,021,296 1,675,540 6,702,160 6,702,160 34,190,519

The weighted average effective interest rate on long term finance for 2017 was 7.2%, 2016 was 5.2%, 2015 was 6.5%, 2014 was 6.5%, 2013 was 4.6%. The Group has a 7-year arrangement with European Investment Bank (EIB) for a credit of EUR 5 million and a 5 year arrangement for a credit of EUR 28 million to be on-lent to final beneficiaries for the financing up to 50%of the total cost of eligible projects in local currency. The credit line was fully drawn down as at 31 December 2017. In 2011, the Bank signed two ten-year credit lines with Agence Francaise de Development (AFD) and the African Development Bank (AFDB) for USD 20 million and 12 million respectively. As 31 December 2017, both the AFD& AFDB credit lines were fully drawn down. In 2013, the Group signed three 5-year term credit lines of US) 10M each with the East African Development Bank (EADB), Eastern and Southern African Trade and Development bank (PTA) and OPEC Rand for International Development (OFID) respectively. As at year-end 2017, the Group had fully drawn down on the EADB, PTA and OFID credit lines. In 2015, the Group signed a 5-year credit line with Shelter Afrique for USD 10 million. As at 31 December 2017, the credit line was fully repaid. In 2016, the Group signed a 3-year credit line with SBM Bank for USD 15 million. As at 31 December 2017, the credit line was fully drawn down. In 2017, the Group signed a 3-year credit line with OFID/OPEC for USD 15 million and a 9-year credit line with BRD for Frw 653 million. As at 31 December 2017 both credit lines were fully drawn down.

35. CAPITAL & RESERVES (i) Share Capital Authorised share capital of Frw 10 each Issued and fully paid up At 1 January New issued At 31 December

2017 Frw’000 7,024,600

2016 Frw’000 7,024,600

2015 Frw’000 7,024,600

2014 Frw’000 7,024,600

2013 Frw’000 7,024,600

6,724,428 20,942 6,745,370

6,721,842 2,586 6,724,428

6,713,706 8,136 6,721,842

6,684,500 29,206 6,713,705

6,673,370 11,130 6,684,500

2014 Frw’000 18,236,171 335,869 18,572,040

2013 Frw’000 18,108,176 127,995 18,236,171

These reserves arose when the shares of the Group were issued at a price higher than the nominal (par) value. These will be applied towards capital in future. (ii) Share Premium At 1 January New issued at premium @ Frw 115 each At 31 December (iii) Revaluation Reserve Buildings

2017 Frw’000 18,695,343 240,833 18,936,176

2016 Frw’000 18,665,604 29,739 18,695,343

2015 Frw’000 18,572,040 93,564 18,665,604

2017

2016

2015

2014

2013

Frw’000

13,630,625

8,172,043

7,354,844

Elimination of transferred excess depreciation

817,199

Revaluation of building net of tax

5,458,582

Elimination on disposal

(630,476)

13,000,149

13,630,625

8,172,043

Revaluation reserves arose from the periodic revaluation of freehold land and buildings. The carrying amount of these assets is adjusted to the revaluations. Revaluation surpluses are not distributable.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 35. CAPITAL & RESERVES (Continued) (iv) Retained Earnings Opening balance Appropriation of prior year profit Profit for the current year Reclassification from other reserves Accrued dividend 2017 Other adjustment Approved dividend 2016 Transfer of revaluation on disposal Transfer of excess depredation Excess loan loss provision

2017 Frw’000 69,435,204 23,348,880 (9,339,552) (6,571) 630,476 84,068,437

2016 Frw’000 53,257,197 11,918,110 20,755,866 (8,302,346) (8,193,623) 69,435,204

2015 Frw’000 30,234,941 (1,465,346) 20,484,058 26,911,749 (10,990,095) 65,175,307

2014 Frw’000 44,779,638 (7,415,119) 18,316,825 55,681,344

2013 Frw’000 36,842,471 (5,890,668) 14,830,235 (7,415,118) (1,021,501) 19,100 37,364,519

36. CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES The following table provides a reconciliation of the line items in the statement of financial position and categories of financial instruments: December 2017

Loans and receivables

Other amortiztion cost

Held to maturity

Available for sale

Total carrying amount

Frw’000

Cash and balances with central bank

62,315,026

Balances due from other Banks

53,055,021

94,248,923

471,704,315

221,425

10,521,561

ASSETS

Government securities Loans and advances to customers Equity Investments Other assets (un-cleared effects) Total Financial Assets

597,595,923

94,248,923

221,425

692,066,271

LIABILITIES

Balances due to other Banks

42,377,460

Customer deposits

455,213,393

Other liabilities

17,390,729

Insurance liabilities

2,123,038

2,1223,038

Long Term Borrowing

70,842,175

Total Financial Liabilities

585,823,757

Loans and receivables

Other amortization cost

Frw’000

Cash and balances with central bank

46,864,779

Balances due from other Banks

84,634,868

77,962,606

385,824,570

December 2016 ASSETS

Government securities Loans and advances to customers Equity Investments (Note 22(b)) Other assets (un-cleared effects) Total Financial Assets

Held to Available for sale maturity

8,877,766

526,201,983

77,962,606

221,425

Total carrying amount

221,425

221,425 8,877,766 604,386,014

LIABILITIES Balances due to other Banks

28,105,184

Customer deposits

419,017,263

Other liabilities

6,286,996

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 36. CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES ( Continued) December 2016

Loans and receivables

Other amortization cost

Held to Available for sale maturity

Total carrying amount

Frw’000

Long Term Borrowing

57,137,068

Total Financial Liabilities

510,546,511

Other Held to Maturity Available for sale amortization cost

Total carrying amount

DECEMBER 2015

Loans and receivables Frw’000

Frw’000

ASSETS Cash and balances with central bank

59,524,211

Balances due from other Banks

62,568,118

Government securities

93,503,198

Loans and advances to customers

313,925,535

Equity Investments

221,425

Other assets (un-cleared effects)

313,925,535

8,255,500

TOTAL FINANCIAL ASSETS

313,925,535

130,347,829

93,503,198

221,425

221,425 8,255,500 537,997,987

LIABILITIES Balances due to other Banks

22,609,724

Customer deposits

384,713,700

Other liabilities

9,656,897

Long Term Borrowing

42,475,643

TOTAL FINANCIAL LIABILITIES

459,455,964

Other Held to Maturity Available for sale amortization cost

Total carrying amount

DECEMBER 2014

Loans and receivables Frw’000

Frw’000

Cash and balances with central bank

58,959,042

Balances due from other Banks

102,988,217

Government securities

58,596,907

233,439,509

58,596,907

233,439,509

ASSETS

Loans and advances to customers Equity Investments

221,425

Other assets (un-cleared effects)

7,665,385

233,439,509

169,612,644

58,596,907

221,425

461,870,485

Balances due to other Banks

15,214,461

Customer deposits

324,601,160

Other liabilities

10,860,278

Long Term Borrowing

40,254,953

TOTAL FINANCIAL LIABILITIES

390,930,852

TOTAL FINANCIAL ASSETS LIABILITIES

DECEMBER 2013

ASSETS Cash and balances with central bank Balances due from other Banks

110

Loans and Other receivables amortization cost Frw’000 Frw’000 35,965,260 107,377,523

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

Held to Maturity

Available for sale

Frw’000 -

Total carrying amount Frw’000 35,965,260 107,377,523

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 36. CLASSIFICATION OF FINANCIAL ASSETS AND FINANCIAL LIABILITIES ( Continued) Government securities Loans and advances to customers Equity Investments Other assets (uncleared effects) TOTAL FINANCIAL ASSETS

199,025,241 -

7,695,002

50,820,690 -

218,455 -

50,820,690 199,025,241 218,455 7,695,002

199,025,241

151,037,785

50,820,690

218,455

401,102,171

17,345,024 280,489,463 8,705,581 34,190,519

340,730,587

LIABILITIES Balances due to other Banks Customer deposits Other liabilities Long Term Borrowing TOTAL FINANCIAL LIABILITIES

37. MATURITY ANALYSIS OF ASSETS AND LIABILITIES The table below shows an analysis of assets and liabilities analysed according to when they are expected to be recovered or settled: At 31 December 2017 ASSETS Cash in hand Balances with the National Bank of Rwanda Balances held with other financial institutions Held to maturity investments Loans and advances to customers Other assets Insurance receivables Equity investments Intangible assets Property and equipment Total Assets LIABILITIES Balances from other financial institutions Customer deposits Tax Liability Deferred tax liability Dividends payables Other liabilities Insurance liabilities Long-term financing Shareholder funds Total Liabilities and Equity At 31 December 2016 ASSETS Cash in hand Balances with the National Bank of Rwanda Balances held with other financial institutions Held to maturity investments Loans and advances to customers Other assets Equity investments Intangible assets Property and equipment Total Assets

Less than 12 months Frw’000 19,731,699 42,583,327 53,055,021 69,125,176 153,483,721 10,278,468 1,147,644 - - 349,405,056

Over 12 months Frw’000 - - - 25,123,747 318,220,594 25,897 221,425 678,355 33,529,626 377,799,644

Total Frw’000 19,731,699 42,583,327 53,055,021 94,248,923 471,704,315 10,304,365 1,147,644 221,425 678,355 33,529,626 727,204,700

Frw’000 42,377,460 454,405,348 6,900,698 219,043 9,378,311 15,267,691 2,123,038 20,416,853 551,088,442

Frw’000 808,045 - 2,132,759 - - 50,425,322 122,750,132 176,116,258

Frw’000 42,377,460 455,213,393 6,900,698 2,351,802 9,378,311 15,267,691 2,123,038 70,842,175 122,750,132 727,204,700

Less than 12 months

Over 12 months

Total

Frw’000 15,032,721 31,832,058 83,749,213 75,069,988 77,303,345 8,851,886 291,839,211

Frw’000 885,655 2,892,618 308,521,225 25,880 221,425 514,883 33,435,701 346,497,387

Frw’000 15,032,721 31,832,058 84,634,868 77,962,606 385,824,570 8,877,766 221,425 514,883 33,435,701 638,336,598

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 37. MATURITY ANALYSIS OF ASSETS AND LIABILITIES (continued) At 31 December 2016

Less than 12 months

Over 12 months

Total

Frw’000

Frw’000 20,035,184 417,579,223 4,165,830 357,528 8,343,104 6,286,996 3,350,838 460,118,703

Frw’000 8,070,000 1,438,040 6,438,025 53,786,230 108,485,600 178,217,895

Frw’000 28,105,184 419,017,263 4,165,830 6,795,553 8,343,104 6,286,996 57,137,068 108,485,600 638,336,598

Less than 12 months Frw’000

Over 12 months Frw’000

ASSETS LIABILITIES Balances from other financial institutions Customer deposits Tax Liability Deferred tax liability Dividends payables Other liabilities Long-term Finance Shareholders’ funds Total Liabilities and Equity At 31 December 2015 ASSETS Cash in hand

Total Frw’000

14,951,617 -

14,951,617

Balances with the National Bank of Rwanda Balances held with other Financial Institutions Held to maturity investments Loans and advances to customers Other assets Equity investments Intangible assets Property and equipment Total Assets

44,572,594 62,568,118 93,503,198 81,275,392 8,242,962 305,113,881

232,650,143 12,538 221,425 381,529 22,846,884 256,112,519

44,572,594 62,568,118 93,503,198 313,925,535 8,255,500 221,425 381,529 22,846,884 561,226,400

LIABILITIES Balances from other Financial Institutions Customer deposits Tax Liability Deferred tax liability Dividends payables Other liabilities Long-term Finance Shareholders’ funds Total Liabilities and Equity

Frw’000 22,609,724 384,538,433 808,141 102,151 34,230 9,656,897 3,350,838 421,100,414

Frw’000 175,267 2,091,118 39,124,805 98,734,796 140,125,986

Frw’000 22,609,724 384,713,700 808,141 2,193,269 34,230 9,656,897 42,475,643 98,734,796 561,226,400

Less than 12 months Frw’000 12,020,669 46,938,373 102,988,217 58,596,907 72,230,317 7,652,853 300,427,336

Over 12 months Frw’000 161,209,192 12,532 221,425 234,056 20,503,423 182,180,628

Total Frw’000 12,020,669 46,938,373 102,988,217 58,596,907 233,439,509 7,665,385 221,425 234,056 20,503,423 482,607,964

Frw’000 15,050,115 324,585,588 692,518 102,150 5,469

Frw’000 164,346 15,572 1,737,841 -

Frw’000 15,214,461 324,601,160 692,518 1,839,991 5,469

At 31 December 2014 ASSETS Cash in hand Balances with the National Bank of Rwanda Balances held with other Financial Institutions Held to maturity investments Loans and advances to customers Other assets Equity investments Intangible assets Property and equipment Total Assets LIABILITIES Balances from other Financial Institutions Customer deposits Tax Liability Deferred tax liability Dividends payables

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 37. MATURITY ANALYSIS OF ASSETS AND LIABILITIES (continued) At 31 December 2014 ASSETS Other liabilities Long-term Finance Shareholders’ funds Total Liabilities and Equity

Less than 12 months Frw’000 10,860,278 7,226,977 358,523,095

Over 12 months Frw’000 33,027,977 89,139,133 124,084,869

Total Frw’000 10,860,278 40,254,954 89,139,133 482,607,964

At 31 December 2013 ASSETS Cash in hand Balances with the National Bank of Rwanda Balances and placements with other Financial Institutions Held to maturity investments Loans and advances to customers Other assets Equity investments Intangible assets Property and equipment Total Assets

Less than 12 months Frw’000 11,110,210 24,855,050 107,377,523 50,820,690 88,100,212 7,695,005 289,958,690

Over 12 months Frw’000 110,925,029 218,455 239,005 21,018,894 132,401,383

Total Frw’000 11,110,210 24,855,050 107,377,523 50,820,690 199,025,241 7,695,005 218,455 239,005 21,018,894 422,360,073

Frw’000 17,149,246 280,324,953 1,828,573 102,150 7,416,579 8,705,581 3,350,839 318,877,921

Frw’000 195,778 164,510 1,824,951 30,839,680 70,457,233 103,482,152

Frw’000 17,345,024 280,489,463 1,828,573 1,927,101 7,416,579 8,705,581 34,190,519 70,457,233 422,360,073

38. CONTINGENT LIABILITIES COMMITMENTS AND LEASING ARRANGEMENTS Legal Claims

Litigation is a common occurrence in the Banking industry due to the nature of the business undertaken. The Bank has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Bank makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year end, the Bank was party to various legal proceedings for a total amount of 2017: Frw 63.2 million, 2016: Frw 25.7 million, 2015:Frw25.7million, 2014:Frw31million, 2013:142.8 million.

39. RELATED PARTIES DISCLOSURES Compensation of key management personnel of the Bank short term employee benefits Post-employment pension (defined contribution) Terminal benefits Directors emolument

2017 Frw’000 1,116,220

2016 Frw’000 1,055,071

2015 Frw’000 785,363

2014 Frw’000 658,078

2013 Frw’000 633,176

27,451 11,939 1,155,610

60,625 550,388 1,666,084

48,395 0 833,758

65,343 7,823 731,244

34,067 0 667,243

415,368

309,182

334,521

357,209

400,945

The non-executive directors do not receive pension entitlements from the Bank.

39. RELATED PARTIES DISCLOSURES (continued) Transaction with key management personnel of the Bank

The Bank enters into transactions, arrangements involving directors, senior management and their related party concerns in the ordinary course of business at commercial interest and commission rates.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT The following table provides the total amount of transactions which have been entered into with related parties for the relevant financial years.

2017 2016 2015 2014 2013

Residential mortgages

Credit cards and other loans

Deposits

Frw’000

Balance as at 31 December

1,305,950

252,217

250,441

Income/Expense Balance as at 31 December Income/Expense Balance as at 31 December Income/Expense Balance as at 31 December Income/Expense Balance as at 31 December

158,014 390,431 26,422 170,957 18,628 131,958 12,981 190,664

10,686 381,881 3,569 161,251 33,056 90,325 10,560 36,130

3,452 276,304 1,339 88,723 988 104,561 16 56,257

10,343

1,509

Income/Expense

Transactions with other related parties

In addition to transactions with key management, the Group enters into transactions with entities with significant influence over the Bank. The following table shows the outstanding deposits balance and the corresponding interest during the year.

Subsidiaries to the Bank:

Income

Expense

Balance as at year end

Maximum balances during the year

Frw’000

2017

6,468,303

70,832,112

105,437,352

2016

6021

6,214,529

66,430,695

2015

5,751

5,381,536

62,128,569

67,902,871

2014

5,301,459

51,072,731

57,505,625

2013

600

3,896,937

40,002,126

42,581,037

The above mentioned outstanding balances arose from the ordinary course of business. The interests charged to and by related parties are at normal commercial rates. Outstanding balances at the year-end are unsecured. There have been no guarantees provided or received for any related party receivables or payables. The Group has not made any provision for doubtful debts relating to amounts owed by related parties for years ended 31 December 2017:nil, 31 December 2016:nil, 31 December 2015:nil, 31 December 2014:nil, 31 December 2013:nil.

40 SUBSIDIARIES Bank of Kigali Limited

The Group opened a wholly owned subsidiary, Bank of Kigali Limited on 21 December 2017. Its principal place of office is in the BK Group PLC office premises. Bank of Kigali Limited is a licensed commercial banking institution offering retail and corporate banking services. The value of the investment at cost less impairment is Frw 6,745,370,000

BK Capital Limited

The Group opened a wholly owned subsidiary, BK Securities Ltd on the 28 January 2013. Its principal place of office is in the BK GROUP PLC office premises. BK Securities offers the Group’s customers seamless service consistent with the Group’s customer service. The investing public has an opportunity to buy and sell shares or bonds under the umbrella BK brands. The firm offers brokerage services for all stocks listed on the Rwanda Stock Exchange including the Group shares. The value of the investment at cost less impairment is Frw 200,000,000.

BK Tec-House Limited

The Group opened a wholly owned subsidiary, BK Tec-House Ltd on 10 August 2015. Its principal place of office is in the BK GROUP PLC office premises. The company offers internet and digital services to customers. The value of the investment at cost less impairment is Frw 300,000,000.

BK General Insurance Limited

The Group opened a wholly owned subsidiary, BK General Insurance Ltd on 16 September 2015. Its principal place of office is in the BK GROUP PLC office premises. The company offers non-life insurance services. The authorized capital of the investment at cost less impairment is Frw 5,000,000,000.

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SECTION 11: REPORTING ACCOUNTANTSâ&#x20AC;&#x2122; REPORT

BK GROUP PLC CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED 30 JUNE 2018

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC DIRECTORS AND STATUTORY INFORMATION FOR THE SIX MONTHS ENDED 30 JUNE 2018

The directors that served during the period and to the date of this report are shown below:

DIRECTORS Non-Executive and Independent Directors Mr. Marc Holtzman (Chairman) Mr. Julien Kavaruganda Mrs. Liliane Igihozo (Resigned 27 August 2018)

Non-Executive and Non-Independent Directors Mr. Jonathan Gatera (Vice Chairman) Mr. Reuben Karemera

Executive Director Dr. Diane Karusisi (CEO)

SECRETARY Emmanuel Nkusi KN4 Ave No 12, Plot No 790 P.O Box 175. Kigali - Rwanda

AUDITOR PricewaterhouseCoopers Rwanda Limited 5th Floor, Blue Star House, Blvd de l’Umuganda, Kacyiru P. O. Box 1495. Kigali - Rwanda

REGISTERED OFFICE & PRINCIPAL PLACE OF BUSINESS BK Group Plc Building KN4 Ave No 12, Plot No 790 P. O. Box 175. Kigali - Rwanda

ADVOCATES Mr. Emmanuel Rukangira P. O. Box 3270. Kigali - Rwanda Mr. Athanase Rutabingwa P. O. Box 6886. Kigali - Rwanda

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC REPORT OF THE DIRECTORS FOR THE SIX MONTHS ENDED 30 JUNE 2018 The directors have the pleasure of submitting their report together with the audited consolidated financial statements for the six months ended 30 June 2018 which disclose the state of affairs of BK Group PLC and its subsidiaries (together, the “Group”).

Principal activities

Results

Dividends

Reserves

The principal activities of the Group are provision of retail and corporate banking services, insurance services, brokerage services, internet and digital services. The results for the period are set out on page 11. The directors do not recommend the payment of an interim dividend (2017: nil). The reserves of BK Group PLC are set out in note 35.

5 Directors

The Directors who served during the period and up to the date of this report are set out on page 1.

Auditors

Approval of the financial statements

PricewaterhouseCoopers Rwanda Limited were appointed as external auditors at the Board meeting held on 28 February 2018 and ratified at the Annual General Meeting held on 18 May 2018 in accordance with Regulation No. 14/2017 of 23/11/2017 on accreditation requirements and other conditions for external auditors for financial institutions. The consolidated financial statements were approved by the Directors on 18 October, 2018.

BY ORDER OF THE BOARD

Emmanuel Nkusi Company Secretary 18 October, 2018

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC STATEMENT OF DIRECTORS’ RESPONSIBILITIES FOR THE SIX MONTHS ENDED 30 JUNE 2018 The Group’s directors are responsible for the preparation and fair presentation of the consolidated financial statements, comprising the consolidated statement of financial position at 30 June 2018, the consolidated statement of profit or loss and other comprehensive income, consolidated statement of changes in equity and consolidated statement of cash flows for the six months period then ended, and the notes to the consolidated financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards and Law No. 47/2017 of 23/9/2017 Governing the Organisation of Banking and Law No. 17/2018 of 13/04/2018 Governing Companies, and for such internal control as the Directors determine is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement whether due to fraud or error. The directors’ responsibilities include: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of these consolidated financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. They are also responsible for safe guarding the assets of the Group. The directors accept responsibility for the consolidated financial statements, which have been prepared using appropriate accounting policies supported by reasonable and prudent judgements and estimates, in conformity with International Financial Reporting Standards and the requirements of Law No. 47/2017 of 23/9/2017 Governing the Organisation of Banking and Law No. 17/2018 of 13/04/2018 Governing Companies. The Directors are of the opinion that the consolidated financial statements give a true and fair view of the state of the financial affairs and the profit and cash flow for the six months period ended 30 June 2018. The directors have made an assessment of the Group’s ability to continue as a going concern and have no reason to believe the Group will not be a going concern for at least the next twelve months from the date of this statement. The auditor is responsible for reporting on whether the annual consolidated financial statements are fairly presented in accordance with the International Financial Reporting Standards and Law No. 47/2017 of 23/9/2017 Governing the Organisation of Banking and Law No. 17/2018 of 13/04/2018 Governing Companies. The consolidated financial statements which appear on pages 11 to 92 were approved by the Board of Directors on 18 October, 2018 and signed on its behalf by:

_____________________________ ________________________ Director Director

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC CORPORATE GOVERNANCE STATEMENT FOR THE SIX MONTHS ENDED 30 JUNE 2018

BK Group PLC is committed to world class corporate governance standards as set from time to time by the National Bank of Rwanda, Capital Market Authority, Rwanda Stock Exchange and by itself in accordance with international best practise. The Board of Directors are responsible for the longterm strategic direction for profitable growth of the Group whilst being accountable to the shareholders for compliance and maintenance of the highest corporate governance standards and business ethics.

The Board of Directors

The Board is made up of three Non-Executive and Independent Directors, two Non-Executive and Non-Independent Directors and one Executive Director. The Board is provided with full, appropriate and timely information to enable them maintain full and effective control over the strategic, financial, operational and compliance issues of the Group. The day to day running of the business of the Group is delegated to the Managing Director but the Board is responsible for establishing and maintaining the Group’s system of internal controls so that the objective of profitable and sustainable growth and shareholders’ values are realised. The Board also makes recommendations to the shareholders on Board succession planning and annual financial statements.

Board Meetings

The Board of Directors meet quarterly or as required in order to monitor the implementation of the Group’s planned strategy, review it in conjunction with its financial performance and approves issues of strategic nature. Specific reviews are also undertaken on operational issues and future planning. At the end of each financial year, the Board reviews itself, Board Committees, Senior Management and Managing Director against targets agreed at the beginning of the year. The Board held two meetings during the six months period.

Board Committees

The Board has created the following principal committees at the Bank level which meet regularly under well-defined and materially delegated terms of reference set by the Board.

Risk Committee

Audit Committee

Human Resources Committee

The committee was set up to appreciate and mitigate all risks in the business. It meets quarterly to advise the business on all matters pertaining to credit, market, operational, legal, and environmental and other risks. Business continuity issues are also discussed by this committee. The Audit Committee meets quarterly or as required. In accordance with regulatory requirement, the committee comprise non- executive members of the Board who are independent of the day today management of the Bank’s operations. The committee deals with all matters relating to the financial statements and internal control systems of the Bank including dealing with independent auditors and National Bank of Rwanda inspectors. All the audits conducted under this committee are risk based. The committee meets quarterly to review human resource policies and make suitable recommendations to the Board on senior management appointments. This committee oversees the nomination functions and senior management performance reviews.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC CORPORATE GOVERNANCE STATEMENT (continued) FOR THE SIX MONTHS ENDED 30 JUNE 2018 d.

Credit Committee

Assets and Liabilities (ALCO) Committee

Information and Communications Technology (ICT) Committee

Nominations and Remunerations (N&R) Committee

The committee meets monthly to review credit risk profile of the Bank and recommend to the Board for approval policies and standards to credit risk governance and management. The frequency of the meeting has ensured that the needs of the Bank’s customers are given timely attention. The committee also reviews the Bank’s credit risk appetite and sectorial concentration. The Committee is responsible for monitoring and managing the Bank’s balance sheet to ensure that various business risks such as liquidity, capital, market and currency risks are monitored and mitigated in compliance with the Bank’s policies and Central Bank guidelines. The Committee meets on a quarterly basis or more frequently as its business demands. The Committee is responsible for the appointment of and remuneration of the Management and also ensuring that the Bank’s human resources are able to support the development and implementation of the Bank’s strategy. This entails reviewing the Human Resources policies and procedures, organisational structure, senior management composition as well as remuneration. The Committee meets on a quarterly basis or more frequently as its business demands. This Committee is responsible for setting the remuneration of senior management and board members. BK General Insurance has the following Board Committees that meet regularly under well-defined and materially delegated terms of reference set by the Board: i) ii) iii) iv)

Audit Committee Risk and Compliance Committee Assets, Liabilities and Investments Committee Remuneration and Compensation Committee

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT Board/ Board Committee attendance The following table gives the record of attendance of the directors of the board and its Committee meetings for the six month period ended 30 June 2018.

Main Audit Risk Credit ALCO ICT N&R Board Committee Committee Committee Committee Committee Committee

Structure

Category

Mr. Marc Holtzman

Non-Executive NonIndependent

Mr. Jonathan Gatera

Non-Executive Independent

Mr. Julien Kavaruganda

Non-Executive NonIndependent

Mrs. Liliane Igihozo

Non-Executive NonIndependent

Mr. Reuben Karemera Non-Executive Independent Dr. Diane Karusisi

Executive

ü ü

Management committees The Board has delegated the management of the business to the Managing Director together with her Management Committee. The following management committees are in place at the subsidiary level to ensure that the Group carries out its obligation efficiently and effectively.

Bank of Kigali

BK General Insurance

Other subsidiaries

Management Committee

Assets and Liability Committee

Assets, Liabilities and Investments Committee

Credit Committee

Audit Committee

Debt Recovery Committee

Risk and Compliance Committee

Human Resource Committee

Remuneration and Compensation Committee

Product Development Committee

Information & Communication Technology Committee

Procurement Committee

Branch Expansion Committee

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT

Report of the independent auditor to the members of Bank of Kigali Limited and BK Group PLC Report on the audit of the financial statements Our opinion

In our opinion, the consolidated financial statements give a true and fair view of the financial position of BK Group PLC and its subsidiaries (together, the “Group”) as at 30 June 2018, and of its financial performance and its cash flows for the six months period then ended in accordance with International Financial Reporting Standards and with the requirements of Law No. 47/2017 of 23/9/2017 Governing the Organisation of Banking and Law No. 17/2018 of 13/04/2018 Governing Companies.

What we have audited

The consolidated financial statements of BK Group PLC and its subsidiaries are set out on pages 11 to 92 and comprise: · · · · ·

the consolidated statement of financial position as at 30 June 2018; the consolidated statement of profit and loss and other comprehensive income for the six months period then ended; the consolidated statement of changes in equity for the six months period then ended; the consolidated statement of cash flows for the six months period then ended; and the notes to the consolidated financial statements, which include a summary of significant accounting policies.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. The matter below was addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on the matter.

PricewaterhouseCoopers Rwanda Limited 5th Floor, Blue Star House, Blvd de l’Umuganda, Kacyiru. P. O. Box 1495, Kigali - Rwanda. Tel: +250 (252) 588203/4/5/6 | www.pwc.com/rw Directors: F Gatome M Nyabanda B Kimacia P Ngahu

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT Key audit matters (continued) Key audit matter Expected credit losses on loans and advances at amortised cost

How key audit matter was addressed in the audit

Loans and advances at amortised cost form a major portion of the group’s assets and as at 30 June 2018, the Group’s gross loans and advances at amortised cost amounted to FRw 508 million and the related expected credit loss amounted to FRw 27,140 million comprising of FRw 6,397 million of loans in stage 1 and FRw 20,743 million loans in stage 2 and 3. The policy for determining expected credit loss is presented in note 5 in the consolidated financial statements.

We carried out the following procedures: We reviewed the Group’s methodology for determining expected credit losses and evaluated this against the requirements of IFRS 9.

The Group exercises significant judgment by applying assumptions in the models used to determine expected credit losses for loans and advances carried at amortised cost in the first year of adoption of IFRS 9 – Financial Instruments. The significant assumptions are applied in determining probabilities of default, loss given default and forward-looking information. In addition, the Group applies the backstop criteria based on days past due generated by the Group’s IT systems to classify the loans into the three stages required by IFRS 9.

We obtained an understanding of how the Group extracts ‘days past due’ applied in classifying the loan book into the three stages required by IFRS 9. For a sample of loans we recalculated the ‘days past due’ applied in the model to the Group’s IT system and to the respective customer files. We obtained an understanding of the basis used to determine the probabilities of default and re-calculated the probabilities based on the Group’s past credit related financial information. For loss given default we traced the expected future cash flows from collaterals for a sample of group’s customers to information produced by external valuers. We also tested directors’ assumptions on the timing of the cash flows base the Group’s empirical evidence. For forward looking assumptions used in the expected credit loss calculations, we held discussions with management and the directors, and corroborated the assumptions using publicly available information.

Other information

Directors are responsible for the other information. The other information comprises Directors and Statutory Information, Report of the Directors, Statement of Directors’ Responsibilities and the Corporate Governance Statement, but does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of directors for the Group consolidated financial statements Directors are responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with International Financial Reporting Standards accordance with Law No. 47/2017 of 23/09/2017 Governing the Organisation of Banking and Law No. 17/2018 of 13/04/2018 Governing Companies, and for such internal control as directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the directors are responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Group, or to cease operations, or have no realistic alternative but to do so. Directors are responsible for overseeing the Group’s financial reporting process. Auditor’s responsibilities for the audit of the Group financial statements Our objectives are to obtain reasonable assurance about whether the Group financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT Auditor’s responsibilities for the audit of the Group financial statements (continued) As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also: ·

· ·

Identify and assess the risks of material misstatement of the Group financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control; Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control; Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors;

Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the Group financial statements, including the disclosures, and whether the Group financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide the directors with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards. From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the Group financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

Report on other legal and regulatory requirements

Law No. 17/2018 of 13/04/2018 Governing Companies requires that in carrying out our audit we consider and report to you on the following matters. We confirm that: i. ii. iii. iv.

There are no circumstances that may create threat to our independence as auditor of the Group; We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit; In our opinion proper books of account have been kept by the Group, so far as appears from our examination of those books; and We have communicated to the Group’s Board of Directors, through separate management letters, internal control matters identified in the course of our audit including our recommendations in relation to those matters.

For PricewaterhouseCoopers Rwanda Limited, Kigali

Moses Nyabanda Director 18 October, 2018

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC

Note

30 June 2018

30 June 2017

FRw’000

Interest income

44,823,823

40,181,107

Interest expense

(8,679,207)

(8,658,045)

36,144,616

31,523,062

Net interest income Net fees and commission income

8,888,653

7,742,810

Foreign exchange related income

4,147,361

3,524,904

Net premium income

1,547,214

585,558

Other operating income

153,500

872,363

50,881,344

44,248,697

Operating income before impairment losses Credit impairment losses

(6,845,851)

(6,354,785)

Net claims

(775,299)

(131,608)

43,260,194

37,762,304

Net operating income Employee benefits expense

16(i)

(10,132,460)

(11,242,317)

Depreciation and amortisation

16(ii)

(2,463,630)

(2,271,070)

Administration and general expenses

16(iii)

(8,485,208)

(7,530,109)

Total operating expenses

(21,081,298)

(21,043,496)

Profit before income tax

22,178,896

16,718,808

(8,767,579)

(5,333,766)

13,411,317

11,385,042

Items that may be subsequently reclassified to profit or loss

Items that will not be subsequently reclassified to profit or loss

13,411,317

11,385,042

19.88

16.90

Income tax expense

Profit for the period Coprehensive income Other comprehensive income:

Total comprehensive income for the period Basic and diluted earnings per share in FRw

The notes set out on pages 129 to 174 form an integral part of these financial statements.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2018 ASSETS

Note

Cash in hand Balances with the National Bank of Rwanda Due from banks Investment securities Loans and advances to customers Insurance receivables Other assets Equity investments Property and equipment Intangible assets TOTAL ASSETS

20 (a) 20 (b) 21 22 (a) 23 24 25 22 (b) 26 27

LIABILITIES Due to banks Deposits and balances from customers Current income tax Dividends payable Insurance liabilities Other liabilities Deferred income tax Long-term finance TOTAL LIABILITIES CAPITAL AND RESERVES Share capital Share premium Revaluation reserves Retained earnings TOTAL EQUITY

30 June 2018 FRw’000 15,489,713 51,665,954 45,843,817 88,699,681 481,246,614 2,069,896 13,002,141 221,425 32,744,653 791,456 731,775,350

31 December2017 FRw’000 19,731,699 42,583,327 53,055,021 94,248,923 471,704,315 1,147,644 10,304,365 221,425 33,529,626 678,355 727,204,700

28 29 18 31 32 33 30 34

37,887,893 472,313,572 5,783,330 14,762,774 2,809,771 9,514,231 286,198 58,544,298 601,902,067

42,377,460 455,213,393 6,900,698 9,378,311 2,123,038 15,267,691 2,351,802 70,842,175 604,454,568

35 (i) 35 (ii) 35(iii) 35(iv)

6,745,370 18,936,176 13,000,149 91,191,588 129,873,283

6,745,370 18,936,176 13,000,149 84,068,437 122,750,132

731,775,350

727,204,700

TOTAL LIABILITIES AND EQUITY The notes set out on pages 129 to 174 form an integral part of these financial statements.

BK GROUP PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 JUNE 2018

As at 1 January 2017 Profit for the year Elimination of excess depreciation on disposal Other comprehensive income Total comprehensive income for the period Transactions with owners in their capacity as owners: Contributions of equity, net of transaction costs and tax Dividends paid/declared As at 31 December 2017

Issued capital

Share premium

FRw‘000

6,724,428 -

18,695,343 -

13,630,625 -

69,435,203 23,342,309

108,485,600 23,348,880

(630,476) -

630,476 -

(630,476)

23,972,785

23,342,309

20,942 20,942 6,745,370

240,833 240,833 18,936,176

13,000,149

(9,339,552) (9,339,552) 84,068,436

261,775 (9,339,552) (9,077,777) 122,750,132

The notes set out on pages 129 to 174 form an integral part of these financial statements.

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Revaluation Retained earnings

Total

SECTION 11: REPORTING ACCOUNTANTS’ REPORT BK GROUP PLC CONSOLIDATED STATEMENT OF CASHFLOWS FOR THE SIX MONTHS ENDED 30 JUNE 2018 30 June 2018 Cash flows from operating activities

Note

Profit before income tax

31 December 2017

FRw’000

22,178,896

34,172,034 3,884,073

Adjusted for: Depreciation of property and equipment

16 (ii)

2,093,180

Amortization of intangible assets

16 (ii)

370,450

617,137

Gains on disposal of fixed assets

(852,793)

Loss on revaluation of long-term finance

640,876

2,084,387

Interest incurred on long-term financing

2,109,787

4,597,333

Release of impairment on investment securities Dividend income Cash flows before changes in working capital

(45,779)

(47,651)

27,347,411

44,454,520

Changes in working capital -Increase in loans and advances

23 (a)

(9,542,299)

(85,879,745)

-Increase in insurance receivables

(922,252)

(850,426)

-Increase in other assets

(2,697,775)

(1,723,817)

-(Increase)/decrease in cash reserve requirement

(630,530)

11,103,733

-Increase in deposits and balances from customers

17,100,179

36,196,130

-Increase in insurance liabilities

686,733

1,418,233

-Decrease in other liabilities

(5,753,463)

(3,948,231)

Income tax paid

(11,950,552)

(12,532,038)

13,637,451

(11,761,641)

(5,001,970)

Net cash generated from/(used in) operating activities INVESTING ACTIVITIES Purchase of property and equipment

(1,308,207)

Purchase of intangible assets

(483,552)

(780,609)

1,876,780

Proceeds from sale of fixed assets Purchase of investment securities

22(a)

(110,008,159)

(333,502,798)

Proceeds from maturity of investment securities

22(a)

114,679,541

317,216,481

Dividends received Net cash flows from investing activities

47,651

2,879,624

(20,144,465)

(8,304,345)

FINANCING ACTIVITIES Dividends returned/(paid)

19,936

Drawdown of long-term finance

31,362,073

Principal repayment of long-term finance

(12,376,908)

(20,833,291) (3,505,394)

Interest repayment on long-term finance

(2,671,632)

Proceeds from issue of new shares

35(i)

20,942

Increase in share premium

35(ii)

240,833

(15,028,604)

(1,019,182)

Net increase / (decrease) in cash and cash equivalents

1,488,470

(32,925,282)

Net foreign exchange difference

1,462,518

1,277,029

46,130,278

77,778,531

49,081,267

46,130,278

Net cash flows from financing activities

Cash and cash equivalents at 1 January Cash and cash equivalents at 30 June/31 December

20(c)

The notes set out on pages 129 to 175 form an integral part of these financial statements.

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CORPORATE INFORMATION

BK GROUP PLC is a non-operating holding company registered with Rwanda Development Board (RDB) and licensed under Law No. 47/2017 of 23/9/2017 Governing the Organisation of Banking and Law No. 17/2018 of 13/04/2018 Governing Companies. The Group is a financial institution licensed under Law No. 47/2017 of 23/9/2017 Governing the Organisation of Banking and provides corporate and retail banking services, insurance services, brokerage services, internet and digital services. The Group is incorporated in Rwanda and is publicly traded on the Rwanda Stock Exchange. The address of its registered office is as follows: BK Group Plc Building KN4 Ave No 12 Plot No 790 P. O. Box 175. Kigali-Rwanda

Representative Office - Nairobi

The Group opened a representative office in Nairobi, Kenya on 19th February 2013 that is wholly owned by BK GROUP PLC. The representative office acts as a liaison between the Group and its clientele in Kenya seeking to strengthen the Group’s relationship with existing clients operating in Nairobi as well as establish a relationship with prospective clients. The office however does not directly offer deposit taking or lending facilities.

Summary of significant accounting policies

(a)

Basis of preparation

This note provides a list of the significant accounting policies adopted in the preparation of these consolidated financial statements to the extent they have not already been disclosed in the other notes above. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial statements are for the Group consisting of BK Group Plc and its subsidiaries.

(i) Compliance with IFRS

These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and interpretations issued by the IFRS Interpretations Committee (IC) applicable to companies reporting under IFRS. All values are rounded to the nearest thousand (FRw’000) except when otherwise indicated. The Group presents its consolidated statement of financial position broadly in order of liquidity as the banking business contributes 98% of the results and assets of the Group. An analysis regarding recovery or settlement within 12 months after the statement of financial position date (current) and more than 12 months after the statement of financial position date (noncurrent) is presented in note 36.

ii) Historical cost convention

The consolidated financial statements have been prepared on a historical cost basis, except for the following: · certain financial assets and liabilities (including derivative instruments), certain classes of property, plant and equipment – measured using the revaluation model.

iii) Comparatives

Where necessary, comparative figures have been adjusted to conform to changes in presentation in the current year

iv) New and amended standards adopted by the Group

The group has applied the following standards and amendments for the first time for their annual reporting period commencing 1 January 2018: · IFRS 9 Financial Instruments · IFRS 15 Revenue from Contracts with Customers · Classification and Measurement of Share-based Payment Transactions – Amendments to IFRS 2 · Annual Improvements 2014-2016 cycle · Transfers to Investment Property – Amendments to IAS 40 · Interpretation 22 Foreign Currency Transactions and Advance Consideration The group also elected to adopt the following amendments early: · Annual Improvements to IFRS Standards 2015-2017 Cycle. The group had to change its accounting policies and make certain retrospective adjustments following the adoption of IFRS 9. This is disclosed in note 3. Most of the other amendments listed above did not have any impact on the amounts recognised in prior periods and are not expected to significantly affect the current or future periods.

v) New and amended standards not yet adopted

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2018 reporting periods and have not been early adopted by the group. The group’s assessment of the impact of these new standards and interpretations is set out below.

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Summary of significant accounting policies (continued)

Title of Standard

IFRS 16 Leases

Nature of change

•

IFRS 16 was issued in January 2016. It will result in almost all leases being recognised on the balance sheet by lessees, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognised. The only exceptions are short-term and low-value leases.

•

The group has set up a project team which is reviewing all of the group’s leasing arrangements over the last year in light of the new lease accounting rules in IFRS 16. The standard will affect primarily the accounting for the group’s operating leases.

•

As at the reporting date, the group has non-cancellable operating lease commitments of FRw 62 million. Of these commitments, approximately FRw 300,000 relate to short-term leases and FRw 32 million relate to low value leases which will both be recognised on a straight-line basis as expense in profit or loss.

•

The impact will be quantified once the review procedure is completed in the 2018 annual financial statements.

•

The group is currently assessing the expected impact of IFRS 16.

•

The group will apply the standard from its mandatory adoption date of 1 January 2019. The group intends to apply the simplified transition approach and will not restate comparative amounts for the year prior to first adoption. Right-of-use assets for property leases will be measured on transition as if the new rules had always been applied. All other right-of-use assets will be measured at the amount of the lease liability on adoption (adjusted for any prepaid or accrued lease expenses).

Mandatory application date/ Date of adoption by group

There are no other standards that are not yet effective and that would be expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

(b)

Going concern

(c)

Use of estimates and judgments

The Group’s directors have made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements have been prepared on the going concern basis. The preparation of consolidated financial statements in conformity with IFRSs requires management to make judgments, estimates and assumptions that affect the application of accounting policies and reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and assumptions are based on the Directors’ best knowledge of current events, actions, historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognised in the period which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both current and future periods. In particular, information about significant areas of estimation and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in Note 4.

(d)

Principles of consolidation and equity accounting

Subsidiaries

Subsidiaries are all entities (including structured entities) over which the group has control. The group controls an entity when the group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power to direct the activities of the entity. Subsidiaries are fully consolidated from the date on which control is transferred to the group. They are deconsolidated from the date that control ceases. The acquisition method of accounting is used to account for business combinations by the group. Intercompany transactions, balances and unrealised gains on transactions between group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of an impairment of the transferred asset. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the group.

(e)

Segment reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The board of BK Group Plc has appointed the executive committee which assesses the financial performance and position of the group and makes strategic decisions. The executive committee, which has been identified as being the chief operating decision maker, consists of the Chief Executive Officer, the Chief Operating Officer, the Chief Commercial Officer, the Chief Financial Officer, the Chief Human Resources and Administration Officer, and the Chief Information Technology Officer. The Group’s segment reporting is based on the following operating segments: Retail banking, corporate banking, central treasury functions and non-bank subsidiaries.

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Summary of significant accounting policies (continued)

(f)

Revenue recognition

(i)

Revenue from financial instruments.

(ii)

Fees and commission

See note 5 on financial assets and liabilities

Fees and commission income – including account servicing fees, investment management fees, sales commission, placement fees and syndication fees – are recognised as the related services are performed. Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received. Insurance and investment contract policyholders are charged for policy administration services, investment management services, surrenders and other contract fees. These fees are recognised as revenue over the period in which the related services are performed. If the fees are for services provided in future periods, then they are deferred and recognised over those future periods.

(iii)

Dividend income

(iv)

Net trading income

(v)

Premiums

Dividends are received from financial assets measured at fair value through profit or loss (FVPL) and at fair value through other comprehensive income (FVOCI) (2017 – from financial assets at FVPL and available-for-sale financial assets). Dividends are recognised as other income in profit or loss when the right to receive payment is established. This applies even if they are paid out of pre-acquisition profits, unless the dividend clearly represents a recovery of part of the cost of an investment. In this case, the dividend is recognised in OCI if it relates to an investment measured at FVOCI. Net trading income’ comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differences. Gross insurance written premiums comprise the total premiums receivable for the whole period of cover provided by contracts entered into during the accounting period. They are recognised on the date on which the policy commences. Premiums include any adjustments arising in the accounting period for premiums receivable in respect of business written in prior accounting periods. Rebates that form part of the premium rate, such as no-claim rebates, are deducted from the gross premium; others are recognised as an expense. Premiums collected by intermediaries, but not yet received, are assessed based on estimates from underwriting or past experience and are included in premiums written. Unearned premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned premiums are calculated on a daily pro rata basis. The proportion attributable to subsequent periods is deferred as a provision for unearned premiums.

Reinsurance premiums

Gross reinsurance premiums written comprise the total premiums payable for the whole cover provided by contracts entered into the period and are recognised on the date on which the policy incepts. Premiums include any adjustments arising in the accounting period in respect of reinsurance contracts incepting in prior accounting periods. Unearned reinsurance premiums are those proportions of premiums written in a year that relate to periods of risk after the reporting date. Unearned reinsurance premiums are deferred over the term of the underlying direct insurance policies for risks-attaching contracts and over the term of the reinsurance contract for losses occurring contracts.

(g)

Property and equipment

Land and buildings are recognised at fair value based on periodic, but at least triennial, valuations by external independent valuers, less subsequent depreciation for buildings. A revaluation surplus is credited to revaluation reserves in shareholders’ equity. All other property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains or losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. The carrying amount of any component accounted for as a separate asset is derecognised when replaced. All other repairs and maintenance are charged to profit or loss during the reporting period in which they are incurred. Increases in the carrying amounts arising on revaluation of land and buildings are recognised, net of tax, in other comprehensive income and accumulated in reserves in shareholders’ equity. To the extent that the increase reverses a decrease previously recognised in profit or loss, the increase is first recognised in profit or loss. Decreases that reverse previous increases of the same asset are first recognised in other comprehensive income to the extent of the remaining surplus attributable to the asset; all other decreases are charged to profit or loss. Depreciation is calculated using the straight-line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives or, in the case of leasehold improvements and certain leased plant and equipment, the shorter lease term as follows:

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SIGNIFICANT ACCOUNTING POLICIES (continued)

(g)

Property and equipment (continued) Buildings 5% Motor vehicles 25% Furniture, Fittings& Equipment 25% Computers& IT equipment 50% Freehold land is not depreciated as it is deemed to have an indefinite life.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in profit or loss. When revalued assets are sold, it is group policy to transfer any amounts included in other reserves in respect of those assets to retained earnings.

(h)

Provisions

(i)

Financial assets and liabilities

Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, for which it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to that liability. The expense relating to any provision is presented in the statement of profit or loss and other comprehensive income net of any disbursement.

Measurement methods Amortised cost and effective interest rate

The amortised cost is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial asset or financial liability to the gross carrying amount of a financial asset (i.e. its amortised cost before any impairment allowance) or to the amortised cost of a financial liability. The calculation does not consider expected credit losses and includes transaction costs, premiums or discounts and fees and points paid or received that are integral to the effective interest rate, such as origination fees. For purchased or originated credit-impaired (`POCI’) financial assets — assets that are credit-impaired at initial recognition — the Group calculates the credit-adjusted effective interest rate, which is calculated based on the amortised cost of the financial asset instead of its gross carrying amount and incorporates the impact of expected credit losses in estimated future cash flows. When the Group revises the estimates of future cash flows, the carrying amount of the respective financial assets or financial liability is adjusted to reflect the new estimate discounted using the original effective interest rate. Any changes are recognised in profit or loss.

Interest income

Interest income is calculated by applying the effective interest rate to the gross carrying amount of financial assets, except for: (a) (b)

POCI financial assets, for which the original credit-adjusted effective interest rate is applied to the amortised cost of the financial asset. Financial assets that are not ‘POCI’ but have subsequently become credit-impaired (or ‘stage 3’), for which interest revenue is calculated by applying the effective interest rate to their amortised cost (i.e. net of the expected credit loss provision).

Initial recognition and measurement

Financial assets and financial liabilities are recognised when the Group becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognised on trade-date, the date on which the Group commits to purchase or sell the asset. At initial recognition, the Group measures a financial asset or financial liability at its fair value plus or minus, in the case of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are incremental and directly attributable to the acquisition or issue of the financial asset or financial liability, such as fees and commissions. Transaction costs of financial assets and financial liabilities carried at fair value through profit or loss are expensed in profit or loss. Immediately after initial recognition, an expected credit loss allowance (ECL) is recognised for financial assets measured at amortised cost and investments in debt instruments measured at FVOCI, which results in an accounting loss being recognised in profit or loss when an asset is newly originated. When the fair value of financial assets and liabilities differs from the transaction price on initial recognition, the entity recognises the difference as follows: (a)

When the fair value is evidenced by a quoted price in an active market for an identical asset or liability (i.e.a Level 1 input) or based on a valuation technique that uses only data from observable markets, the difference is recognised as a gain or loss.

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Summary of significant accounting policies (continued)

(i)

Financial assets and liabilities (continued)

(b)

In all other cases, the difference is deferred and the timing of recognition of deferred day one profit or loss is determined individually. It is either amortised over the life of the instrument, deferred until the instrument’s fair value can be determined using market observable inputs, or realised through settlement.

Financial assets (i) Classification and subsequent measurement

From 1 January 2018, the Group has applied IFRS 9 and classifies its financial assets in the following measurement categories: · Fair value through other comprehensive income (FVOCI); or · Amortised cost. The classification requirements for debt and equity instruments are described below: Debt instruments Debt instruments are those instruments that meet the definition of a financial liability from the issuer’s perspective, such as loans, government and corporate bonds and trade receivables purchased from clients in factoring arrangements without recourse.

Classification and subsequent measurement of debt instruments depend on: (i) (ii)

the Group’s business model for managing the asset; and the cash flow characteristics of the asset.

Based on these factors, the Group classifies its debt instruments into one of the following three measurement categories: ·

Amortised cost: Assets that are held for collection of contractual cash flows where those cash flows represent solely payments of principal and interest (‘SPPI’), and that are not designated at FVPL, are measured at amortised cost. The carrying amount of these assets is adjusted by any expected credit loss allowance recognised and measured. Interest income from these financial assets is included in ‘Interest and similar income’ using the effective interest rate method. Fair value through other comprehensive income (FVOCI): Financial assets that are held for collection of contractual cash flows and for selling the assets, where the assets’ cash flows represent solely payments of principal and interest, and that are not designated at FVPL, are measured at fair value through other comprehensive income (FVOCI). Movements in the carrying amount are taken through OCI, except for the recognition of impairment gains or losses, interest revenue and foreign exchange gains and losses on the instrument’s amortised cost which are recognised in profit or loss. When the financial asset is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to profit or loss and recognised in Net Investment income’. Interest income from these financial assets is included in ‘Interest income’ using the effective interest rate method.

Business model: the business model reflects how the Group manages the assets in order to generate cash flows. That is, whether the Group’s objective is solely to collect the contractual cash flows from the assets or is to collect both the contractual cash flows and cash flows arising from the sale of assets. If neither of these is applicable (e.g. financial assets are held for trading purposes), then the financial assets are classified as part of ‘other’ business model and measured at FVPL. Factors considered by the Group in determining the business model for a group of assets include past experience on how the cash flows for these assets were collected, how the asset’s performance is evaluated and reported to key management personnel, how risks are assessed and managed and how managers are compensated. SPPI: Where the business model is to hold assets to collect contractual cash flows or to collect contractual cash flows and sell, the Group assesses whether the financial instruments’ cash flows represent solely payments of principal and interest (the `SPPI test’). In making this assessment, the Group considers whether the contractual cash flows are consistent with a basic lending arrangement i.e. interest includes only consideration for the time value of money, credit risk, other basic lending risks and a profit margin that is consistent with a basic lending arrangement. Where the contractual terms introduce exposure to risk or volatility that are inconsistent with a basic lending arrangement, the related financial asset is classified and measured at fair value through profit or loss. The Group reclassifies debt investments when and only when its business model for managing those assets changes. The reclassification takes place from the start of the first reporting period following the change. Such changes are expected to be very infrequent and none occurred during the period. Equity instruments Equity instruments are instruments that meet the definition of equity from the issuer’s perspective; that is, instruments that do not contain a contractual obligation to pay and that evidence a residual interest in the issuer’s net assets. The Group subsequently measures all equity investments at fair value through profit or loss, except where the Group’s management has elected, at initial recognition, to irrevocably designate an equity investment at fair value through other comprehensive income. The Group’s policy is to designate equity investments as FVOCI when those investments are held for purposes other than to generate investment returns. When this election is used, fair value gains and losses are recognised in OCI and are not subsequently reclassified to profit or loss, including on disposal. Impairment losses (and reversal of impairment losses) are not reported separately from other changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in profit or loss as other income when the Group’s right to receive payments is established. Gains and losses on equity investments at FVPL are included in the Net trading income’ line in the statement of profit or loss.

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Summary of significant accounting policies (continued)

(i)

Financial assets and liabilities (continued)

(ii) Impairment

The Group assesses on a forward-looking basis the expected credit losses (‘ECL’) associated with its debt instrument assets carried at amortised cost and FVOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Group recognises a loss allowance for such losses at each reporting date. The measurement of ECL reflects: · · ·

An unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; The time value of money; and Reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions.

Note 5.1.2 provides more detail of how the expected credit loss allowance is measured.

(iii) Modification of loans

The Group sometimes renegotiates or otherwise modifies the contractual cash flows of loans to customers. When this happens, the Group assesses whether or not the new terms are substantially different to the original terms. The Group does this by considering, among others, the following factors: · · · · · ·

If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash flows to amounts the borrower is expected to be able to pay. Whether any substantial new terms are introduced, such as a profit share/equity-based return that substantially affects the risk profile of the loan. Significant extension of the loan term when the borrower is not in financial difficulty. Significant change in the interest rate. Change in the currency the loan is denominated in. Insertion of collateral, other security or credit enhancements that significantly affect the credit risk associated with the loan.

If the terms are substantially different, the Group derecognises the original financial asset and recognises a ‘new’ asset at fair value and recalculates a new effective interest rate for the asset. The date of renegotiation is consequently considered to be the date of initial recognition for impairment calculation purposes, including for the purpose of determining whether a significant increase in credit risk has occurred. However, the Group also assesses whether the new financial asset recognised is deemed to be credit-impaired at initial recognition, especially in circumstances where the renegotiation was driven by the debtor being unable to make the originally agreed payments. Differences in the carrying amount are also recognised in profit or loss as a gain or loss on derecognition. If the terms are not substantially different, the renegotiation or modification does not result in derecognition, and the Group recalculates the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in profit or loss. The new gross carrying amount is recalculated by discounting the modified cash flows at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit-impaired financial assets).

(iv) Derecognition other than on a modification

Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cash flows from the assets have expired, or when they have been transferred and either (i) the Group transfers substantially all the risks and rewards of ownership, or (ii) the Group neither transfers nor retains substantially all the risks and rewards of ownership and the Group has not retained control. The Group enters into transactions where it retains the contractual rights to receive cash flows from assets but assumes a contractual obligation to pay those cash flows to other entities and transfers substantially all of the risks and rewards. These transactions are accounted for as ‘pass through’ transfers that result in derecognition if the Group: (i) (ii) (iii)

Has no obligation to make payments unless it collects equivalent amounts from the assets; Is prohibited from selling or pledging the assets; and Has an obligation to remit any cash it collects from the assets without material delay.

Collateral (shares and bonds) furnished by the Group under standard repurchase agreements and securities lending and borrowing transactions are not derecognised because the Group retains substantially all the risks and rewards on the basis of the predetermined repurchase price, and the criteria for derecognition are therefore not met. This also applies to certain securitisation transactions in which the Group retains a subordinated residual interest.

Financial liabilities (i) Classification and subsequent measurement

In both the current and prior period, financial liabilities are classified as subsequently measured at amortised cost, except for: ·

Financial liabilities at fair value through profit or loss: this classification is applied to derivatives. Gains or losses on derivatives are recognised in profit or loss.;

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Summary of significant accounting policies (continued)

(i)

Financial assets and liabilities (continued)

Financial liabilities arising from the transfer of financial assets which did not qualify for derecognition, whereby a financial liability is recognised for the consideration received for the transfer. In subsequent periods, the Group recognises any expense incurred on the financial liability; and Financial guarantee contracts and loan commitments.

(ii) Derecognition

Financial liabilities are derecognised when they are extinguished (i.e. when the obligation specified in the contract is discharged, cancelled or expires). The exchange between the Group and its original lenders of debt instruments with substantially different terms, as well as substantial modifications of the terms of existing financial liabilities, are accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. The terms are substantially different if the discounted present value of the cash flows under the new terms, including any fees paid net of any fees received and discounted using the original effective interest rate, is at least 10% different from the discounted present value of the remaining cash flows of the original financial liability. In addition, other qualitative factors, such as the currency that the instrument is denominated in, changes in the type of interest rate, new conversion features attached to the instrument and change in covenants are also taken into consideration. If an exchange of debt instruments or modification of terms is accounted for as an extinguishment, any costs or fees incurred are recognised as part of the gain or loss on the extinguishment. If the exchange or modification is not accounted for as an extinguishment, any costs or fees incurred adjust the carrying amount of the liability and are amortised over the remaining term of the modified liability.

Financial guarantee contracts and loan commitments

Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due, in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and others on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantee contracts are initially measured at fair value and subsequently measured at the higher of: · The amount of the loss allowance; and · The premium received on initial recognition less income recognised in accordance with the principles of IFRS 15. Loan commitments provided by the Group are measured as the amount of the loss allowance. The Group has not provided any commitment to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument. For loan commitments and financial guarantee contracts, the loss allowance is recognised as a provision. However, for contracts that include both a loan and an undrawn commitment and the Group cannot separately identify the expected credit losses on the undrawn commitment component from those on the loan component, the expected credit losses on the undrawn commitment are recognised together with the loss allowance for the loan. To the extent that the combined expected credit losses exceed the gross carrying amount of the loan, the expected credit losses are recognised as a provision.

(j)

Cash and cash equivalents

(k)

Foreign exchange forward and spot contracts

(l)

Income tax expense

Foreign exchange forward and spot contracts are classified as held for trading. They are marked to market and are carried at their fair value. Fair values are obtained from discounted cash flow models which are used in the determination of the foreign exchange forward and spot contract rates. Gains and losses on foreign exchange forward and spot contracts are included in foreign exchange income as they arise. The Group uses Rwanda’s national currency, Rwanda Franc (FRw) as both functional and presentation currency. The income tax expense or credit for the period is the tax payable on the current period’s taxable income based on the applicable income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences and to unused tax losses. The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the end of the reporting period in the countries where the company and its subsidiaries and associates operate and generate taxable income. The directors periodically evaluate positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation. They establish provisions where appropriate on the basis of amounts expected to be paid to the tax authorities. Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognised if they arise from the initial recognition of goodwill. Deferred income tax is also not accounted for if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the end of the reporting period and are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

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(l)

Income tax expense (continued)

The deferred tax liability in relation to investment property that is measured at fair value is determined assuming the property will be recovered entirely through sale. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in foreign operations where the company is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future. Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously. Current and deferred tax is recognised in profit or loss, except to the extent that it relates to items recognised in other comprehensive income or directly in equity. In this case, the tax is also recognised in other comprehensive income or directly in equity, respectively.

(m) Leases

Leases of property, plant and equipment where the group, as lessee, has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the fair value of the leased property or, if lower, the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other short-term and long-term payables. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the asset’s useful life or over the shorter of the asset’s useful life and the lease term if there is no reasonable certainty that the group will obtain ownership at the end of the lease term. Leases in which a significant portion of the risks and rewards of ownership are not transferred to the group as lessee are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to profit or loss on a straight-line basis over the period of the lease. Lease income from operating leases where the group is a lessor is recognised in income on a straight-line basis over the lease term. The respective leased assets are included in the balance sheet based on their nature.

(n)

Fiduciary assets

(o)

Intangible assets

The Group provides trust and other fiduciary services such as nominee or agent that result in the holding or investing of assets on behalf of its clients. Assets held in a fiduciary capacity and income arising from related undertakings to return such assets to customers are not reported in the financial statements, as they are not the assets of the Group. The Group’s intangible assets comprise computer software. An intangible asset is recognised only when its cost can be measured reliably and it is probable that the expected future economic benefits that are attributable to it will flow to the Group. Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets is their fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite lives are amortised over the useful economic life. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at each financial year-end. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates and accounted for prospectively. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss and other comprehensive income in the expense category consistent with the function of the intangible asset. Amortisation is calculated using the straight-line method to write down the cost of intangible assets to their residual values over their estimated useful lives as follows: Computer software 2 years There are no intangible assets with indefinite useful lives.

(p)

Dividends on ordinary shares

Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Group’s shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Group. Dividends for the year that are approved after the statement of financial position date are disclosed as an event after the reporting date.

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(q)

Employee benefits

Retirement benefit costs

The Group contributes to a statutory defined contribution pension scheme, the Rwanda Social Security Board (RSSB). Contributions are determined by local statute and are currently limited to 5% of the employees’ gross salary. The company’s RSSB contributions are charged to the statement of profit or loss and other comprehensive income in the period to which they relate.

Short-term benefits

(r)

Contingent liabilities

(s)

Earnings per share

(t)

Benefits, claims and expenses recognition

Letters of credit, acceptances, guarantees and performance bonds are disclosed as contingent liabilities. Estimates of the outcome and the financial effect of contingent liabilities is made by management based on the information available up to the date that the financial statements are approved for issue by the directors. Basic and diluted earnings per share (EPS) data for ordinary shares are presented in the financial statements. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, if any.

Gross benefits and claims

Reinsurance claims

Reinsurance claims are recognised when the related gross insurance claim is recognised according to the terms of the relevant contract.

(u)

Reinsurance

The Group cedes insurance risk in the normal course of business for all of its businesses. Reinsurance assets represent balances due from reinsurance companies. Amounts recoverable from reinsurers are estimated in a manner consistent with the outstanding claims provision or settled claims associated with the reinsurer’s policies and are in accordance with the related reinsurance contract. Reinsurance assets are reviewed for impairment at each reporting date, or more frequently, when an indication of impairment arises during the reporting year. Impairment occurs when there is objective evidence as a result of an event that occurred after initial recognition of the reinsurance asset that the company may not receive all outstanding amounts due under the terms of the contract and the event has a reliably measurable impact on the amounts that the company will receive from the reinsurer. The impairment loss is recorded in the statement of comprehensive income. Gains or losses on buying reinsurance are recognised in the statement of profit or loss immediately at the date of purchase and are not amortised. Ceded reinsurance arrangements do not relieve the cGroup from its obligations to policyholders. The Group also assumes reinsurance risk in the normal course of business for insurance contracts where applicable. Premiums and claims on assumed reinsurance are recognised as revenue or expenses in the same manner as they would be if the reinsurance were considered direct business, taking into account the product classification of the reinsured business. Reinsurance liabilities represent balances due to reinsurance companies. Amounts payable are estimated in a manner consistent with the related reinsurance contract. Premiums and claims are presented on a gross basis for both ceded and assumed reinsurance. Reinsurance assets or liabilities are derecognised when the contractual rights are extinguished or expire or when the contract is transferred to another party. Reinsurance contracts that do not transfer significant insurance risk are accounted for directly through the statement of financial position. These are deposit assets or financial liabilities that are recognised based on the consideration paid or received less any explicit identified premiums or fees to be retained by the reinsured. Investment income on these contracts is accounted for using the effective interest rate method when accrued.

(v)

Insurance receivables

Insurance receivables are recognised when due and measured on initial recognition at the fair value of the consideration received or receivable. Subsequent to initial recognition, insurance receivables are measured at amortised cost, using the effective interest rate method. The carrying value of insurance receivables is reviewed for impairment whenever events or circumstances indicate that the carrying amount may not be recoverable, with the impairment loss recorded in the statement of comprehensive income. Management considers the receivable to be impaired when their indications that the debtors are experiencing significant financial or difficulty default in repayments. Balances outstanding that are impaired are provided for as an impairment loss in the statement of profit or loss and other comprehensive income. Insurance receivables are derecognised when the derecognition criteria for financial assets have been met.

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(w)

Insurance contract liabilities

Insurance contract liabilities include the outstanding claims provision, the provision for unearned premium and the provision for premium deficiency. The outstanding claims provision is based on the estimated ultimate cost of all claims incurred but not settled at the reporting date, whether reported or not, together with related claims handling costs and reduction for the expected value of salvage and other recoveries. No provision for equalisation or catastrophe reserves is recognised. The liabilities are derecognised when the obligation to pay a claim expires, is discharged or is cancelled. The provision for unearned premiums represents that portion of premiums received or receivable that relates to risks that have not yet expired at the reporting date. The provision is recognised when contracts are entered into and premiums are charged, and is brought to account as premium income over the term of the contract in accordance with the pattern of insurance service provided under the contract. At each reporting date, the Group reviews its unexpired risk and a liability adequacy test is performed to determine whether there is any overall excess of expected claims and deferred acquisition costs over unearned premiums. This calculation uses current estimates of future contractual cash flows after taking account of the investment return expected to arise on assets relating to the relevant insurance technical provisions. If these estimates show that the carrying amount of the unearned premiums (less related deferred acquisition costs) is inadequate, the deficiency is recognised in the statement of comprehensive income.

(x)

Insurance payables

Derecognition insurance payables

Insurance payables are derecognised when the obligation under the liability is settled, cancelled or expired.

Changes in accounting policies

The Group has adopted IFRS 9 as issued by the IASB in July 2014 with a date of transition of 1 January 2018, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements. The Group did not early adopt any of IFRS 9 in previous periods. As permitted by the transitional provisions of IFRS 9, the Group elected not to restate comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities at the date of transition were recognised in the opening retained earnings and other reserves of the current period. Consequently, for notes disclosures, the consequential amendments to IFRS 7 disclosures have also only been applied to the current period. The comparative period notes disclosures repeat those disclosures made in the prior year. The adoption of IFRS 9 has resulted in changes in our accounting policies for recognition, classification and measurement of financial assets and financial liabilities and impairment of financial assets. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 ‘Financial Instruments: Disclosures’. Set out below are disclosures relating to the impact of the adoption of IFRS 9 on the Group. Further details of the specific IFRS 9 accounting policies applied in the current period (as well as the previous IAS 39 accounting policies applied in the comparative period) are described in more detail in section 2 (c) above.

(a)

Classification and measurement of financial instruments

The measurement category and the carrying amount of financial assets and liabilities in accordance with IAS 39 and IFRS 9 at 1 January 2018 are compared as follows: IAS 39 Measurement category Financial assets Cash and balances with the central bank Loans and advances to banks Loans and advances to customers Government securities Investment securities Derivative financial instruments

Measurement category

IFRS 9 Carrying amount FRw’000

42,583,327

Amortised cost

42,583,327

53,055,021

Amortised cost

53,055,021

481,246,614

Amortised cost

481,246,614

94,248,923 221,425

Amortised cost FVOCI

93,325,284 221,425

FVPL

Carrying amount FRw’000

Amortised cost (Loans and receivables) Amortised cost (Loans and receivables) Amortised cost (Loans and receivables) Held to maturity Cost FVTPL

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Changes in accounting policies (continued)

(a)

Classification and measurement of financial instruments (continued)

There were no changes to the classification and measurement of financial liabilities.

(b)

Reconciliation of statement of financial position balances from IAS 39 to IFRS 9

The following table reconciles the carrying amounts of financial assets, from their previous measurement category in accordance with IAS 39 to their new measurement categories upon transition to IFRS 9 on 1 January 2018:

IAS 39 carrying amount 31 December 2017

Reclassifications

Remeasurements

Amortised cost

FRw’000

Cash and balances with central banks Opening balance under IAS 39 and closing balance under IFRS 9

42,583,327

Loans and advances to banks Opening balance under IAS 39

53,055,021

Remeasurement: ECL allowance

IFRS 9 carrying amount 1 January 2018 FRw’000

Closing balance under IFRS 9

53,055,021

Loans and advances to customers

Opening balance under IAS 39

471,704,315

Remeasurement: ECL allowance

Closing balance under IFRS 9

471,704,315

Government securities amortised cost Opening balance under IAS 39

94,248,923

Subtraction: to amortised cost (IFRS 9)

(923,639)

Closing balance under IFRS 9

93,325,284

Total financial assets measured at amortised cost

Fair value through profit or loss (FVPL) Derivative financial instruments Opening balance under IAS 39 and closing balance under IFRS 9 Total financial assets measured at FVPL

661,591,586 IAS 39 carrying amount 31 December 2017 FRw’000

(923,639)

660,667,947

Reclassifications

Remeasurements

FRw’000

IAS 39 carrying amount 31 December 2017 FRw’000

Reclassifications

Fair value through other comprehensive income (FVOCI) Investment securities - FVOCI (equity instruments) Opening balance under IAS 39

Remeasurements

FRw’000

IFRS 9 carrying amount 1 January 2018 FRw’000

221,425

Additions from AFS

Closing balance under IFRS 9 Total financial assets measured at FVOCI

138

IFRS 9 carrying amount 1 January 2018 FRw’000

221,425 221,425

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Changes in accounting policies (continued)

The following explains how applying the new classification requirements of IFRS 9 led to changes in classification of certain financial assets held by the Group as shown in the table above:

Designation of equity instruments at FVOCI

The Group has elected to irrevocably designate strategic investments of Rwf 221 million in a small portfolio of non-trading equity securities at FVOCI as permitted under IFRS 9. These securities were previously classified as available for sale. The changes in fair value of such securities will no longer be reclassified to profit or loss when they are disposed of.

Reclassification from retired categories with no change in measurement

In addition to the above, the following debt instruments have been reclassified to new categories under IFRS 9, as their previous categories under IAS 39 were ‘retired’, with no changes to their measurement basis: (i) Those previously classified as available for sale and now classified as measured at FVOCI; and (ii) Those previously classified as held to maturity and now classified as measured at amortised cost. There are no financial assets and liabilities that have been reclassified from the fair value through profit or loss category to the to the amortised cost category as part of the transition to IFRS 9.

(b)

Reconciliation of impairment allowance balance from IAS 39 to IFRS 9

The following table reconciles the prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new impairment allowance measured in accordance with the IFRS 9 expected loss model at 1 January 2018:

Measurement category

Loan loss allowance under IAS 39/ Provision under IAS 37

Reclassification

Remeasurement

Loan loss allowance under IFRS 9

FRw’000

24,007,332

Loans and receivables (IAS 39)/Financial assets at amortised cost (IFRS 9 Cash and balances with central banks Loans and advances to banks Loans and advances to customers 24,007,332 24,007,332

Total

24,007,332

Held to maturity (IAS 39)/Financial assets at amortised cost (IFRS 9) Government securities -

923,639

Available for sale financial instruments (IAS 39)/Financial assets at FVOCI (IFRS 9) Investment securities -

Loan commitments and financial guarantee contracts Loans and advances to Customers Provisions (Loan commitments) Provisions (Financial guarantees)

Total

24,007,332

923,639

24,930,972

Further information on the measurement of the impairment allowance under IFRS 9 can be found in 5.1.2.

Critical accounting estimates and judgements

The preparation of financial statements requires the use of accounting estimates which, by definition, will seldom equal the actual results. The directors also needs to exercise judgement in applying the Group’s accounting policies. This note provides an overview of the areas that involve a higher degree of judgement or complexity, and major sources of estimation uncertainty that have a significant risk of resulting in a material adjustment within the next financial year. Detailed information about each of these estimates and judgements is included in the related notes together with information about the basis of calculation for each affected line item in the financial statements.

Measurement of the expected credit loss allowance

The measurement of the expected credit loss allowance for financial assets measured at amortised cost is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is further detailed in note 5.1.2.3, which also sets out key sensitivities of the ECL to changes in these elements. A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as: · Determining criteria for significant increase in credit risk;

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Critical accounting estimates and judgements (continued)

Measurement of the expected credit loss allowance · · ·

Choosing appropriate models and assumptions for the measurement of ECL; Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL; and Establishing groups of similar financial assets for the purposes of measuring ECL.

Detailed information about the judgements and estimates made by the Group in the above areas is set out in note 5.1.2.

FINANCIAL RISK MANAGEMENT

5.1

Credit risk

The following section discusses the Group’s risk management policies. The measurement of ECL under IFRS 9 uses the information and approaches that the Group uses to manage credit risk, though certain adjustments are made in order to comply with the requirements of IFRS 9. The approach taken for IFRS 9 measurement purposes is discussed separately in note 5.1.2. Credit risk is the risk of suffering financial loss, should any of the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Group. Credit risk arises mainly from interbank, commercial and consumer loans and advances, and loan commitments arising from such lending activities, but can also arise from credit enhancement provided, such as credit derivatives (credit default swaps), financial guarantees, letters of credit, endorsements and acceptances. The Group is also exposed to other credit risks arising from investments in debt securities and other exposures arising from its trading activities (‘trading exposures’) including non-equity trading portfolio assets and derivatives as well as settlement balances with market counterparties and reverse repurchase agreements. Credit risk is the single largest risk for the Group’s business; the directors therefore carefully manage its exposure to credit risk. The credit risk management and control are centralised in a credit risk management team which reports regularly to the Board of Directors.

5.1.1 Credit risk measurement (a) Loans and advances (including loan commitments and guarantees)

The estimation of credit exposure for risk management purposes is complex and requires the use of models, as the exposure varies with changes in market conditions, expected cash flows and the passage of time. The assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of defaults occurring, of the associated loss ratios and of default correlations between counterparties. The Group measures credit risk using Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD). This is similar to the approach used for the purposes of measuring Expected Credit Loss (ECL) under IFRS 9. Refer to note 5.1.2 for more details.

Credit risk grading

The Group uses the National Bank of Rwanda (BNR) credit risk gradings to reflect its assessment of the probability of default of individual counterparties. The facilities are rated as either performing, watch, substandard, doubtful or loss, based on the number of days overdue. The classification criteria are as follows:

Performing

These are credit facilities which are up to date in payments. Where there are no fixed payments, these are facilities that are operating within their approval limits and are unexpired.

Watch

These are credit facilities where principal or interest is due and unpaid for 30 days to 89 days, or for facilities with no fixed payments, the approval limit has been exceeded by 30 days to 89 days, or the credit line has expired for more than 30 days to 89 days.

Substandard

These are loan balances due for 90 days but less than 180 days. They are also those credit facilities that display well-defined credit weaknesses that jeopardize the liquidation of the debt such as inadequate cash flow to service the debt, undercapitalized or insufficient working capital, absence of adequate financial information or security documentation and irregular payment of principal or interest.

Doubtful

These are loan balances that are more than 180 days but less than 365 days overdue. They are also those credit facilities which, in addition to the weaknesses existing in substandard credits, have deteriorated to the extent that full repayment is unlikely or that realizable security values will be insufficient to cover the Group’s exposure.

Loss

These are loans that are more than 365 days overdue. These are also those credit facilities that are considered uncollectable or which may have some recovery value but it is not considered practicable nor desirable to defer write off. They are also accounts classified as “Doubtful” with little or no improvement over the period it has been classified as such. The credit grades are calibrated such that the risk of default increases exponentially at each higher risk grade. Once a facility is classified as substandard, the probability of default reaches 100%.

Treasury

For debt securities in the Treasury portfolio, external rating agency credit grades are used. These published grades are continuously monitored and updated. The PD’s associated with each grade are determined based on realised default rates over the prior 12 months, as published by the rating agency. The rating methods are subject to an annual validation and recalibration so that they reflect the latest projections in the light of all actually observed defaults.

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FINANCIAL RISK MANAGEMENT (continued)

5.1

Credit risk (continued)

5.1.2 Expected credit loss measurement

IFRS 9 outlines a ‘three-stage’ model for impairment based on changes in credit quality since initial recognition as summarised below: · · · ·

· ·

A financial instrument that is not credit-impaired on initial recognition is classified in ‘Stage 1’ and has its credit risk continuously monitored by the Group. If a significant increase in credit risk (‘SICR’) since initial recognition is identified, the financial instrument is moved to ‘Stage 2’ but is not yet deemed to be credit-impaired. Please refer to note 5.1.2.1 for a description of how the Group determines when a significant increase in credit risk has occurred. If the financial instrument is credit-impaired, the financial instrument is then moved to ‘Stage 3’. Please refer to note 3.1.2.2 for a description of how the Group defines credit-impaired and default. Financial instruments in Stage 1 have their ECL measured at an amount equal to the portion of lifetime expected credit losses that result from default events possible within the next 12 months. Instruments in Stages 2 or 3 have their ECL measured based on expected credit losses on a lifetime basis. Please refer to note 5.1.2.3 for a description of inputs, assumptions and estimation techniques used in measuring the ECL. A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward-looking information. Note 5.1.2.4 includes an explanation of how the Group has incorporated this in its ECL models. Purchased or originated credit-impaired financial assets are those financial assets that are credit-impaired on initial recognition. Their ECL is always measured on a lifetime basis (Stage 3).

The following diagram summarises the impairment requirements under IFRS 9 (other than purchased or originated credit-impaired financial assets): CHANGE IN CREDIT QUALITY SINCE INITIAL RECOGNITION Stage 1 (Initial recognition)

Stage 2 (Significant increase in credit risk since initial recognition)

Stage 3 (Credit-impaired assets)

12-month expected credit losses

Lifetime expected credit losses

The key judgements and assumptions adopted by the Group in addressing the requirements of the standard are discussed below:

5.1.2.1 Significant increase in credit risk (SICR)

The Group considers a financial instrument to have experienced a significant increase in credit risk when one or more of the following quantitative, qualitative or backstop criteria have been met:

Qualitative criteria:

For Corporate and Retail portfolios, if the borrower meets one or more of the following criteria: • In short-term forbearance • Direct debit cancellation • Extension to the terms granted • Previous arrears within the last 12 months • Significant increase in credit spread • Significant adverse changes in business, financial and/or economic conditions in which the borrower operates • Actual or expected forbearance or restructuring • Actual or expected significant adverse change in operating results of the borrower • Significant change in collateral value (secured facilities only) which is expected to increase risk of default • Early signs of cashflow/liquidity problems such as delay in servicing of trade creditors/loans The assessment of SICR incorporates forward-looking information (refer to note 5.1.2.4 for further information) and is performed on a monthly basis at a portfolio level for all financial instruments held by the Group. The criteria used to identify SICR are monitored and reviewed periodically for appropriateness by the independent Credit Risk team.

Backstop

A backstop is applied and the financial instrument considered to have experienced a significant increase in credit risk if the borrower is more than 30 days past due on its contractual payments. The Group has not used the low credit risk exemption for any financial instruments in the period ended 30 June 2018.

5.1.2.2 Definition of default and credit-impaired assets

The Group defines a financial instrument as in default, which is fully aligned with the definition of credit-impaired, when it meets one or more of the following criteria:

Quantitative criteria

The borrower is more than 90 days past due on its contractual payments.

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FINANCIAL RISK MANAGEMENT (continued)

5.1 Credit risk (continued) 5.1.2 Expected credit loss measurement (continued) 5.1.2.2 Definition of default and credit-impaired assets (continued) Qualitative criteria

The borrower meets unlikeliness to pay criteria, which indicates the borrower is in significant financial difficulty. These are instances where: · · · · · · ·

The borrower is in long-term forbearance The borrower is deceased The borrower is insolvent The borrower is in breach of financial covenant(s) An active market for that financial asset has disappeared because of financial difficulties Concessions have been made by the lender relating to the borrower’s financial difficulty It is becoming probable that the borrower will enter bankruptcy

The criteria above have been applied to all financial instruments held by the Group and are consistent with the definition of default used for internal credit risk management purposes. The default definition has been applied consistently to model the Probability of Default (PD), Exposure at Default (EAD) and Loss given Default (LGD) throughout the Group’s expected loss calculations. An instrument is considered to no longer be in default (i.e. to have cured) when it no longer meets any of the default criteria for a consecutive period of six months. This period of six months has been determined based on an analysis which considers the likelihood of a financial instrument returning to default status after cure using different possible cure definitions.

5.1.2.3 Measuring ECL — Explanation of inputs, assumptions and estimation techniques

The Expected Credit Loss (ECL) is measured on either a 12-month (12M) or Lifetime basis depending on whether a significant increase in credit risk has occurred since initial recognition or whether an asset is considered to be credit-impaired. Expected credit losses are the discounted product of the Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD), defined as follows: • • •

The PD represents the likelihood of a borrower defaulting on its financial obligation (as per “Definition of default and credit-impaired” above), either over the next 12 months (12M PD), or over the remaining lifetime (Lifetime PD) of the obligation. EAD is based on the amounts the Group expects to be owed at the time of default, over the next 12 months (12M EAD) or over the remaining lifetime (Lifetime EAD). For example, for a revolving commitment, the Group includes the current drawn balance plus any further amount that is expected to be drawn up to the current contractual limit by the time of default, should it occur. Loss Given Default (LGD) represents the Group’s expectation of the extent of loss on a defaulted exposure. LGD varies by type of counterparty, type and seniority of claim and availability of collateral or other credit support. LGD is expressed as a percentage loss per unit of exposure at the time of default (EAD). LGD is calculated on a 12-month or lifetime basis, where 12-month LGD is the percentage of loss expected to be made if the default occurs in the next 12 months and Lifetime LGD is the percentage of loss expected to be made if the default occurs over the remaining expected lifetime of the loan.

The ECL is determined by projecting the PD, LGD and EAD for each future month and for each individual exposure or collective segment. These three components are multiplied together and adjusted for the likelihood of survival (i.e. the exposure has not prepaid or defaulted in an earlier month). This effectively calculates an ECL for each future month, which is then discounted back to the reporting date and summed. The discount rate used in the ECL calculation is the original effective interest rate or an approximation thereof.

5.1.2.3 Measuring ECL — Explanation of inputs, assumptions and estimation techniques (continued)

The Lifetime PD is developed by applying a maturity profile to the current 12M PD. The maturity profile looks at how defaults develop on a portfolio from the point of initial recognition throughout the lifetime of the loans. The maturity profile is based on historical observed data and is assumed to be the same across all assets within a portfolio and credit grade band. This is supported by historical analysis. The 12-month and lifetime EADs are determined based on the expected payment profile, which varies by product type. • For amortising products and bullet repayment loans, this is based on the contractual repayments owed by the borrower over a 12month or lifetime basis. This will also be adjusted for any expected overpayments made by a borrower. Early repayment/refinance assumptions are also incorporated into the calculation. • For revolving products, the exposure at default is predicted by taking current drawn balance and adding a “credit conversion factor” which allows for the expected drawdown of the remaining limit by the time of default. These assumptions vary by product type and current limit utilisation band, based on analysis of the Group’s recent default data. The 12-month and lifetime LGDs are determined based on the factors which impact the recoveries made post default. These vary by product type. • For secured products, this is primarily based on collateral type and projected collateral values, historical discounts to market/book values due to forced sales, time to repossession and recovery costs observed. • For unsecured products, LGD’s are typically set at product level due to the limited differentiation in recoveries achieved across different borrowers. These LGD’s are influenced by collection strategies, including contracted debt sales and price. Forward-looking economic information is also included in determining the 12-month and lifetime PD, EAD and LGD. These assumptions vary by product type. Refer to note 5.1.2.4 for an explanation of forward-looking information and its inclusion in ECL calculations.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 5.

FINANCIAL RISK MANAGEMENT (continued)

5.1 Credit risk (continued) 5.1.2 Expected credit loss measurement (continued) The assumptions underlying the ECL calculation — such as how the maturity profile of the PDs and how collateral values change etc. — are monitored and reviewed on a quarterly basis. There have been no significant changes in estimation techniques or significant assumptions made during the reporting period.

5.1.2.4 Forward-looking information incorporated in the ECL models

The assessment of SICR and the calculation of ECL both incorporate forward-looking information. The Group has performed historical analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio. These economic variables and their associated impact on the PD, EAD and LGD vary by financial instrument. Expert judgment has also been applied in this process. Forecasts of these economic variables (the “base economic scenario”). The impact of these economic variables on the PD, EAD and LGD has been determined by performing statistical regression analysis to understand the impact changes in these variables have had historically on default rates and on the components of LGD and EAD.

5.1.2.4 Forward-looking information incorporated in the ECL models (continued)

In addition to the base economic scenario, the Group’s credit team also provide other possible scenarios along with scenario weightings. The number of other scenarios used is set based on the analysis of each major product type to ensure non-linearities are captured. The number of scenarios and their attributes are reassessed at each reporting date. At 1 January 2018 and 31 December 2018, for all but two portfolios the Group concluded that three scenarios appropriately captured non-linearities. For portfolios X] and Y], the Group concluded that two additional downside scenarios were required. The scenario weightings are determined by a combination of statistical analysis and expert credit judgement, taking account of the range of possible outcomes each chosen scenario is representative of. The assessment of SICR is performed using the Lifetime PD under each of the base, and the other scenarios, multiplied by the associated scenario weighting, along with qualitative and backstop indicators (see note 5.1.2.1). This determines whether the whole financial instrument is in Stage 1, Stage 2, or Stage 3 and hence whether 12-month or lifetime ECL should be recorded. Following this assessment, the Group measures ECL as either a probability weighted 12-month ECL (Stage 1), or a probability weighted lifetime ECL (Stages 2 and 3). These probability-weighted ECLs are determined by running each scenario through the relevant ECL model and multiplying it by the appropriate scenario weighting (as opposed to weighting the inputs).

Economic variable assumptions

The most significant period-end assumptions used for the ECL estimate as at 30 June 2018 are set out below. The scenarios “base”, “upside” and “downside” were used for all portfolios.

Domestic GDP

2019

2020

2021

2022

2023

Base

6.5%

Upside

7.1%

Downside

6.0%

The weightings assigned to each economic scenario at 30 June 2018 were as follows:

Corporate and retail portfolio

Base

80%

Upside 10%

Downside 10%

Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the impact of any regulatory, legislative or political changes, have also been considered, but are not deemed to have a material impact and therefore no adjustment has been made to the ECL for such factors. This is reviewed and monitored for appropriateness on a quarterly basis.

Sensitivity analysis

The most significant assumptions affecting the ECL allowance are as follows:

(i) Collateral haircuts, and (ii) Period to recovery of collateral

Set out below are the changes to the ECL as at 30 June 2018 that would result from reasonably possible changes in these parameters from the actual assumptions used in the Group’s economic variable assumptions (for example, the impact on ECL of increasing the estimated recovery period by 6 months in each of the base, upside and downside scenarios): Time to realisation: The directors have assumed a time to realisation of 6 months for commercial properties and three months for residential properties. If the time to realisation is increased to two years, the estimated credit loss would increase by FRw 3,829 million. Collateral hair cuts: The directors have assumed collateral hair cuts of 50% for commercial and 30% for residential properties. If the hair cuts are increased by 500 basis points, the expected credit loss would increase by FRw x,xxx million.

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FINANCIAL RISK MANAGEMENT (continued)

5.1

Credit risk (continued)

5.1.3 Credit risk exposure 5.1.3.1 Maximum exposure to credit risk — Financial instruments subject to impairment

The following tables contain an analysis of the credit risk exposure of financial instruments for which an ECL allowance is recognised. The gross carrying amount of financial assets below also represents the Group’s maximum exposure to credit risk on these assets.

5.1.3.1 Maximum exposure to credit risk — Financial instruments subject to impairment (continued)

Corporate

2018

Lifetime ECL

2017

ECL staging Stage 1

Stage 2

12-month ECL

Stage 3

Lifetime ECL

Total

FRw’000

156,155,334

376,394,602

Watch

266,252,671

23,957,476

Default

15,789,993

27,738,275

Normal

Gross carrying amount Loss allowance Carrying amount

156,155,334

266,252,671

15,789,993

438,197,998

428,090,353

(3,431,685)

(10,961,340)

(2,372,912)

(16,765,937)

(19,547,004)

152,723,649

255,291,331

13,417,081

421,432,061

408,543,349

Retail

2018

Lifetime ECL

2017

ECL staging Stage 1 12-month ECL

Stage 2

Lifetime ECL

Stage 3

Total

FRw’000

62,165,428

60,260,237

Watch

2,985,992

2,764,523

Default

5,037,050

4,596,534

Gross carrying amount

62,165,428

2,985,992

5,037,050

70,188,470

67,621,294

Loss allowance

(2,719,160)

(874,856)

(5,037,050)

(8,631,066)

(4,460,329)

Carrying amount

59,446,268

2,111,136

61,557,404

63,160,965

Normal

Government securities 2018

Lifetime ECL

2017

ECL staging Stage 1 12-month ECL

Stage 2

Lifetime ECL

FRw’000

Normal

89,577,540

Gross carrying amount

89,577,540

Loss allowance Carrying amount

144

(887,859) 88,689,681

Stage 3

Total

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

FRw’000

89,577,540

94,248,923

89,577,540

94,248,923

(887,859)

88,689,681

94,248,923

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 5.

FINANCIAL RISK MANAGEMENT (continued)

5.1

Credit risk (continued)

5.1.3 Credit risk exposure (continued) 5.1.3.1 Maximum exposure to credit risk — Financial instruments subject to impairment (continued)

Stage 1 12-month ECL

Normal Watch Gross carrying amount Loss allowance Carrying amount

FRw’000 11,921,406 11,921,406 (88,926) 11,832,480

Guarantees and commitments 2018 ECL staging Stage 2 Lifetime ECL FRw’000 68,356,687 68,356,687 (1,653,926) 66,702,761

Stage 3 Lifetime ECL

Total

FRw’000 - -

FRw’000 11,921,406 68,356,687 80,278,093 (1,742,852) 78,535,241

FRw’000 88,439,532 2,204,849 90,644,381 90,644,381

2017

Information on how the Expected Credit Loss (ECL) is measured and how the three stages above are determined is included in note 5.1.2 ‘Expected credit loss measurement’.

5.1.3.2 Maximum exposure to credit risk — Financial instruments not subject to impairment

The maximum credit risk exposure from financial assets not subject to impairment (i.e. FVPL) are the Group’s equity investments. As at 30 June 2018, the maximum exposure was Rwf 221 million. The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings (if available) or to historical information about counterparty default rates.

5.1.4 Credit risk exposure 5.1.4.1 Maximum exposure to credit risk — Financial instruments subject to impairment The table below presents the credit quality of financial instruments: Credit quality

30-Jun-18 FRw’000

31-Dec-17 FRw’000

49,927,525 242,819 1,575,460 106,712 51,852,516

51,130,030 242,819 1,575,460 106,712 53,055,021

Balances with National Bank of Rwanda - Counterparty without credit rating

51,665,954

42,583,327

Government securities B+

88,699,681

94,248,923

Loans and advances Counterparties without credit rating

218,320,762

359,567,500

Insurance receivables Counterparties without credit rating

2,069,896

1,147,644

Other assets Counterparties without credit rating

9,919,595

8,954,068

221,425

Due from banks A+ A B+ B

Equity instruments Counterparties without credit rating

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FINANCIAL RISK MANAGEMENT (continued)

5.1 Credit risk (continued) 5.1.4 Credit risk exposure (continued) 5.1.4.2 Collateral and other credit enhancements

The Group employs a range of policies and practices to mitigate credit risk. The most common of these is accepting collateral for funds advanced. The Group has internal policies on the acceptability of specific classes of collateral or credit risk mitigation. The Group prepares a valuation of the collateral obtained as part of the loan origination process. This assessment is reviewed periodically. The principal collateral types for loans and advances are: · Mortgages over residential and commercial properties; · Charges over business assets such as premises, inventory and accounts receivable; · Charges over financial instruments such as debt securities and equities; and · Commitments and letters of undertaking from the Government of Rwanda. Longer-term finance and lending to corporate entities are generally secured; revolving individual credit facilities are generally unsecured. Collateral held as security for financial assets other than loans and advances depends on the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured. Derivatives are not collateralised. The Group’s policies regarding obtaining collateral have not significantly changed during the reporting period and there has been no significant change in the overall quality of the collateral held by the Group since the prior period. The Group closely monitors collateral held for financial assets considered to be credit-impaired, as it becomes more likely that the Group will take possession of collateral to mitigate potential credit losses. Financial assets that are credit-impaired and related collateral held in order to mitigate potential losses are shown below:

5.1.4.3 Collateral and other credit enhancements Stage 1

Stage 2

Stage 3

Impairment allowance

Carrying amount

14,270,232 4,413,397

Equipment loans

Fair value of collateral

29,961,004

65,234

(1,107,933)

43,188,537

125,119

16,412,243

1,911,081

(1,157,230)

21,579,491

2,694,018

80,116,376

210,560,909

5,766,234

(11,390,562)

285,052,957

9,035,953

Consumer loans

18,729,009

4,580,235

2,257,610

(1,325,450)

24,241,404

4,508,423

Mortgage loans

37,925,468

3,543,292

5,718,966

(983,741)

46,203,985

8,949,960

700,852

1,194,988

70,868

(801,021)

1,165,687

2,810,001

156,155,334

266,252,671

15,789,993

(16,765,937)

421,432,061

28,123,474

1,216,640

32,037

86,137

(125,313)

1,209,501

244,917

5,498

42,626

(36,563)

256,478

Equipment loans

12,823

(594)

12,229

Consumer loans

34,272,817

1,071,414

3,571,401

(4,860,287)

34,055,345

Mortgage loans

26,173,983

1,877,043

1,336,886

(3,573,058)

25,814,854

244,248

(35,251)

208,997

62,165,428

2,985,992

5,037,050

(8,631,066)

61,557,404

15,486,872

29,993,041

151,371

(1,233,246)

44,398,038

125,119

4,658,314

16,417,741

1,953,707

(1,193,793)

21,835,969

2,694,018

Equipment loans

80,129,199

210,560,909

5,766,234

(11,391,156)

285,065,186

9,035,953

Consumer loans

53,001,826

5,651,649

5,829,011

(6,185,737)

58,296,749

4,508,423

Mortgage loans

64,099,451

5,420,335

7,055,852

(4,556,799)

72,018,839

8,949,960

945,100

1,194,988

70,868

(836,272)

1,374,684

2,810,001

218,320,762

269,238,663

20,827,043

(25,397,003)

482,989,465

28,123,474

Corporate Overdrafts Treasury loans

Others

Retail Overdrafts Treasury loans

Others

Total Overdrafts Treasury loans

Others

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 5.

FINANCIAL RISK MANAGEMENT (continued)

5.1

Credit risk (continued)

5.1.5 Loss allowance

The loss allowance recognised in the period is impacted by a variety of factors, as described below: · · · · · · ·

Transfers between Stage 1 and Stages 2 or 3 due to financial instruments experiencing significant increases (or decreases) of credit risk or becoming credit-impaired in the period, and the consequent “step up” (or “step down”) between 12-month and Lifetime ECL; Additional allowances for new financial instruments recognised during the period, as well as releases for financial instruments derecognised in the period; Impact on the measurement of ECL due to changes in PDs, EADs and LGDs in the period, arising from regular refreshing of inputs to models; Impacts on the measurement of ECL due to changes made to models and assumptions; Discount unwind within ECL due to the passage of time, as ECL is measured on a present value basis; Foreign exchange retranslations for assets denominated in foreign currencies and other movements; and Financial assets derecognised during the period and write-offs of allowances related to assets that were written off during the period (see note 5.1.5).

5.1.6 Write-off policy

The Group writes off financial assets, in whole or in part, when it has exhausted all practical recovery efforts and has concluded there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation of recovery include (i) ceasing enforcement activity and (ii) where the Group’s recovery method is foreclosing on collateral and the value of the collateral is such that there is no reasonable expectation of recovering in full. The Group may write-off financial assets that are still subject to enforcement activity. The outstanding contractual amounts of such assets written off during the year ended 30 June 2018 was Rwf 5,309 million. The Group still seeks to recover amounts it is legally owed in full, but which have been partially written off due to no reasonable expectation of full recovery.

5.1.7 Modification of financial assets

The Group sometimes modifies the terms of loans provided to customers due to commercial renegotiations, or for distressed loans, with a view to maximising recovery. Such restructuring activities include extended payment term arrangements, payment holidays and payment forgiveness. Restructuring policies and practices are based on indicators or criteria which, in the judgement of management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans. The risk of default of such assets after modification is assessed at the reporting date and compared with the risk under the original terms at initial recognition, when the modification is not substantial and so does not result in derecognition of the original asset. The Group monitors the subsequent performance of modified assets. The Group may determine that the credit risk has significantly improved after restructuring, so that the assets are moved from Stage 3 or Stage 2 (Lifetime ECL) to Stage 1 (12-month ECL). This is only the case for assets which have performed in accordance with the new terms for six consecutive months or more.

5.1.8 Concentration of credit risk

The Group’s financial instruments do not represent a concentration of credit risk because the Group deals with a variety of customers and its loans and advances are structured and spread among a number of customers. The Grop monitors concentrations of credit risk by sector. An analysis of concentrations of credit risk at the reporting date is shown below: 30 June 2018 Large Corporate Clients Small and Medium Enterprises Non-Profit Entities Retail Banking

5.2

31 December 2017

FRw’000

%age

FRw’000

%age

381,346,737

75%

367,759,825

74%

51,661,301

10%

54,702,928

11%

5,189,964

5,627,590

70,188,470

14%

67,621,305

14%

508,386,472

100%

495,711,648

100%

Liquidity risk

Liquidity risk is the risk that the Group will encounter difficulty in meeting obligations from its financial liabilities. The Group’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Group’s reputation. The Group’s treasury maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions.

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FINANCIAL RISK MANAGEMENT (continued)

5.2

Liquidity risk (continued) 30 June 2018 39.5% 43.5% 48.1% 39.2% 20%

At close of the year Average for the year Maximum for the year Minimum for the year Minimum statutory requirement

31 December 2017 42.1% 43.9% 48.7% 39.8% 20%

The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. Details of the reported Group’s ratio of net liquid assets to deposits from customers at the reporting date and during the reporting year were as follows: The table below summarizes the Group’s liquidity risk as at 30 June 2018 and 31 December 2017, categorized into relevant maturity rankings based on undiscounted cash flows. Up to 1 month

1 - 3 months

3 – 12 months

1 - 5 years

Over 5 years

Total

Cash in hand

15,489,713

Balances with the National Bank of Rwanda Due from banks

51,665,954

45,386,458

151,792

345,455

45,883,705

Government securities – amortised cost Loans and advances to customers Equity investments

37,304,095

15,690,718

29,819,762

7,105,309

3,112,500

93,032,383

35,074,364

24,102,935

50,007,927

169,743,988

556,687,468

835,616,681

221,425

ASSETS

Insurance receivables Other assets TOTAL ASSETS

2,069,896

6,669,211

137,189

3,087,287

25,907

9,919,595

191,589,794

42,152,530

83,260,431

176,875,205

560,021,392

1,053,899,352

12,931,878

26,964

25,879,672

38,838,513

367,993,120

16,303,382

89,921,949

927,964

475,146,414

9,398,247

5,364,527

14,762,774

2,809,771

4,258,113

498,519

4,757,596

9,514,228

LIABILITIES AND EQUITY Due to banks Other customer deposits Dividends payable

Insurance liabilities Other liabilities Long-term finance At 30 June 2018 Liquidity Gap June 2018

655,446

1,295,896

18,418,205

46,156,214

66,525,762

395,236,805

26,299,058

138,977,422

47,084,177

607,597,463

(203,647,010)

15,853,471

(55,716,992)

129,791,027

560,021,392

446,301,889

Up to 1 month

1 - 3 months

3 – 12 months

1 - 5 years

Over 5 years

ASSETS

Total

Cash in hand

19,731,699

Balances with the National Bank of Rwanda Due from banks

42,583,327

52,143,328

113,263

842,831

53,099,422

Held to maturity investments Loans and advances to customers Equity investments

22,315,451

11,854,149

35,753,759

28,053,200

1,781,250

99,757,810

40,625,275

38,398,098

82,846,477

83,025,415

332,213,191

577,108,456

Insurance liabilities Other assets TOTAL ASSETS

148

221,425

1,147,644

7,430,272

1,037,109

460,789

25,897

8,954,068

184,829,352

52,550,263

119,903,857

111,104,513

334,215,866

802,603,850

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 5.

FINANCIAL RISK MANAGEMENT (continued)

5.2

Liquidity risk (continued) Up to 1 month

1 - 3 months

3 – 12 months

1 - 5 years

Over 5 years

Total

26,670,446

15,669,000

38,014

42,377,460

359,057,557

17,314,759

81,670,225

878,748

458,921,290

38,759

9,339,553

9,378,312

2,123,038

7,874,665

9,310

7,383,715

15,267,691

LIABILITIES AND EQUITY

Due to banks Other customer deposits Dividends payable Insurance liabilities Other liabilities Long-term finance

2,255,761

3,138,573

15,660,331

59,880,070

80,934,735

395,897,188

38,254,680

114,091,838

60,758,819

609,002,525

(211,067,836)

14,295,582

5,812,019

50,345,694

334,215,866

193,601,325

At 31 December 2017 Liquidity Gap 2017

5.3

Market Risk

(i)

Currency risk

The Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The Board sets limits on the level of exposure by currency and in total for both overnight and intra-day positions which are monitored daily and hedging strategies used to ensure that positions are maintained within the established limits. Transactions in foreign currency are recorded at the rate in effect at the date of the transaction. The Group translates monetary assets and liabilities denominated in foreign currencies at the rate of exchange in effect at the reporting date. The Group records all gains or losses on changes in currency exchange rates in profit or loss. The table below summarises the foreign currency exposure for the Group as at 30 June 2018 and 31 December 2017: 30 June 2018

Assets in foreign currencies Liabilities in foreign currencies Net foreign currency exposure at the end of the year

2018

2017

FRw’000

194,452,796

190,349,295

(206,330,754)

(206,170,870)

(11,877,959)

(15,821,575)

The following table demonstrates the sensitivity to a reasonably possible change in the below mentioned exchange rates of major transaction currencies, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities). Effect on profit before tax Currency

Increase/decrease in exchange rate

30 June 2018 FRw’000

31 December 2017 FRw’000

+5% -5% +5% +5% -5%

(639,623) (639,623 (2,911) 18,739 (18,739)

(856,822) 856,822 (2,509 2,509

USD GBP EUR

The various foreign currencies to which the Group is exposed as at 30 June 2018 are summarised below. All figures are in thousands of Rwandan francs (FRw’000):

Assets

Cash, deposits and advances to banks Loans and advances to customers Other assets, property and investments

USD

Euro

GBP

Other foreign currencies

Total

34,957,591

17,231,609

807,454

815,462

113,346,330

139,869,824

7,073

714

248

482,881,961

753,900

6,463

2,025

435

15,100,900

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FINANCIAL RISK MANAGEMENT (continued)

5.3

Market Risk (continued)

(i)

Currency risk (continued)

At 30 June 2018

USD

Euro

GBP

Other foreign currencies

Total

175,581,314

17,245,144

810,192

816,144

213,456,950

19,246,638

2,084,925

2,556

37,887,893

130,836,335

14,773,142

863,962

217,067

472,313,572

Liabilities and Equity Deposits from banks Deposits from customers

938,865

12,291

1,898

1,135

15,630,444

37,351,940

58,544,298

At 30 June 2018

188,373,778

16,870,359

868,416

218,201

206,330,754

Net currency exposure

(12,792,463)

374,786

(58,224)

597,943

(11,877,959)

Other liabilities Long-Term Finance

The various foreign currencies to which the Group was exposed to as at 31 December 2017 are summarised below. All figures are in thousands of Rwandan francs (FRw’000)

Assets

Cash, deposits and advances to banks Loans and advances to customers Other assets, property and investments At 31 December 2017

USD

Euro

GBP

Other Foreign currencies

Total

39,812,867 131,576,935

15,494,441 3,621

1,235,868 7,003

1,163,836 166

57,707,012 131,587,725

1,032,548

10,449

11,260

301

1,054,558

172,422,350

15,508,511

1,254,131

1,164,303

190,349,295

29,427,141

104,342

2,378

29,533,861

113,269,930

15,449,952

825,940

223,062

129,768,884

750,806

4,401

1,607

409

757,223

Liabilities and Equity Deposits from banks Deposits from customers Other liabilities Long-Term Finance

46,110,902

At 31 December 2017

189,558,779

15,558,695

829,925

223,471

206,170,870

Net currency exposure

(17,136,429)

(50,184)

424,206

940,832

(15,821,575)

(ii)

Interest rate risk

Interest rate is the risk that the future cash flows of financial instruments will fluctuate because of changes in the market interest rates. Interest margin may increase as a result of such changes but may reduce losses in the event that unexpected movement arises. The Group closely monitors interest rate movements and seeks to limit its exposure by managing the interest rate and maturity structure of assets and liabilities carried on the statement of financial position.

Sensitivity analysis interest rate risk

Except for some borrowings that are tagged to LIBOR, all financial instruments entered into by the Group are at fixed rates and therefore not prone to interest rate fluctuations. The impact of fluctuations in the LIBOR (London Interbank Rate) is not expected to have a significant effect on the results of the Group. Effect on profit before tax Currency USD EUR

150

Increase/decrease in LIBOR rate +/-0.23% +/-0.27%

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

30 June 2018

31 December 2017

FRw’000

(29,423) 1,012

101,689 65,011

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 5.

FINANCIAL RISK MANAGEMENT (continued)

5.3

Market Risk (continued)

(ii)

Interest rate risk (continued)

The following is an analysis of the Group’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position: Balance as at 30 June 2018 Effect on Interest income

Weighted interest rate

+/- 100bp FRw’000 106,009

Balances with the National Bank of Rwanda

5.1%

FRw’000 10,600,870

Balances and placements with other banks

0.9%

45,843,817

458,438

Treasury bills and bonds

9.7%

Loans and advances - Net

15.5%

88,699,681 481,246,614

886,997 4,812,466

626,390,982

6,263,910

25,955,555 139,450,443 58,544,298

259,556 1,394,504 585,443

223,950,296

2,239,503

402,440,686 FRw’000 19,012,423 51,833,407 94,248,923 471,704,315 636,799,068

4,024,407 +/- 100bp FRw’000 190,124 518,334 942,489 4,717,043 6,367,991

31,200,214 140,381,856 70,842,175 242,424,245 394,374,823

312,002 1,403,819 708,422 2,424,242 3,943,748

TOTAL ASSETS/INCREASE Effect on Interest expense Balances and placements due to banks Customer deposits

5.4% 8.3%

Long-Term Finance

6.5%

TOTAL LIABILITIES/INCREASE EFFECT ON PROFIT Balance as at 31 December 2017 Effect on Interest income Balances with the National Bank of Rwanda Balances and placements with other banks Treasury bills and bonds Loans and advances - Net TOTAL ASSETS/INCREASE Effect on Interest expense Balances and placements due to banks Customer deposits Long-Term Finance TOTAL LIABILITIES/INCREASE EFFECT ON PROFIT

Weighted interest rate 9.6% 0.2% 9.6% 16.2%

3.4% 8.9% 7.2%

The table below summarizes the interest rate risk of the Group as at 30 June 2018: Weighted interest rate

On demand

Less than 3 months

3-12 months

1 to 5 year

Over 5 years

Total

FRw’000

10,600,870

45,348,667

151,413

343,737

45,843,817

9.7%

52,474,324

28,741,939

5,983,418

1,500,000

88,699,681

15.5%

57,746,709

46,196,699

120,172,735

257,130,470

481,246,614

45,348,667

120,973,317

75,282,375

126,156,153

258,630,470

626,390,982

951,042

25,004,514

25,955,555 139,450,443

ASSETS Balances with the National Bank of Rwanda

5.1%

Balances and placements with other banks

0.9%

Treasury bills and bonds Loans and advances – net TOTAL ASSETS LIABILITIES Balance and placements due to other banks

5.4%

Customer deposits

8.3%

21,577,086

28,644,677

88,375,380

853,300

Long-term finance

6.5%

1,923,420

17,752,487

38,868,390

58,544,298

Total liabilities

21,577,086

31,519,139

131,132,381

39,721,690

223,950,296

Total interest sensitivity gap

23,771,581

89,454,178

(55,850,006)

86,434,463

258,630,470

402,440,686

The table below summarizes the interest rate risk of the Group as at 31 December 2017:

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 5.

FINANCIAL RISK MANAGEMENT (continued)

5.3

Market Risk (continued)

(ii)

Interest rate risk (continued) Weighted interest rate

ASSETS Balances with the National Bank of Rwanda Balances and placements with other banks Treasury bills and bonds Loans and advances – net TOTAL ASSETS LIABILITIES Balances and placements due to other banks Customer deposits Long-term finance TOTAL LIABILITIES Total interest sensitivity gap

5.4

On demand

Less than 3 months

3-12 months

1 to 5 year

Over 5 years

Total

FRw’000

9.6%

19,012,423

0.2% 9.6% 16.2%

45,873,406 45,873,406

5,117,871 33,812,821 76,951,178 134,894,293

842,130 35,312,355 76,532,542 112,687,027

23,623,747 83,025,415 106,649,162

1,500,000 235,195,180 236,695,180

51,833,407 94,248,923 471,704,315 636,799,068

4.5% 8.7% 7.2%

32,652,435 32,652,435 13,220,971

31,162,200 26,655,799 5,322,558 63,140,557 71,753,736

38,014 80,265,577 15,094,295 95,397,886 17,289,141

808,045 50,425,322 51,233,367 55,415,795

236,695,180

31,200,214 140,381,856 70,842,175 242,424,245 394,374,823

Capital management

The primary objective of the Group’s capital management is to ensure that the Group, Bank and Insurance subsidiaries comply with capital requirements and maintain healthy capital ratios in order to support its business and to maximise shareholders’ value. The Group maintains an actively managed capital base to cover risks inherent in the businesses. The adequacy of the Group’s capital is monitored using, among other measures, the rules and ratios established by the National Bank of Rwanda. The National Bank of Rwanda sets and monitors capital requirements for the banking and insurance industries. In implementing current capital requirements, the National Bank of Rwanda requires the Group to maintain a prescribed ratio of total capital to total risk-weighted assets for its banking business and maintaining adequate capital and solvency for the insurance business. The Bank’s regulatory capital is analysed into two tiers: · Core Capital (Tier 1) capital, which includes ordinary share capital, share premium, retained earnings, after deductions for investments in financial institutions, and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes; and · Supplementary Capital (Tier 2) includes the regulatory reserve. Various limits are applied to elements of the capital base. The Bank’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognised and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Bank’s regulatory capital position at 30 June/31 December was as follows:

30 June 2018 FRw’000

THE GROUP 31 December 2017 FRw’000

THE BANK 30 June 2018 FRw’000

Core Capital (Tier 1): Ordinary share capital Retained earnings and reserves Share premium Total

6,745,370 96,190,274 18,936,176 121,871,820

6,745,370 83,789,827 18,936,176 109,471,373

6,745,370 91,191,589 18,936,176 116,873,135

Supplementary Capital (Tier 2):

3,250,037

125,121,857

112,721,410

119,876,785

Total qualifying capital

152

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 5.

FINANCIAL RISK MANAGEMENT (continued)

5.4

Capital management (continued)

BNR Repo Due From banks Financial Instruments Loans & Advances (Net excl. Residential mortgage) Loans & Advances (Net Residential mortgage) Equity Investments Fixed Assets & other assets Financing commitments given to customers

Risk % 20% 20% 100% 50% 100% 100% 100% 100%

Total Risk weighted assets Regulatory reserve Capital ratios: Total qualifying capital expressed as percentage of total risk-weighted assets Total tier 1 capital expressed as a percentage of total risk-weighted assets

30 June 2018 FRw’000

THE GROUP 31 December 2017 FRw’000

THE BANK 30 June 2018 FRw’000

2,120,174 9,168,763 19,606,606 30,680,094 418,521,774 46,440,898 45,243,693

4,803,463 9,610,026 19,606,606 30,043,879 412,878,286 2,621,425 44,418,122 57,640,509

2,120,174 9,168,763 19,606,606 30,680,094 419,886,427 221,425 46,759,675 45,243,693

571,782,002

581,622,316

573,686,856

15%

21.9%

19.4%

20.9%

21.3%

18.8%

20.4%

The table below summarises the regulatory capital requirements and capital maintained by BK General Insurance:

Capital management

Capital

Solvency

2018 FRw’000

2017 FRw’000

2018 FRw’000

2017 FRw’000

Regulatory requirement

1,000,000

624,268

500,000

Maintained by company

2,000,000

1,000,000

1,021,000

889,812

OPERATIONAL RISK MANAGEMENT

6.1

Operational risk

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Group’s operations and are faced by all business units. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: · Requirements for appropriate segregation of duties, including the independent authorisation of transactions. · Requirements for the reconciliation and monitoring of transactions. · Compliance with regulatory and other legal requirements. · Documentation of controls and procedures. · Requirements for the yearly assessment of operational risks faced and the adequacy of controls and procedures to address the risks identified. · Requirements for the reporting of operational losses and proposed remedial action. · Development of contingency plans. · Training and professional development. · Ethical and business standards. · Risk mitigation, including insurance where this is effective. Compliance with Group’s standards is supported by a programme of regular reviews undertaken by both the Internal Audit and Risk and Compliance department. The results of internal audit reviews are discussed with the management of the business unit to which they relate, with summaries submitted to the Audit Committee and senior management of the Group.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 6.

OPERATIONAL RISK MANAGEMENT (continued)

6.2

Insurance risk management

The Group’s activities expose it to a variety of risks, including its portfolio of risks covered and perils insured. The Group’s overall risk management programme focuses on the identification and management of risks and seeks to minimise potential adverse effects on its financial performance, by use of underwriting guidelines and capacity limits, reinsurance planning, credit policy governing the acceptance of clients, and defined criteria for the approval of intermediaries and reinsurers. The Group has policies in place to ensure that insurance is sold to customers with an appropriate claim and credit history. The risk exposure is mitigated by diversification across a large portfolio of insurance contracts in different product classes which are fire, marine, motor, accident, bonds and aviation. The variability of risks is also improved by careful selection and implementation of underwriting strategy guidelines, as well as the use of reinsurance arrangements. The Group purchases reinsurance as part of its risks mitigation programme. Reinsurance ceded is placed on both a proportional and non–proportional basis. The majority of proportional reinsurance is quota– share reinsurance which is taken out to reduce the overall exposure of the company to certain classes of business. Non–proportional reinsurance is primarily excess–of–loss reinsurance designed to mitigate the company’s net exposure to catastrophe losses. Retention limits for the excess–of–loss reinsurance vary by product line. The Group manages the insurance risk in the manner briefly outlined below: The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of insurance, risk is random and therefore unpredictable. Risks must be evitable. Inevitable makes it certain hence not insurable. For a portfolio of insurance contracts where the theory of probability is applied to pricing and provisioning, the principal risk that the Group faces under its insurance contracts is that the actual claims and payments exceed the carrying amount of the insurance liabilities. This could occur if the frequency or severity of claims is greater than estimated. Insurance events are random and the actual number and amount of claims and benefits will vary from year to year from the level established using statistical techniques. Experience shows that the larger the portfolio of similar insurance contracts, the smaller the relative variability about the expected outcome will be. In addition, a more diversified portfolio is less likely to be affected across the board by a change in any subset of the portfolio. The Group has its insurance underwriting strategy to diversify the type of insurance risks accepted and within each of these categories to achieve a sufficiently large population of risks to reduce the variability of the expected outcome. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location, the nature of industry covered and likelihood of a catastrophe.

Insurance Risk

The Group issues contracts that transfer insurance risk. The risk under any one insurance contract is the possibility that the insured event occurs and the uncertainty of the amount of the resulting claim. By the very nature of an insurance contract, this risk is random and therefore unpredictable. Factors that aggravate insurance risk include lack of risk diversification in terms of type and amount of risk, geographical location and type of industry covered. Claims are payable on claims occurrence basis. The Group is liable for all insured events that occurred during the term of the contract, even if the loss is discovered after the end of the contract term. As a result, liability claims are settled over a long period of time and a larger element of the claims provision relates to incurred but not reported claims (IBNR). For certain contracts, the Group has limited the number of claims that can be paid in any policy year or introduced a maximum amount payable for claims in any policy year. The Group also has the right to re-price the risk at renewal. It also has the ability to impose deductibles and reject fraudulent claims. Reinsurance is used to manage insurance risk. This does not, however, discharge the Group’s liability as primary insurer. If a reinsurer fails to pay a claim for any reason, the Group remains liable for the payment to the policyholder. The creditworthiness of reinsurers is considered on an annual basis by reviewing their financial strength prior to finalisation of any contract. The Group reinsurance placement policy assesses the creditworthiness of all reinsurers and intermediaries by reviewing credit grades provided by rating agencies and other publicly available financial information.

Technical provision

Reinsurance risk

154

Gross claims reported, claims handling expenses liability and the liability for claims incurred but not reported (IBNR) are net of expected recoveries from salvages. The Group uses the most reliable technique to estimate the ultimate cost of claims including IBNR provision. Management has determined that the estimate is adequate for purposes of covering the risk and will ensure the Group will remain profitable in the future. As such management does not review claims development (i.e. actual claims compared with previous estimates) to manage its insurance risk.

In common with other insurance companies, in order to minimize financial exposure arising from large insurance claims, the Group, in the normal course of business, enters into arrangements with other parties for reinsurance purposes. Such reinsurance arrangements provide for greater diversification of business, allow management to control exposure to potential losses arising from large risks, and provide additional capacity for growth. A significant portion of the reinsurance is effected under excess of loss reinsurance contracts. To minimise its exposure to significant losses from reinsurer insolvencies, the Group evaluates the financial condition of its reinsurers and monitors concentrations of credit risk arising from similar geographic regions, activities or economic characteristic of the reinsurers. Reinsurance contracts do not relieve the Group from its obligations to cedants and as a result the Group remains liable for the portion of outstanding claims reinsured to the extent that the reinsurer fails to meet the obligations under the reinsurance agreements.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 7.

SEGMENT REPORTING

The Group’s main business comprises of the following reportable segments: Retail banking – incorporating banking services such as customer current accounts, savings and fixed deposits to individuals. Retail lending are mainly consumer loans and mortgages based lending. Mortgages – incorporating the provision of mortgage finance. Corporate banking – incorporating banking services such as current accounts, fixed deposits, overdrafts, loans and other credit facilities both in local and foreign currencies. Central Treasury - Funding and centralised risk management activities through borrowings, issues of debt securities and investing in liquid assets such as short-term placements and corporate and government debt securities. It also includes other subsidiaries services. Non-Bank subsidiaries: incorporating results of BK General Insurance, BK Capital and BK TecHouse. The table below shows analysis of the breakdown for segmental assets, liabilities, income and expenses. Statement of Profit or Loss and Other Comprehensive Income Corporate Banking FRw’000

Retail Banking FRw’000

Central Treasury FRw’000

Non-Bank Subsidiaries FRw’000

Total FRw’000

For the period ended 30 June 2018 Interest income

32,739,995

6,196,171

4,881,192

160,395

43,977,752

Interest expense

(2,716,623)

(1,642,720)

(4,319,864)

(8,679,207)

Net interest income

30,023,372

4,553,451

561,327

160,395

35,298,545

2,232,571

2,926,650

8,816,431

877,628

14,853,280

(4,824,142)

(2,067,489)

(6,891,631)

Total operating expenses

(14,756,909)

(4,601,749)

(1,054,065)

(668,576)

(21,081,298)

Profit before income tax

12,674,892

810,864

8,323,693

369,447

22,178,896

Income tax expense

(5,010,534)

(320,544)

(3,183,820)

(252,680)

(8,767,578)

7,664,358

490,320

5,139,873

116,767

13,411,318

Interest income

29,449,034

5,748,188

3,822,046

34,380

39,053,648

Interest expense

(3,914,457)

(1,642,720)

(3,134,024)

33,156

(8,658,045)

Net interest income

25,534,576

4,105,468

688,022

67,536

30,395,603

Net Non-interest Income

2,623,215

2,700,365

7,872,121

657,394

13,853,094

Net impairment on loans and advances

(4,448,350)

(1,906,436)

(6,354,785)

Total operating expenses

(14,822,573)

(4,622,683)

(1,058,755)

(671,093)

(21,175,104)

Profit before income tax

8,886,868

276,715

7,501,388

53,837

16,718,808

(2,835,159)

(88,280)

(2,369,505)

(40,822)

(5,333,766)

6,051,710

188,435

5,131,883

13,015

11,385,042

Net non-interest income Net impairment on loans and advances

Profit after income tax For the period ended 30 June 2017

Income tax expense

Profit after income tax

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155

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 7.

SEGMENT REPORTING (continued)

Statement of Financial Position Corporate Banking FRw’000

Retail Banking FRw’000

Central Treasury FRw’000

BK subsidiaries FRw’000

Total FRw’000

As at 30 June 2018 Gross loans& advances to customers

438,198,002

70,188,470

508,386,472

Cash in hand

15,489,713

Balances with central bank

51,665,954

Due from banks

42,866,275

2,977,542

45,843,817

Held to maturity investment

88,699,681

243,013,921

128,799,166

138,388,479

510,201,566

Number of customers

24,260

268,313

263

292,836

Current accounts

29,759

211,295

553

241,607

428,090,343

67,621,306

495,711,649

Cash in hand

19,731,699

Balances with central bank

42,583,327

Due from banks

51,852,516

1,202,505

53,055,021

Held to maturity investment

94,248,923

240,803,014

113,728,500

143,059,338

497,590,852

Number of customers

24,229

257,990

261

282,480

Current accounts

30,843

208,592

568

240,003

Total deposits

As at 31 December 2017 Gross loans& advances to customers

Total deposits

Property, plant and equipment, intangible assets, other assets and liabilities have not been allocated to the reportable segments as they are deemed to contribute to the overall performance of the Group rather than a particular segment. Non-current asset additions of FRw 1,308 million relating to intangible assets and FRw 484 million relating to tangible assets have been disclosed in notes 22 and 23 respectively. The Group does not suffer concentration risk and there is no single customer who contributes more than 15% of the revenue. The Group’s geographical coverage is within all provinces of Rwanda.

8. INTEREST INCOME 30 June 2018

30 June 2017

FRw’000

Interest on overdrawn accounts

2,371,373

3,376,649

Interest on treasury loans

2,799,881

3,702,802

Interest on equipment loans

24,128,706

19,263,304

Interest on consumer loans

4,247,402

3,258,292

Interest on mortgage loans

6,016,051

5,910,974

Other interest on loans to clients

121,831

701,328

Interest on deposits with banks

231,515

104,287

Interest received from reverse purchase agreements

383,689

550,933

4,523,376

3,312,539

44,823,823

40,181,107

Interest on government securities

156

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 9. INTEREST EXPENSE FRw’000

FRw’000

Interest on customer term deposits

4,566,651

5,523,026

Interest on current accounts and saving accounts

1,234,660

655,669

Interest on long term credit lines

2,109,787

1,803,037

768,109

676,313

8,679,207

8,658,045

30 June 2018

30 June 2017

FRw’000

Interest on transactions with other banks

10. NET FEES AND COMMISSION INCOME Fees and commission income Commissions on operations of accounts

765,286

1,155,643

4,132,234

3,893,141

451,007

598,734

1,520,397

677,616

Commissions received from guarantees commitments

922,736

883,092

Income from transactions with other banks

236,975

47,713

1,244,120

1,082,003

9,272,756

8,337,942

(44,182)

(392,597)

(339,920)

(202,535)

(384,102)

(595,132)

8,888,653

7,742,810

Commissions on payment facilities Commissions on loan services Commissions received from financing commitments

Other fees from services

Fees and commission expense Commissions on credit services Commissions on payment facilities

Net fees and commission

11. FOREIGN EXCHANGE RELATED INCOME Net forex trading

2,673,686

2,173,232

Forex commissions

1,390,106

1,279,760

83,935

71,912

4,147,361

3,524,904

Other forex revenues

12. NET PREMIUM INCOME 30 June 2018

Gross written premium Unearned premium reserve b/f Unearned premium reserve c/f Gross earned premiums Premiums ceded to treaties & facultative reinsures Premiums ceded to co-insurance

Motor

Fire Guarantee

Engineering

Liability

Accident & Health

Transport Miscellaneous

Total

FRw’000

1,300,258

439,137

48,164

41,268

36,111

26,711

11,357

1,903,006

933,042

229,675

109,328

63,174

33,717

5,872

1,868

17,774

1,376,676

(887,522)

(238,630)

(26,649)

(34,695)

(4,313)

(11,938)

(6,009)

(34,092)

(1,209,756)

1,345,778

430,182

130,843

69,747

65,515

20,645

7,216

(16,318)

2,069,926

(26,250)

(111,914)

(27,094)

(37,476)

(23,556)

(2,811)

(229,102)

(59,701)

(59,270)

(10,108)

(129,079)

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 12. NET PREMIUM INCOME (continued) 30 June 2018

Motor

Fire Guarantee

Engineering

Liability

Accident & Health

Transport Miscellaneous

Total

FRw’000

(154,926)

(38,136)

(18,153)

(10,490)

(5,598)

(975)

(310)

(2,951)

(228,588)

50,214

63,049

16,892

33,355

876

18,441

164,386

(190,663)

(146,272)

(28,355)

(14,611)

(5,598)

(34,639)

(2,245)

15,490

(422,383)

Net insurance premium revenue Intergroup eliminations

1,155,115

283,910

102,488

55,136

59,917

(13,994)

4,971

(828)

1,647,543

Net group premium revenue

Reinsurance portfolio premium reserves b/f Reinsurance portfolio premium reserve c/f Premium ceded to reinsurance

30 June 2017

Gross written premium Unearned premium reserve b/f Unearned premium reserve c/f Gross earned premiums Premiums ceded to treaties & facultative reinsures Premiums ceded to co-insurance Reinsurance portfolio premium reserves b/f Reinsurance portfolio premium reserve c/f Premium ceded to reinsurance Net insurance premium revenue Intergroup eliminations Net group premium revenue

(99,501)

Motor

& Liability Accident Health

Fire Guarantee Engineering

1,548,042

Transport

Miscellaneous

Total

FRw’000

827,789

346,589

250,440

172,554

7,931

4,722

1,610,025

29,963

78,788

39,946

5,394

8,172

35,411

5,448

203,122

(589,422)

(204,157)

(164,255)

(141,006)

(7,114)

(3,009)

(6,311)

(1,115,274)

268,330

221,220

126,131

36,942

8,989

40,133

2,439

(6,311)

697,873

(15,150)

(83,672)

(39,245)

(144,279)

(2,294)

(5,100)

(1,785)

(291,525)

50,540

23,594

101,893

3,183

179,210

(15,150)

(33,132)

(15,651)

(42,386)

(2,294)

(5,100)

1,398

(112,315)

253,180

188,088

110,480

(5,444)

8,989

37,839

(2,661)

(4,913)

585,558

13. OTHER OPERATING INCOME

Rental income Other income from banking activities Gain on asset disposal Other non-banking income

BK General Insurance other operating income

158

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

30 June 2018 FRw’000 40,816 1,800 4,807

30 June 2017 FRw’000 41,288 208 47,651 756,303

47,422

845,450

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 13. OTHER OPERATING INCOME (continued)

Investment income

30 June 2018 FRw’000

30 June 2017 FRw’000

81,182

(39,185)

41,997

Gross sales

304,906

Cost of sales

(175,514)

Elimination of intercompany sales

(155,803)

(26,412)

35,013

26,913

Brokers’ commissions

BK TecHouse income

BK Capital income Brokerage commissions Advisory service Other operating income

55,479

90,492

26,913

153,500

872,363

30 June 2018 FRw’000

30 June 2017 FRw’000

7,761,507

7,638,217

482,486

14. CREDIT IMPAIRMENT LOSSES

Specific provisions (Note 23 (c)) Collective provisions Decrease in provision on investment securities Bad debts recovered during the year

(45,780)

(869,876)

(1,765,918)

6,845,851

6,354,785

15. NET CLAIMS 30 June 2018

Gross claims paid & benefits Direct technical expense

Motor

Fire

Guarantee

Engineering

Liability

Accident & Health

Transport

Miscellaneous

Total

FRw’000

969,193

4,059

147

3,303

568

5,101

982,371

Outstanding claims reserve b/f

(558,505)

(11,264)

(242,846)

(1,315)

(5,585)

(2,400)

(821,915)

Outstanding claims reserve c/f

442,580

17,750

242,699

8,233

6,609

6,927

724,798

Incurred but not report (IBNR) b/f

(83,776)

(1,689)

(36,427)

(197)

(838)

(360)

(123,287)

Incurred but rot report (IBNR) c/f

66,387

2,662

36,405

1,235

992

1,039

108,720

835,879

11,518

(22)

11,259

1,746

10,307

870,686

(143,795)

(746)

(3,757)

(148,298)

Claims recoveries

(47,492)

Reinsurance portfolio claims reserve b/f

255,026

6,766

233,881

437

496,111

Reinsurance portfolio claims reserve c/f

(193,011)

(202,698)

(395,709)

Amount recoverable from reinsurers

(129,272)

6,020

31,183

(3,757)

437

(95,388)

Net claims and policyholder benefits payable

706,607

17,538

31,161

11,259

(2,011)

10,307

437

775,299

Net claims payable Claims recoveries from treaties & facultative reinsurance

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 15. NET CLAIMS (continued) Motor

Fire

Guarantee

Engineering

Liability

Accident & Health

Transport

Miscellaneous

Total

FRw’000

30 June 2017

Gross claims paid & benefits

21,365

315

2,500

24,180

Direct technical expense

Outstanding claims reserve b/f

(905)

Outstanding claims reserve c/f

190,309

Incurred but not report (IBNR) b/f

(9,157) -

(136)

55,963

(10,063) -

6,300

4,800

(1,374)

147,621

404,993

(1,509)

Incurred but rot report (IBNR) c/f

Net claims payable

211,674

(1,041)

Claims recoveries from treaties & facultative reinsurance

(22)

8,800

354

147,621

417,601

354

6,477

(168,262)

(292,823)

Claims recoveries Reinsurance portfolio claims reserve b/f

4,800

Reinsurance portfolio claims reserve c/f

(124,561)

Amount recoverable from reinsurers

(124,561)

(161,431)

(285,993)

87,113

(1,041)

(161,453)

8,800

4,800

147,621

131,608

Net claims and policyholder benefits payable

16. OPERATING EXPENSES

(i)

THE GROUP

30 June 2018

30 June 2017

FRw’000

Employee benefits expense

Salaries and wages

8,682,477

10,251,575

Medical expenses

462,108

262,345

Pension scheme contributions

524,066

528,347

Other benefits

463,808

200,050

10,132,460

11,242,317

2,093,180

1,958,572

370,450

312,498

2,463,630

2,271,070

177,297

261,688

(ii)

Depreciation and amortisation

Depreciation of property and equipment (Note 23) Amortisation of intangible assets (Note 24) (iii)

Administration and general expenses

Directors’ remuneration Audit fees

70,557

35,077

Rent, repairs and maintenance

880,184

867,058

Utilities

323,432

321,914

Postage, photocopying and printing

328,986

358,952

Travel and accommodation expenses

309,444

283,360

Security and cash in transit costs

837,999

817,361

Marketing and publicity

416,937

265,294

160

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 16. OPERATING EXPENSES (continued) THE GROUP

THE GROUP

30 June 2018

30 June 2017

FRw’000

Statutory fees

351,445

165,922

Legal and consultancy fees

440,541

369,934

Unclaimed VAT on expenditure

679,273

481,846

Telephone and internet costs

977,671

455,138

Charitable donation

161,009

108,172

Credit and debit card costs

1,352,235

1,294,177

Other general expenses

1,178,200

1,575,824

8,485,208

7,661,717

Included in other general expenses are provisions of FRw 978 million related to long outstanding transitory account receivables that are being followed up. The exposures are fully provided for.

17. INCOME TAX EXPENSE a) Income tax expense

30 June 2018

30 June 2017

FRw’000

Current income tax

8,907,201

5,738,820

Deferred tax credit

(2,065,604)

(765,954)

Prior year understatement

1,925,983

360,900

Net tax charge

8,767,579

5,333,766

The income tax charge on the Group’s profit differs from the theoretical amount that would arise using the basic tax rates as follows: Effective

30 June 2018

Effective

30 June 2017

Rate

FRw’000

Rate

FRw’000

Income tax charge Current income tax Deferred income tax (credit) Prior year understatement Net tax charge

39.5%

8,907,201

6,099,720

(2,065,604)

(765,954)

1,925,983

8,767,579

30.8%

5,333,766

Accounting profit before income tax

22,178,896

16,718,808

Tax calculated at tax rate of 30%

30.0%

6,653,669

30.0%

5,015,642

Tax effects on non-taxable items

10.2%

2,253,532

6.5%

1,084,078

40.2%

8,907,201

36.5%

6,099,720

18.

CURRENT INCOME TAX

At 1 January Tax paid during the year

30 June 2018

31 December 2017

FRw’000

6,900,698

4,165,830

(11,950,552)

(12,532,038)

Tax charge for the year

8,907,201

14,906,006

Prior year understatement

1,925,983

360,900

At 30 June/31 December

5,783,330

6,900,698

The Group’s statutory income tax charge was 30% (2017: 30%).

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161

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 19.

EARNINGS PER SHARE

Profit for the period attributable to equity shareholders – FRw’000 Weighted average number of shares

30 June 2018

30 June 2017

13,411,317

11,385,042

674,537,000

673,602,400

19.88

16.90

Earnings per share: Basic earnings per share – FRw

Basic earnings per share is calculated on the profit attributable to ordinary shareholders of FRw 13.4 billion (2017: FRw 11.4 billion) and on the weighted average number of ordinary shares outstanding during the year of 673,425,250 (2017: 673,602,400 shares).

20.

ANALYSIS OF CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the statement of cash flow comprise the following statement of financial position accounts: (a)

(b)

Cash in hand

30 June 2018

31 December 2017

FRw’000

Cash in foreign currency

8,779,713

10,619,960

Cash in local currency

6,710,000

9,111,739

15,489,713

19,731,699

Restricted balances (Cash Reserve Ratio)

25,510,073

24,879,543

Unrestricted balances

26,155,880

17,703,784

51,665,954

42,583,327

Balances with National Bank of Rwanda

The Cash Reserve Ratio is non-interest earning and is based on the value of deposits as adjusted per the National Bank of Rwanda requirements. At 30 June 2018, the Cash Reserve Ratio requirement was 5% (2017 - 5%) of all deposits amounting to FRw 510.2 billion (2017: FRw 497.6 billion). Mandatory cash reserve ratio is not available for use in the Group’s day-to-day operations. The unrestricted balances include Cash balances on Nostro accounts in BNR FRw 41.0 billion. The reverse purchase agreement –REPO balance as at 30 June 2018 was FRw 10.6 billion. (2017: FRw 17.6 billion). THE GROUP 30 June 2018

31 December 2017

FRw’000

Cash in hand

15,489,713

19,731,699

Balances with the National Bank of Rwanda (20b)

26,155,880

17,703,785

Due from banks

45,843,817

53,055,021

(37,887,893)

(42,377,460)

(520,249)

(1,982,767)

49,081,267

46,130,278

Due to banks Unrealized exchange gains

Cash and cash equivalents included in the statement of cash flows comprise the following statement of financial

21. DUE FROM BANKS

Placements with local banks Placements with foreign banks Current accounts with foreign banks

30 June 2018

31 December 2017

FRw’000 3,613,561

FRw’000 6,226,505

42,230,256

45,873,406

955,110

45,843,817

53,055,021

The credit ratings of the financial institutions where the Group’s placements are held are shown below. Where individual bank ratings were not available, the parent bank’s rating or country ratings have been adopted, in order of preference.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 21. DUE FROM BANKS (continued) Credit Ratings A A+ B B+

30 June 2018 FRw’000

31 December 2017 FRw’000

242,819

49,927,525

51,130,030

106,712

1,575,460

51,852,516

53,055,021

The weighted average effective interest rate on placements and balances with other banks at 30 June 2018 was 0.5% (2017: 0.5%)

22. INVESTMENT SECURITIES

a) Investment securities Treasury bills Treasury bonds Other financial instruments

30 June 2018

31 December 2017

FRw’000

Amortised cost

HTM

77,046,521

67,415,533

4,999,491

7,226,785

6,653,669

19,606,605

Total

88,699,681

94,248,923

Maturing between 3-12 months

63,575,934

70,625,176

Maturing between 1-5 years

23,623,747

Maturing between >5 years

1,500,000

88,699,681

94,248,923

Group 1-Jan-18 Additions Maturities Loss allowance 30 June 2018

Treasury bills

30 June 2018 Treasury bonds

Other govt securities

Total

FRw’000

67,415,534

7,226,784

19,606,605

94,248,923

106,341,588

3,666,571

110,008,159

(111,946,603) (605,743)

(2,732,938) (79,972)

(192,145)

(114,679,541) (877,860)

61,810,519

8,160,417

19,606,605

88,699,681

Treasury bills FRw’000

Treasury bonds FRw’000

Other securities

Total

74,355,403

3,607,203

31 December 2017

1-Jan-17 Additions Maturities 31 December 2017

FRw’000 77,962,606

307,645,666

6,250,527

19,606,605

333,502,798

(314,585,535)

(2,630,946)

(317,216,481)

67,415,534

7,226,784

19,606,605

94,248,923

30 June 2018 FRw’000

30 June 2017 FRw’000

Movement in the loss allowance balance – investment securities At 1 January IFRS 9 adoption impact Release of impairment on investment securities

923,639 (45,780)

At 30 June/31 December

877,859

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163

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 22. INVESTMENT SECURITIES (continued) The weighted average effective interest rate on government securities held to maturity at 30 June 2018 was 9.6% (2017: 9.6%). b) Equity Investments Development Bank of Rwanda (BRD) Magerwa Investments in SWIFT R-Switch (SIMTEL)

30 June 2018 FRw’000 96,975 5,000 2,970 116,480 221,425

31 December 2017 FRw’000 96,975 5,000 2,970 116,480 221,425

The equity investment in unquoted entities is recorded fair value through other comprehensive income. The entity will continue to hold onto the equity investment and will dispose when appropriate opportunity arises to dispose at a gain.

23. LOANS AND ADVANCES TO CUSTOMERS 30 June 2018 (a) Corporate loans and advances Corporate Small and medium enterprises Non-profit entities

FRw’000

31 December 2017

FRw’000

381,346,733

367,759,825

51,661,301

54,702,928

5,189,964

5,627,590

438,197,998

428,090,343

Gross retail loans

72,234,849

67,882,475

Discount on staff loans

(2,046,378)

(261,169)

Total corporate loans Retail loans and advances

Total retail loan book

70,188,470

67,621,306

Total gross loans

508,386,468

495,711,648

Loss allowance/credit impairment provision - corporate

(16,765,937)

(19,547,004)

(8,631,066)

(4,460,329)

Loss allowance/credit impairment provision - retail Loss allowance - guarantees and commitments

(1,742,852)

Total expected credit losses/credit impairment provision

(27,139,855)

(24,007,333)

Net Loans and advances to customers

481,246,613

471,704,315

30 June 2018 FRw’000

31 December 2017 FRw’000

Corporate

69,002,989

80,219,188

Small and medium enterprises

11,085,139

10,906,518

(b) Guarantees and commitments

Non-profit entities

33,891

43,548

156,073

66,146

Total guarantees and commitments

80,278,093

91,235,400

Loss allowance (23(c))

(1,742,852)

78,535,241

91,235,400

24,007,333 7,761,507 (4,628,985) 27,139,855

11,798,199 19,708,968 (7,499,834) 24,007,333

Retail banking

(c) Movement in the loss allowance balance - loans and advances At 1 January Impact on adoption of IFRS 9 Increase in loss allowance in the period Loans written off during the year As at 31 December

164

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 23.

LOANS AND ADVANCES TO CUSTOMERS (continued)

(d) Maturity analysis of gross loans and advances to customers Maturing within 1 month Maturing after 1 month, but before 3 months Maturing after 3 months, but within 1 year Maturing after 1 year, but within 5 years Maturing after 5 years

(e) Sectoral analysis of Gross Loans and advances to customers Private sector and individuals Government and parastatals

34,598,633 23,148,077 46,196,699 120,172,735 284,270,325 508,386,468

40,074,254 36,876,925 76,532,542 83,025,415 259,202,512 495,711,648

403,146,636 105,239,832 508,386,468

495,607,615 104,033 495,711,648

The weighted average effective interest rate on gross loans and advances as at 30 June 2018 was 15.5% (31 December 2017: 16.2%). As at 31 December, the ageing analysis of past due but not impaired loans and advances is as follows: 30 June 2018 FRw’000 Less than 60 days Between 61 – 90 days

31 December 2017

FRw’000

3,251,455

2,560,534

14,342,671

19,914,521

17,594,126

22,475,055

30 June 2018

31 December 2017

FRw’000 1,003,834 726,833 146,224 193,005 2,069,896

FRw’000 852,933 29,727 120,557 144,427 1,147,644

24. INSURANCE RECEIVABLES

Loans and receivables Reinsurance share in claims Interest receivable other receivables Total

25. OTHER ASSETS Clearing accounts

6,864,317

6,263,937

Other receivables

3,055,278

2,690,131

Prepayments

3,082,546

1,350,297

13,002,141

10,304,365

Clearing accounts are temporary and transitory accounts pending compensation house clearing including cheques in transit to other banks. Other receivables are current and non-interest bearing and are generally between 30 to 90 days’ terms.

26. PROPERTY AND EQUIPMENT Land and Buildings FRw’000

Computer and IT Equipment FRw’000

Motor vehicles FRw’000

Furniture and Fittings FRw’000

Work in Progress FRw’000

Total FRw’000

30 June 2018 COST/VALUATION At 1 January 2018

27,802,152

7,685,877

1,515,792

15,292,620

2,540,638

54,837,079

Additions

230,830

218,273

62,342

380,675

416,086

1,308,207

Disposal

174,213

826,960

(1,001,173)

28,207,195

7,904,150

1,578,134

16,500,255

1,955,551

56,145,286

1,946,000

6,670,430

845,254

11,845,769

21,307,453

867,200

367,996

128,813

729,172

2,093,180

2,813,200

7,038,426

974,067

12,574,941

23,400,633

25,393,995

865,725

604,067

3,925,314

1,955,551

32,744,653

At 30 June 2018 DEPRECIATION At 1 January 2018 Charge for the year At 30 June 2018 CARRYING AMOUNT

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

165

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 26. PROPERTY AND EQUIPMENT (continued) Land and Buildings

Computer and IT Equipment

Motor vehicles

Furniture and Fittings

Work in Progress

Total

FRw’000

28,581,585

6,585,355

1,054,808

12,982,551

1,743,480

50,947,779

333,237

1,100,522

460,984

2,310,069

797,158

5,001,970

Disposal

(1,112,670)

At 31 December 2017

27,802,152

7,685,877

1,515,792

15,292,620

2,540,638

54,837,079

336,401

5,934,718

605,302

10,635,657

17,512,078

1,698,297

735,712

239,952

1,210,113

3,884,073

(88,698)

At 31 December 2017

1,946,000

6,670,430

845,254

11,845,769

21,307,453

CARRYING AMOUNT

25,856,152

1,015,447

670,538

3,446,851

2,540,638

33,529,626

2017 COST/VALUATION At 1 January 2017 Additions

DEPRECIATION At 1 January 2017 Charge for the year Disposal

Work in Progress Work in progress is composed of mainly furniture and fittings and computers purchased towards the year end that have not been allocated to branches, as well as branch development expenses. These assets are transferred to the appropriate category once commissioned, and depreciation commences. Buildings were revalued by the directors in 2016 based on the estimated market value. The revaluation was carried out by Architectural & Urban Solutions ARCHUS. Fair value measurement

Buildings

Date of valuation

Total FRw‘000

Significant unobservable inputs (Level 3) FRw‘000

2016

9,257,265

Revaluation was based on open market value. In arriving at the valuation figures the following principles have been assumed and applied. • A willing buyer and willing seller both of whom are fully informed about the property and not acting out of compulsion. • That to the date of valuation, a reasonable period of time would be allowed to properly market the property taking into account the nature of the property, the state of the market and allowing sufficient time for the agreement price, terms and completion of the sale. • That the state of the market, levels of values and other circumstances were on any earlier assumed date of exchange of contracts, the same as on the date of valuation • That no account would be taken of any bid by a purchaser with special interest. The reconciliation is provided below 30 June 2018

31 December 2017

FRw’000

8,356,542

9,257,265

(900,723)

8,356,542

COST At 1 January Disposal during the period At 30 June/31 December

The fair value of the property has been determined on a market value basis in accordance with the methods and standards of cost estimation and analysis as set by the Institute of Rwanda Property Valuers (IRPV) and the International Valuation Standards Council. The valuations were performed by Uwezeyimana Straton, an accredited independent valuer with a recognized and relevant professional qualification with recent experience in the category of the investment property being valued.

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BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 26. PROPERTY AND EQUIPMENT (continued) The valuation was based on the mean of the cost-based approach and income approach in which the estimates are as follows: Property 30 June 2018

31 December 2017

Fifteen years term

10%

The parity USD/FRw is estimated to 7% in 2016 and 2015. The estimated occupancy time Discount rate

27. INTANGIBLE ASSETS COST At 1 January Additions

30 June 2018

31 December 2017

FRw’000

3,228,143

2,447,534

483,552

780,609

3,711,695

3,228,143

At 1 January

2,549,788

1,932,651

Amortisation

370,451

617,137

At period end

2,920,239

2,549,788

791,456

678,355

At period end AMORTISATION

Net book value

Intangible assets relates to the Group’s core banking platform, Delta and computer software in use.

28. DUE TO BANKS 30 June 2018

31 December 2017

FRw’000

Deposits and balances from other Banks

11,932,338

23,599,194

Term treasury borrowings

25,955,555

18,778,266

37,887,893

42,377,460

Payable within 1 month

12,012,338

23,432,102

Payable after 1 month

25,875,555

18,945,358

Total

37,887,893

42,377,460

Maturing as follows:

The weighted average effective interest rate on deposits and balances from other banks as at 31 December 2017 was 4.5% (2016: 7.5%)

29. DEPOSITS AND BALANCES FROM CUSTOMERS 30 June 2018

31 December 2017

FRw’000

Current accounts

332,178,801

321,141,412

Fixed deposit accounts

114,023,739

107,729,421

17,183,828

14,874,833

Collateral and other deposits

5,077,586

7,658,128

Interest Payable

3,849,617

3,809,599

472,313,572

455,213,393

Savings accounts

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167

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 30.

DEFERRED INCOME TAX

The following table shows deferred tax recognized in the statement of financial position and changes recorded in the income tax expense: At 1 January 2018 Revaluation of assets-property Capital allowances

Taxable losses

Charged to OCI

At 30 June 2018

FRw’000

Charge/(credit) to profit or loss FRw’000

FRw’000

5,571,446 851,045

(99,516)

5,571,446 751,529

6,422,491

(99,516)

6,322,975

(72,700)

72,700

Provisions

(1,295,264)

276,392

(1,018,872)

Other temporary differences

(2,702,724)

(2,315,181)

(1,018,872)

(4,070,688)

(1,966,089)

(6,036,777)

2,351,803

(2,065,605)

286,198

THE GROUP

At 1 January 2017

Revaluation of assets-property Capital allowances

FRw’000 5,841,693 632,002 6,473,695

Charge/(credit) to profit or loss FRw’000 (270,247) 219,043 (51,204)

Taxable losses Provisions Other temporary differences

(1,751) (134,246) 457,855 321,858 6,795,553

(70,949) (1,161,018) (3,160,579) (4,392,546) (4,443,750)

Charged to OCI FRw’000 -

At 31 December 2017 FRw’000 5,571,446 851,045 6,422,491

(72,700) (1,295,264) (2,702,724) (4,070,688) 2,351,803

31. DIVIDENDS PAYABLE

At 1 January Dividends paid during the year Dividend declared At 30 June/31 December

30 June 2018

31 December 2017

FRw’000

9,378,311

8,343,104

19,936

(8,304,345)

5,364,527

9,339,552

14,762,774

9,378,311

During the Annual General Meeting held on 17 May 2018, the Shareholders approved a dividend pay-out of 40% of the Group’s audited IFRS-based net income in respect of the year 2017.

32. INSURANCE LIABILITIES 30 June 2018

31 December 2017

FRw’000

1,243,848

1,162,911

Reported claims

772,290

Claims incurred but not reported

115,844

455,291

Reinsurance liabilities

393,476

284,164

Trade and other payables

284,314

220,672

2,809,771

2,123,038

Unearned premiums

168

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 33. OTHER LIABILITIES

Clearing accounts

30 June 2018

31 December 2017

FRw’000

2,790,272

1,592,415

Deferred revenue

202,643

6,380,328

Other payables

3,220,162

1,752,374

Accrued expenses

3,301,152

5,542,574

9,514,228

15,267,691

34.

LONG TERM FINANCE

1 Jan 2018

Additional drawdown

Interest expense

Revaluation loss

Principal repayments

FRw’000

24,078,272

884,970

(2,810,174)

(960,710)

21,192,358

AFD Loan (Libor +3.74% pa)

7,508,156

170,500

114,196

(1,072,947)

(180,590)

6,539,316

AFDB Loan(Libor +4.15% pa)

5,244,710

163,040

81,474

(645,849)

(177,885)

4,665,490

EADB (Libor +6.65 pa)

2,146,776

83,630

19,059

(1,068,434)

(89,625)

1,091,407

EIB Loan (9.5% - 11.4%)

PTA Loan (8% pa)

Interest repayments

30 Jun 2018 FRw’000

1,898,299

37,836

16,852

(949,630)

(38,357)

965,000

OFID Loan (Libor +4.0% pa)

17,714,041

456,709

267,107

(2,621,125)

(521,192)

15,295,540

SBM -USD 10M (+4.5%libor)

11,598,921

281,357

142,188

(3,208,750)

(671,528)

8,142,188

653,000

31,745

(31,745)

653,000

70,842,175

2,109,787

640,876

(12,376,908)

(2,671,632)

58,544,298

1 Jan 2017

Additional drawdown

Interest expense

Revaluation loss/(gain)

Principal repayments

Interest repayments

31 Dec 2017

FRw’000

24,078,272

17,899,073

1,418,103

(15,620)

(2,863,772)

(1,130,858)

24,078,272

AFD Loan (Libor +3.74% pa)

7,508,156

495,682

485,430

(2,135,000)

(460,026)

7,508,156

AFDB Loan(Libor +4.15% pa)

5,244,710

325,578

236,435

(1,281,000)

(204,868)

5,244,710

EADB (Libor +6.65 pa)

2,146,776

285,612

212,745

(2,135,000)

(273,836)

2,146,776

PTA Loan (8% pa)

1,898,299

241,645

208,101

(1,897,778)

(241,124)

1,898,299

17,714,041

12,810,000

934,726

252,296

(1,552,727)

(688,866)

17,714,041

102,051

(7,366,764)

(102,051)

11,598,921

793,936

705,000

(1,601,250)

(403,765)

11,598,921

653,000

70,842,175

31,362,073

4,597,333

2,084,387

(20,833,291)

(3,505,394)

70,842,175

BRD-KFW EGF(8% p.a) Total

EIB Loan (9.5% - 11.4%)

OFID Loan (Libor +4.0% pa) Shelter Afrique (6.44% pa) SBM -USD 10M (+4.5%libor) BRD-KFW EGF(8% p.a) Total

FRw’000

The weighted average effective interest rate on Long term finance as at 30 June 2018 was 7.2% (2017: 7.2%). The Group has a 7-year arrangement with European Investment Bank (EIB) for a credit of EUR 5 million and a 5 year arrangement for a credit of EUR 28 million to be on-lent to final beneficiaries for the financing up to 50% of the total cost of eligible projects in local currency. The credit line was fully drawn down as at 31December 2017. In 2011, the Group signed two ten-year credit lines with Agence Francaise de Development (AFD) and the African Development Bank (AFDB) for USD 20 million and 12 million respectively. As 31 December 2017, both the AFD&AFDB credit lines were fully drawn down. In 2013, the Group signed three 5-yearterm credit lines of USD 10m each with the East African Development Bank (EADB), Eastern and Southern African Trade and Development bank (PTA) and OPEC Fund for International Development (OFID) respectively. As at year end 2017, the Bank had fully drawn down on the EADB, PTA and OFID credit lines. In 2015, the Group signed a 5-year credit line with Shelter Afrique for USD 10 million. As at 31 December 2017, the credit line was fully repaid. In 2016, the Group signed a 3-year credit line with SBM Bank for USD 15 million. As at 31 December 2017, the credit line was fully drawn down. In 2017, the Group signed a 3-year credit line with OFID/OPEC for USD 15 million and a 9-year credit line with BRD for FRw 653 million. As at 31 December 2017 both credit lines were fully drawn down.

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 35. CAPITAL & RESERVES (i). Share Capital 30 June 2018 Authorised share capital of FRw 10 each

31 December 2017

FRw’000

702,460,000

7,024,600

702,460,000

7,024,600

674,537,000

6,745,370

672,442,800

6,724,428

2,094,200

20,942

674,537,000

6,745,370

674,537,000

6,745,370

Issued and fully paid up At 1 January New issued At 30 June/ 31 December

(ii). Share Premium

These reserves arose when the shares of the Group were issued at a price higher than the nominal (par) value. These will be applied towards capital in future 30 June 2018 At 1 January New issued at premium @ FRw 115 each At 30 June/ 31 December

31 December 2017

FRw’000

18,936,176

18,695,343

240,833

18,936,176

13,000,149 13,000,149

13,630,625 (630,476) 13,000,149

(iii). Revaluation reserve Buildings Revaluation of buildings, net of tax Elimination of prior year revaluation

(iv). Retained earnings

Opening balance

30 June 2018

31 December 2017

FRw’000

84,068,437

69,435,204

Profit for the period/year

12,358,357

23,342,309

Declared dividend 2018/2017

(4,943,343)

(9,339,552)

Transfer of revaluation on disposal

36.

630,476

91,483,451

84,068,437

MATURITY ANALYSIS OF ASSETS AND LIABILITIES

The table below shows an analysis of assets analysed according to when they are expected to be recovered or settled: At 30 June 2018 ASSETS

Less than 12 months

Over 12 months

FRw’000

Total FRw’000

Cash in hand

15,489,713

Balances with the National Bank of Rwanda

51,665,954

Balances held with other financial institutions

45,843,817

Held to maturity investments

81,216,263

7,483,418

88,699,681

103,943,408

378,938,553

482,881,961

Loans and advances to customers Other assets

15,046,129

45,843,817

25,907

15,072,037

Equity investments

221,425

Intangible assets

791,456

32,744,653

20,205,413

33,410,697

Property and equipment Total assets

170

313,205,284

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 37.

FAIR VALUE

The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities carried at amortised cost as at 30 June 2018: Fair value measurement using Carrying amount

Quoted prices in active markets

Significant observable inputs

Significant unobservable inputs

(Level 1)

(Level 2)

(Level 3)

FRw’000

Balances with the National Bank of Rwanda

51,665,954

Due from banks

45,843,817

Investment securities

88,699,681

88,788,381

481,246,614

Insurance receivables

2,069,896

Other assets

9,919,595

Total assets

679,445,556

140,454,334

539,079,922

37,887,893

472,313,572

Dividends payable

14,762,774

Insurance liabilities

2,809,771

Other liabilities

9,514,228

58,544,298

595,832,537

Assets

Loans and advances to customers

Liabilities Due to banks Deposits and balances from customers

Long-term finance Total liabilities

The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities carried at amortised cost as at 31 December 2017: Balances with the National Bank of Rwanda

42,583,327

Due from banks

53,055,021

Investment securities

94,248,923

Loans and advances to customers

53,055,021

94,343,172

471,704,315

Insurance receivables

1,147,644

Other assets

8,954,068

Total assets

671,693,298

94,343,172

534,861,048

Liabilities Due to banks

42,377,460

455,213,393

Dividends payable

9,378,311

Insurance liabilities

2,123,038

15,267,691

70,842,175

595,202,068

Deposits and balances from customers

Other liabilities Long-term finance

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SECTION 11: REPORTING ACCOUNTANTS’ REPORT 37.

FAIR VALUE (continued) Fair value measurement using Quoted prices in active markets

Significant observable inputs

Significant unobservable inputs

(Level 1)

(Level 2)

(Level 3)

FRw’000

Balances with the National Bank of Rwanda

42,583,327

Due from banks

53,055,021

Investment securities

94,248,923

94,343,172

Carrying amount

Assets

Loans and advances to customers

471,704,315

Insurance receivables

1,147,644

Other assets

8,954,068

Total assets

671,693,298

94,343,172

534,861,048

42,377,460

455,213,393

Dividends payable

9,378,311

Insurance liabilities

2,123,038

Other liabilities

15,267,691

Long-term finance

70,842,175

595,202,068

Liabilities Due to banks Deposits and balances from customers

38. LEASING ARRANGEMENTS

The table below represents the lease commitments entered into by the Group: 30-Jun-18

30-Jun-17

FRw’000

4,324

3,045

57,347

63,462

Commitments for future minimum lease payments Due within 1 year Due within 1 year and 5 years Due after 5 years Operating lease commitments represents rental for vehicles, office machines and office space.

39. CONTINGENT LIABILITIES AND COMMITMENTS Legal claims

Litigation is a common occurrence in the financial services industry due to the nature of the business undertaken. The Group has formal controls and policies for managing legal claims. Once professional advice has been obtained and the amount of loss reasonably estimated, the Group makes adjustments to account for any adverse effects which the claims may have on its financial standing. At period end, the Group is party to various legal proceedings for a total amount of FRw 63.2 m (2017: FRw63.2m). Having regarded the legal advice received, the directors are of the opinion that these legal proceedings will not give rise to significant liabilities; however, the amount has been fully provided for in these financial statements.

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BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 11: REPORTING ACCOUNTANTS’ REPORT 40. RELATED PARTIES DISCLOSURES 30 June 2018

30 June 2017

FRw’000

559,603

541,113

16,864

13,003

576,467

554,116

177,297

261,688

753,763

815,804

Compensation of key management personnel of the Group Short term employee benefits Post-employment pension (defined contribution)

Directors emoluments

The non-executive directors do not receive pension entitlements from the Group.

Commitments

As at 30 June 2018, the Group had contractual commitments of FRw 1,734 million (2017: nil) relating to operational contracts that had not yet been delivered.

Transaction with key management personnel of the Group

The Group enters into transactions, arrangements and agreements involving directors, senior management and their related party concerns in the ordinary course of business at commercial interest and commission rates. The following table provides the total amount of transactions, which have been entered into with related parties for the relevant financial year. 2018 (FRw’000)

2017 (FRw’000)

Maximum Balance as at 30 balance during June Residential mortgages Credit cards and other loans Deposits

Income/ Expense

Maximum Balance as at 31 balance during December

Income/ Expense

1,365,025

1,184,463

74,564

1,305,950

158,014

37,058

14,343

252,217

10,686

405,599

196,809

2,685

250,441

3,452

The amounts above relate to key management personnel. Transaction with other related parties

In addition to transactions with key management, the Group enters into transactions with entities with significant influence over the Group. The following table shows the outstanding deposits balance and the corresponding interest during the period.

Subsidiaries to the Group:

30 June 2018 31 December 2017

Income

Expense

Balance as at year end

Maximum balances during the year

FRw ‘000

2,017

2,948,885

77,750,311

79,539,979

6,468,303

70,832,112

105,437,352

The above-mentioned outstanding balances arose from the ordinary course of business. The interests charged to and by related parties are at normal commercial rates. Outstanding balances at the year-end are unsecured. There have been no guarantees provided or received for any related party receivables or payables. For the period ended 30 June 2018, the Group has not made any provision for doubtful debts relating to amounts owed by related parties (2017: Nil). Based on the exemption under accounting standards, transactions and balances with government and government related parties have not been disclosed.

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SECTION 11: REPORTING ACCOUNTANTSâ&#x20AC;&#x2122; REPORT 41. SUBSIDIARIES Bank of Kigali Limited

The Bank was incorporated on at the end of 2017 following reorganisation of the former bank into a holding company. It is a wholly owned subsidiary of the Group. Its principal place of office is in the BK Group PLC head office. It offers corporate and retail banking services.

BK General Insurance Limited

The Bank opened a wholly owned subsidiary, BK General Insurance Ltd on the 16 September 2015. Its principal place of office is in the BK Group PLC head office. The company offers Non-Life Insurance Services. The value of the investment at cost less impairment is FRw 5,000,000,000.

BK Capital Limited

The Group opened a wholly owned subsidiary, BK Nominees Ltd on the 10 December 2013. In 2018, this has been incorporated into BK Capital Ltd. Its principal place of office is in the BK Group PLC head office. The main activity of the Company is to hold assets for Custody clients, as well offering of brokerage and advisory services. The issued and paid up capital is FRw200,000,000.

BK Tec-House Limited

The Bank opened a wholly owned subsidiary, BK Tec-House Ltd on the 10 August 2015. Its principal place of office is in the BK Group PLC head office. The company offers Internet and digital Services to customers. The value of the investment at cost less impairment is FRw 300,000,000.

42. Post period end events

Except as disclosed in the notes to the financial statements, there are no events after the reporting date that require disclosure in or adjustments to the financial statements as at the date of this report.

174

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 12: L EGAL OPINION

The Board of Directors BK GROUP PLC. KN4 AVE No12 PLOT No790 P. O. Box 175, Kigali - Rwanda RE: RIGHTS ISSUE OF 222,222,222 SHARES OF BK GROUP PLC OF RWANDAN FRANCS 10 EACH IN THE SHARE CAPITAL OF BK GROUP PLC Dear Sirs, We, the undersigned, have been instructed to act as Rwanda legal counsel to the Company in relation to the offer of 222,222,222 new shares by way of a Rights Issue to Current Shareholders by the Company. The legal advisory team consisting of the attorneys of the law firm Trust Law Chambers being a member of the Rwanda Bar Association and the East African Law Society, practicing and qualified as such to practice in Rwanda and to advise upon the Laws of the Republic of Rwanda.

Documents and Records Examined ·

In providing this Opinion for the purposes of the Information memorandum relating to the Offer (the Information memorandum), we have examined originals or copies of the certificate of incorporation of BK Group PLC, its Articles of Association in force as at the date of the Information memorandum, board resolutions, shareholder resolutions, documents evidencing title to material assets of the Company, material contracts and such other records and documents provided by the Company as we have considered necessary and appropriate for the purposes of this Opinion (collectively, the “Documents”). Where applicable, we have also carried out verification searches at public registries.

With respect to matters of fact, we have relied on the representations of BK Group PLC and its officers. For the purposes of this opinion, we have assumed the following: a. b. c. d.

All written information supplied to us by the Company and by its officers and advisors is true, accurate and up to date; The authenticity of documents submitted as originals, the conformity with the original documents of all documents submitted as copies and the authenticity of the originals of such latter documents; The authenticity of all signatures on all documents provided; and All licenses, agreements and other relevant documents have been duly authorized, executed and delivered by the parties to those documents other than the Company

Opinion ·

In our opinion, based on the information made available to us by the Company and subject to i. the foregoing; ii. paragraph 4 of this Opinion; iii. any matters set out in the Information memorandum; iv. the reservations set out below; and v. any matters not disclosed to us:

a. b.

BK Group PLC is duly incorporated and validly existing under the laws of the Republic of Rwanda BK Group PLC has the corporate power and capacity to enter into each of the Documents and has taken the corporate and other action necessary under the laws of the Republic of Rwanda to authorize the acceptance and due execution of each of the Documents and the acceptance and performance of its obligations under each of the Documents. BK Group PLC is a public company limited by shares, duly incorporated in Rwanda and has complied with the incorporation requirements of the Law No.17/2018 of 13/04/2018 relating to Companies (the “Companies Law”), with power to execute, deliver and exercise its rights and perform its obligations pursuant to the Offer, and such execution, delivery and performance have been duly authorized by appropriate corporate action; The existing share capital of BK Group PLC has been authorized and issued in conformity with all applicable laws and has received all necessary authorizations; The transactions contemplated by the Offer will not violate any laws of Rwanda; All authorizations, approvals, consents, licenses, exemptions, filings, registrations and notifications with governmental or public bodies or authorities of or in Rwanda required in connection with the Offer have been obtained and given in proper form and are in full force and effect;

d. e. f.

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175

SECTION 12: LEGAL OPINION g. h. i. j. k.

BK Group PLC continues to maintain its statutory books at its registered office; There were no material contracts entered into falling outside the ordinary course of business. Save for the litigation stated in 10.10 of this Information Memorandum, there is no litigation or arbitration, prosecution or other civil or criminal legal action in which BK Group PLC or its Directors are involved in which shall have a material effect on its business; The evidence of ownership of land, plant and equipment and other important and relevant assets of the Issuer is valid. there are no other material items not mentioned in the Information memorandum of which we are aware with regard to the legal status of BK Group PLC and the Offer.

Further Opinions ·

Based upon and subject as aforesaid, and without prejudice to the generality of the foregoing, we are also of the opinion that: a.

the Information memorandum has been dated in accordance with Article 3 of the Instructions of the Registrar General No.02/2010/ORG of 16/11/2010 modifying and completing the Instructions on the form and content of a Information memorandum (henceforth referred to Information memorandum Instructions); a copy of the Information memorandum, together with the documents required under Article 29 of the Information memorandum Instructions have been delivered to the Registrar of Companies for registration, duly signed by every person named in the Information memorandum as a director of BK Group PLC or by his agent duly authorized in writing, and a statement to such effect appears on the face of the Information memorandum in accordance with Article 9 of the Information memorandum Instructions; Each of the Documents constitutes the legal, valid and binding and enforceable obligations of BK Group PLC. There are no stamp, registration or other similar duties or fees required to be paid in Rwanda with respect to or by virtue of the execution and performance by BK Group PLC of the Documents. this Information Memorandum contains statements made by PricewaterhouseCoopers, Coulson Harney LLP (Bowmans) and by ourselves, all of whom are experts for the purposes of Article 25 and 26 of the Information Memorandum Instructions. In accordance with Article 25 of the Information memorandum Instructions, PricewaterhouseCoopers, Coulson Harney LLP (Bowmans) and we, the legal advisors, have given and have not before the delivery of this Information memorandum for registration withdrawn our consent to the issue of the Information memorandum with the statements by us included in the form and context in which they are included; the Offer Shares shall rank pari passu in all respects with the existing Ordinary Shares in the issued share capital of BK Group PLC, including the right to participate in full in all dividends and/or other distributions declared in respect of such share capital; application has been duly made to, and permission duly granted by, the Capital Markets Authority in respect of the Offer in accordance with the law; in addition to the information required to be included by the Companies Act, Capital Market laws and regulations, the Information memorandum includes such information as investors would reasonably require and reasonably expect to find therein for the purpose of making an informed assessment of: i. the assets and liabilities, financial position, profits and losses, and prospects of the issuer of the securities; and, ii. the rights attaching to those securities. A search of the Public Records today revealed no evidence of any current resolutions for winding up or dissolution of BK Group PLC and no evidence of the appointment of any liquidator in respect of BK Group PLC or any of its assets Based on the foregoing, we are of the opinion that the Offer is in conformity with all applicable laws and has received all necessary authorizations.

c. d. e.

f. g. h. i. j.

Reservations ·

This letter and the opinions given in it are governed by Rwandan law and relate only to Rwandan law as applied by the Rwandan courts as at today’s date. We express no opinion in this letter on the laws of any other jurisdiction.

We as the Rwandan Legal Advisors confirm that we have given and have not, prior to the date of the Information memorandum, withdrawn our written consent to the inclusion of the legal opinion in the form and context in which it appears. Yours faithfully

Apollo M. Nkunda Managing Partner, Trust Law Chambers Kigali, Rwanda

176

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 13: AUTHORIZED SELLING AGENTS (ASAs) Authorised selling agents in RWANDA Members of the Rwanda Stock Exchange and Licensed Securities Central Depository Agents BK Capital Ltd

Faida Securities Rwanda

African Alliance Rwanda Securities

CDH Capital Rwanda

Baraka Capital Limited

MBEA Brokerage Services Ltd

SBG Securities Ltd

Core Securities Ltd

Plot 6112, Avenue de la Paix P. O. Box 175, Kigali Tel : +250 252 575 504 /+250 252 573 461 Mob: +250 788 143 000 Email: bksecurities@bk.rw Contact: Mrs. Carine Umutoni, CEO

9th Floor, Ecobank Building P. O. Box 6237, Kigali Mob: +250 788 301 007 Email: shehzadnoordally@cdhcapitalltd. org Contact: Mr. Shehzad Noordally, General Manager

Kigali City Tower,1st Floor, Avenue du commerce P. O. Box 968 Kigali Tel : + 250 784 108841/+250 788696640 Contact: Mr. Jean Aime Habimana,

Centenary House,4th Floor P. O Box 124, Kigali Tel : +250 784 333 734 Mob: +250 782 859 330 Email: stephen.njoroge@fib.co.ke Contact: Mr. Stephen Njoroge, Operations Manager

4th Floor, Building 2000 P. O. Box 7180, Kigali Tel : + 250 255 120 337/ +250 788 381 130 Email: dgathaara@barakacapital.com Contact: Mr Davis Gathaara, Managing Director

Kigali City Tower (KCT),1st Floor, Avenue du Commerce P. O. Box : 7179, Kigali Mob : +250 788 305 557 Email : securitiesrw@africanalliance.com Contact: Ms. Aurore Mimosa, CEO

P. O. Box 3492, Kigali Tel : +256 788 803 370 Email : a-owiny@mbea.net Contact: Mr. Andrew Owiny, Director

P. O. Box 4062, Kigali Mob: + 250 788 465 282 Email: fumbuka@coresecurities.coz.tz Contact: Mr. George Fumbuka, CEO

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

177

SECTION 14: APPENDICES 14.1.

PAL FORM

PROVISIONAL ALLOTMENT LETTER (PAL)

USE BLOCK LETTERS TO COMPLETE THE FORM THE PAL IS OF VALUE, NEGOTIABLE AND IS ISSUED PURSUANT TO AN INFORMATION MEMORANDUM DATED [•] PLEASE CONSULT YOUR ADVISOR. READ NOTES ON THE REVERSE OF THIS PAL. RIGHTS ISSUE OPENS AT 9.00 A.M. ON MONDAY, 29 OCOTBER 2018 AND CLOSES AT 4.00 P.M.ON FRIDAY, 9 NOVEMBER 2018.

PAL No:

CSD A/C

Sales Agent Stamp

BOX 1

Eligible Shareholders Name and Address

Existing Shares as of Record Date

BOX 2

New Shares provisionally allotted to you

BOX 3

Amount payable (Frw) in full

Eligible Shareholders who wish to appoint an attorney to deal with the Rights Issue may do so via Form A(Form of Appointment of Attorney) available from a Sales Agent or downloaded from www.bk.rw

ATTORNEY

TOTAL SHARES. Having accepted all the New Shares in Part 1A above, I/we hereby apply for the total New Shares in Box 6 for the value in Box 7 herein

BOX 4 Number of total New Shares (Box 2 )

PARTIAL ACCEPTANCE. IF PART 1 ABOVE IS NOT ACCEPTED. BOX 6 I/We hereby accept in part, subject to the terms of the Information Number of New Shares Memorandum, this PAL and the Memorandum and Articles of accepted in part Association of BK Group PLC the number of New Shares specified in Box 6 for the value set out in Box 7herein. 3.1 Direct Amount Frw. Chq/Transfer Ref No./ Payment Deposit Ref No. Tick (√) 3.5 FINANCIER DETAILS 3.3

Agents Payment

Frw.

3.4

Irrevocable: Bank Guarantee or Letter of Under taking for New Shares

BOX 5 Amount payable (Frw) (multiply figure in box 4 by Frw 270.00) BOX 7 Amount payable (Frw) (multiply figure in Box 6 by Frw 270.00) Bank Name & Branch

CSD Form 5 Serial No

Institution & Branch Bank Name

Account Name (as per Statement)

Branch Code

REFUND Account Number (full Account No

Country & Swift if not Rwanda

SIGNATURE of ELIGIBLE SHAREHOLDER or AUTHORISED ATTORNEY Date: ...........................................

Sign as necessary Provide Email & Mobile No.: Tear off

BK GROUP PLC – RIGHTS ISSUE 2018-PAL RECEIPT

178

Tear off

PAL No

Eligible Shareholder

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

Sales Agent

SECTION 14: APPENDICES

P.T.O

If you wish to take action, please note the following:

NOTES (PAL)

GENERAL INSTRUCTIONS: • Use BLOCK letters to complete the form • A copy of the Information Memorandum or Abridged Information Memorandum to which this PAL is attached has been lodged with the Registrar of Companies. • A copy of the information Memorandum or Abridged Information Memorandum may be obtained from the Sales Agents named below or www.bk.rw • Persons into whose possession this PAL may come are required to observe the restrictions contained in the Information Memorandum or Abridged Information Memorandum. • Terms defined in the Information Memorandum shall bear the same meaning herein unless otherwise indicated. • For advice on the Rights Issue and completion of this form an Eligible Shareholder should consult their preferred professional advisor. • A PAL shall be rejected as per the policy set out in the Information Memorandum or Abridged Information Memorandum. • All alterations on the PAL, other than the deletion of alternatives, must be authenticated by the full signature of the Eligible Shareholder. • Presentation of cheques for payment or receipt of funds transferred shall not amount to the acceptance of any application. • A completed PAL must be physically returned to a Sales Agent. Once made, it is irrevocable and may not be withdrawn. • The PAL and Application Money should be received by the Sales Agent or the Receiving Bank by 4.00 p.m. on Friday, 9 November 2018 (Closure Date) and neither BK, nor any of the advisors nor any of the Sales Agents shall be under any liability whatsoever should a PAL not be received by this date. • This PAL and the accompanying Information Memorandum or Abridged Information Memorandum shall be governed by and construed in accordance with the Laws of Rwanda.

PART 1 ACCEPTANCE IN FULL, TOTAL SHARES a. b. i. ii. c.

FULL. Tick PART 1A if accepting in full all New Shares as in Box 2 . TOTAL. Complete total number of New Shares applied for in Box 6 in PART 1B, i.e. Box 6 = Box 2 Complete the total value of New Shares applied for in Box 7, PART 1B. i.e. Box 7= Box 3 Acceptance and Allocation is subject to terms and conditions in the Information Memorandum or the Abridged Information Memorandum.

a. b. c.

Complete this part if you wish to accept a portion of the New Shares to which you are entitled. You must not have completed PART 1. Enter number of New Shares you would like to accept into Box 6. This number must be less than the number in Box 4. Enter the amount due for the New Shares in Box 7 by multiplying the number in Box 6 with Frw 270.00 per New Share.

a. b.

e. f.

All payments are to be made in Rwanda Francs. Section 4.10 in the Information Memorandum and Section 4.10 in the Abridged Information Memorandum provides details on Modes of Payment. Please read carefully the instructions. Complete Section 3.1 with the Funds Transfer Number or Banker’s Cheque Number and name of remitting/paying bank If payment for New Shares is via Irrevocable Bank Guarantee or Irrevocable Letter of Undertaking, tick the box provided and attach the IBG/ILU to this PAL. If a Financier is involved, complete section labeled ‘Financier Details’ by providing the Loan Reference and the name of the Institution and Branch. All Application Money must be made in cleared funds on or before 4:00 pm on Friday,9 November 2018 (Closure Date).

a. b. c.

A bank account is mandatory for eligible investors. Please refer to Section 4.14 in the Information Memorandum and Section 4.14 in the Abridged Information Memorandum for details on Refunds Please provide clearly the relevant details in the boxes provided.

PART 2 PARTIAL ACCEPTANCE

PART 3 PAYMENT

c. d.

PART 4 REFUND

PART 5 SIGNATURE

The PAL must be signed to ensure acceptance. For companies/institutions/organisations, signatures can be affixed as per the authorized mandate.

PART 6 EMAIL &/or MOBILE No

Space has been provided to insert this information so that contact can be established in case of need. SALES AGENTS: BK Capital,Faida Securities, Africa Alliance Rwanda Securities, CDH Capital,Baraka Capital, MBEA Brokerage Services,Core Securities, SBG Securities

Tear off

PAL RECEIPT. Eligible Shareholder must ensure that this tear off is Stamped by the Sales Agent and returned to them for their safe custody together with the proof of payment. The last date and time for acceptance and payment of the New Shares is on or before 4:00 p.m. on Friday, 9 November 2018. If no action is taken on the Rights, they will lapse and be subject to Section 4.8 (Untaken Rights) in the Information Memorandum and Section 4.8 in the Abridged Information Memorandum

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

179

SECTION 14: APPENDICES 14.2. FORM OF RENUNCIATION FORM OF RENOUNCIATION(FORM R)

USE BLOCK LETTERS TO COMPLETE THE FORM THE FORM IS OF VALUE, NEGOTIABLE AND IS ISSUED PURSUANT TO AN INFORMATION MEMORANDUM DATED 16 OCTOBER 2018 PLEASE CONSULT YOUR ADVISOR. READ NOTES ON THE REVERSE OF THIS PAL. RIGHTS ISSUE OPENS AT 9.00 A.M. ON MONDAY, 29 OCOTBER 2018 AND CLOSES AT 4.00 P.M.ON FRIDAY, 9 NOVEMBER 2018. CSD A/C

Sales Agent Stamp Eligible shareholder for NIL consideration, I/We, the eligible shareholder hereby accept,subject to the terms of the Information Memorandum,my/our PAL , the Memorandum & Articles of Association of BK Group PLC and requisite approvals from the regulator/s in good time, to renounce my/our Rights as per my/our PAL in favour of person(s) named below in this Form R relating to such New Shares.Accordingly,I/We have signed below.

BOX 1 Eligible Shareholder Name BOX 2 PAL NUMBER BOX 3 Shareholder Member No BOX 4 Number of New Shares provisionally renounced to the Renouncee(less than or equal to the number of New Shares provisionally allotted to the Eligible Shareholder in the original PAL) ENTITELEMENT BOX 5 Amount payable (Frw) multiply by the figure in Box 4 by Frw 270.00

SIGNATURE OF ELIGIBLE SHAREHOLDER OR AUTHORISED ATTORNEY Date:

Sign as necessary CSD

Relationship to Eligible Shareholder

Renouncee

A/C

Name

ID/Passport No

Postal Address including post code & Email/Mobile No PART 1A

PART 1B

FULL ACCEPTANCE. I/We hereby accept in full, subject to the terms of the Information Memorandum, this PAL and the Memorandum and Articles of Association of BK Group PLC, the number of New Shares above in Box 4, for the value in Box 5 above TOTAL SHARES. Having accepted all the New Shares in Part 1A above I/we hereby apply for the total New Shares in Box 6 for the value in Box 7 herein 2.1

Direct Amount Payment

Frw.

2.2

Agents Payment

Frw.

Tick (â&#x2C6;&#x161;)

BOX 6 Number of total New Shares (Box 4)

BOX 7 Amount payable (multiply value in Box 6 by Frw 270.00)

Chq/Transfer Ref No./ Deposit Ref No. 2.3

Bank Name & Branch

FINANCIER DETAILS

CDS Form 5 Serial No Institution & Branch

REFUND

Account name(as per statement)

Bank Name

Branch Code

Account Number (full Account No

Country & Swift if not Rwanda

Date:

SIGNATURE OF RENOUNCEE & DATE ENDORSENENT by SALES AGENTfor RENUNCIATION(where applicable) Name,Signature & Stamp Tear off

APPROVAL by REGULATOR for RENUNCIATION(where applicable) Name, Signature & Stamp Tear off

FORM R RECEIPT-BK GROUP PLC RIGHTS ISSUE 2018

Eligible Shareholder

180

Form R No

Eligible Shareholder

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

Sales Agent P.T.O

SECTION 14: APPENDICES

If you wish to take action, please note the following:

NOTES (FORM R)

GENERAL INSTRUCTIONS: • Use BLOCK letters to complete the form • The Form R must be accompanied by a PAL.A copy of the Information Memorandum or Abridged Information Memorandum to which this PAL is attached has been lodged with the Registrar of Companies.A copy of the information Memorandum or Abridged Information Memorandum may be obtained from the Sales Agents named below or www.bk.rw • Persons into whose possession this Form R may come are required to observe the restrictions contained in the Information Memorandum or Abridged Information Memorandum. • Terms defined in the Information Memorandum shall bear the same meaning herein unless otherwise indicated. • For advice on the Rights Issue and completion of this form an Eligible Shareholder should consult their preferred professional advisor. • A Form R shall be rejected as per the policy set out in the Information Memorandum or Abridged Information Memorandum. • All alterations on the Form R other than the deletion of alternatives, must be authenticated by the full signature of the Eligible Shareholder. • Presentation of cheques for payment or receipt of funds transferred shall not amount to the acceptance of any application. • A completed Form R must be physically returned to a Sales Agent. Once made, it is irrevocable and may not be withdrawn. • The Form R and Application Money should be received by the Sales Agent or the Receiving Bank by 4.00 p.m. on Friday, 9 November 2018 (Closure Date) and neither BK, nor any of the advisors nor any of the Sales Agents shall be under any liability whatsoever should a Form R not be received by this date. • This Form R and the accompanying Information Memorandum or Abridged Information Memorandum shall be governed by and construed in accordance with the Laws of Rwanda.

PART 1 ACCEPTANCE IN FULL, TOTAL SHARES a. Tick PART 1A if accepting in full all New Shares as in Box 4.1 b. Complete total number of New Shares applied for in Box 6 in PART 1b, i.e. Box 6 = Box 4 c. Complete the total value of New Shares applied for in Box 7, PART 1b. i.e. Box 7= Box 5 d. Allocation and Allotment is subject to the terms in the Information Memorandum and Abridged Information Memorandum.

PART 2 PAYMENT a.All payments are to be made in Rwanda Francs b. Section 4.10 in the Information Memorandum and Section 4.10 in the Abridged Information Memorandum provides details on Modes of Payment. Please read carefully the instructions. c. Complete Section 2.1 with the Funds Transfer Number or Banker’s Cheque Number and name of remitting/paying bank d. If payment is via Irrevocable Bank Guarantee or Irrevocable Letter of Undertaking, tick the box provided and attach the IBG/ILU to this PAL. e. If a Financier is involved, complete section labeled ‘Financier Details’ by providing the Loan Reference and the name of the Institution and Branch f. All Application Money must be made in cleared funds on before 4.00 p.m on Friday,9 November 2018.

PART 3 REFUND a. A bank account is mandatory for eligible investors.. b. Please refer to Section 4.14 in the Information Memorandum and Section 4.14 in the Abridged Information Memorandum for details on Refunds. c. Please provide clearly the relevant details in the boxes provided.

SIGNATURE OF RENOUNCEE

The Form R must be signed to ensure acceptance

ENDORSEMENTS BY SALES AGENT & REGULATOR Renunciation by Private Transfer requires certain documentation to support this action by Eligible Shareholders. This section provides for the Sales Agent to confirm that the documentation is attached including the PAL. Renunciation by Private Transfer requires private transfers to be approved by regulators. This section provides for the regulator to approve the transfer (if applicable). SALES AGENTS: BK Capital,Faida Securities,Africa Alliance Rwanda Securities,CDH Capital,Baraka Capital,MBEA Brokearge Services,Core Securities, SBG Securities

Tear off

FORM R RECEIPT. Eligible Shareholder must ensure that this tear off is Stamped by the Sales Agent and returned to them for their safe custody together with the proof of payment. The last date and time for acceptance and payment of the New Shares is on or before 4:00 p.m. on Friday, 9 November 2018. If no action is taken on the Rights, they will lapse and be subject to Section 4.8 (Untaken Rights) in the Information Memorandum and Section 4.8 in the Abridged Information Memorandum

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

181

SECTION 14: APPENDICES 14.3. FORM OF ENTITLEMENT FORM OF ENTITLEMENT(FORM E)

Sales Agent Stamp

BOX 1 No of Rights in your CSD A/C

Entitlee Name Box 2 Amount Payable(Frw)in full

Entitless who wish to appoint an attorney to deal with the Rights Issue may do so via Form A(Form of Appointment of Attorney) available from a Sales Agent or downloaded from www.bk.rw

ATTORNEY PART 1A

PART 1B

FULL ACCEPTANCE. I/We hereby accept in full, subject to the terms of the Information Memorandum, this Form E and the Memorandum and Articles of Association of BK Group PLC, the number of New Shares above in Box 1, for the value in Box 2 above TOTAL SHARES. Having accepted all the New Shares in Part 1A above I/we hereby apply for the total New Shares in Box 3for the value in Box 4 herein

BOX 3 Number of total New Shares (Box 1)

PARTIAL ACCEPTANCE. IF PART 1 ABOVE IS NOT ACCEPTED. I/We hereby accept in part, subject to the terms of the Information Memorandum, this PAL and the Memorandum and Articles of Association of BK Group PLC the number of New Shares specified in Box 6 for the value set out in Box 7herein.

BOX 5 Number of New Shares accepted in part

3.1

Direct Amount Payment

Frw.

3.2

Agents Payment

Frw.

Tick (â&#x2C6;&#x161;)

BOX 4 Amount payable (multiply value in Box 3 by Frw 270.00)

BOX 6 Amount payable (Frw) (multiply figure in Box 5 by Frw 270.00)

Chq/Transfer Ref No./ Deposit Ref No. 3.3

Bank Name & Branch

FINANCIER DETAILS

CSD Form 5 Serial No Institution & Branch

PART 4

REFUND

Account Name (as per Statement)

Bank Name

Country & Swift if not Rwanda

Branch Code

Account Number (full Account No

SIGNATURE OF ENTITLEE or AUTHORISED ATTORNEY Date:

Sign as necessary

Provide Email & Mobile No: Tear off

Tear off

FORM E RECEIPT-BK GROUP PLC RIGHTS ISSUE 2018

Eligible Shareholder

Form E No

Entitlee

Sales Agent P.T.O

182

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 14: APPENDICES

If you wish to take action, please note the following:

NOTES (FORM E)

GENERAL INSTRUCTIONS: • Use BLOCK letters to complete the form • The Form E must be accompanied by a PAL.A copy of the Information Memorandum or Abridged Information Memorandum to which this PAL is attached has been lodged with the Registrar of Companies.A copy of the information Memorandum or Abridged Information Memorandum may be obtained from the Sales Agents named below or www.bk.rw • Persons into whose possession this Form E may come are required to observe the restrictions contained in the Information Memorandum or Abridged Information Memorandum. • Terms defined in the Information Memorandum shall bear the same meaning herein unless otherwise indicated. • For advice on the Rights Issue and completion of this form an Eligible Shareholder should consult their preferred professional advisor. • A Form E shall be rejected as per the policy set out in the Information Memorandum or Abridged Information Memorandum. • All alterations on the Form E other than the deletion of alternatives, must be authenticated by the full signature of the Eligible Shareholder. • Presentation of cheques for payment or receipt of funds transferred shall not amount to the acceptance of any application. • A completed Form E must be physically returned to a Sales Agent. Once made, it is irrevocable and may not be withdrawn. • The Form E and Application Money should be received by the Sales Agent or the Receiving Bank by 4.00 p.m. on Friday, 9 November 2018 (Closure Date) and neither BK, nor any of the advisors nor any of the Sales Agents shall be under any liability whatsoever should a Form E not be received by this date. • This Form E and the accompanying Information Memorandum or Abridged Information Memorandum shall be governed by and construed in accordance with the Laws of Rwanda.

PART 1 ACCEPTANCE IN FULL, TOTAL SHARES a. Tick PART 1A if accepting in full all New Shares as in Box 1. b. Complete total number of New Shares applied for in Box 6 in PART 1b, i.e. Box 3 = Box 1 c. Complete the total value of New Shares applied for in Box 6, PART 1b. i.e. Box 4= Box 2 d. Allocation and Allotment is subject to the terms in the Information Memorandum and Abridged Information Memorandum.

PART 2 PARTIAL ACCEPTANCE a. Complete this part if you wish to accept a portion of the New Shares to which you are entitled. You must not have completed PART 1. b. Enter number of New Shares you would like to accept into Box 5. This number must be less than the number in Box 3. c. Enter the amount due for the New Shares in Box 6 by multiplying the number in Box 5 with Frw 270.00 per New Share.

PART 3 PAYMENT a. All payments are to be made in Rwanda Francs b. Section 4.10 in the Information Memorandum and Section 4.10 in the Abridged Information Memorandum provides details on Modes of Payment. c. Please read carefully the instructions. d. Complete Section 3.1 with the Funds Transfer Number or Banker’s Cheque Number and name of remitting/paying bank e. If payment for Shares is via Irrevocable Bank Guarantee or Irrevocable Letter of Undertaking, tick the box provided and attach the IBG/ILU. f. If a Financier is involved, complete section labeled ‘Financier Details’ by providing the Loan Reference and the name of the Institution and Branch. g. All Application Money must be made in cleared funds on or before 4:00 pm on Friday, 9 November 2018.

PART 4 REFUND a. A bank account is mandatory for eligible investors.. b. Please refer to Section 4.14 in the Information Memorandum and Section 4.14 in the Abridged Information Memorandum for details on Refunds. c. Please provide clearly the relevant details in the boxes provided.

PART 5 SIGNATURE The Form E must be signed to ensure acceptance.For companies/institutions/organisations,signatures can be affixed as per the authorised mandate.

PART 6 EMAIL &/or MOBILE No Space has been provided to insert this information so that contact can be established in case of need. SALES AGENTS: BK Capital,Faida Securities, African Alliance Rwanda Securities, CDH Capital,Baraka Capital. MBEA Brokerage Services,Core Securities, SBG Securities

Tear off

FORM E RECEIPT. Eligible Shareholder must ensure that this tear off is Stamped by the Sales Agent and returned to them for their safe custody together with the proof of payment. The last date and time for acceptance and payment of the New Shares is on or before 4:00 p.m. on Friday,9 November 2018. If no action is taken on the Rights, they will lapse and be subject to Section 4.8 (Untaken Rights) in the Information Memorandum and Section 4.8 in the Abridged Information Memorandum.

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

183

SECTION 14: APPENDICES 14.4. POWER OF ATTORNEY

FORM OF POWER OF ATTORNEY (FORM A) THIS DOCUMENT IS TO BE READ AND EXECUTED IN CONJUCTION WITH DOCUMENTS FOR THE RIGHTS ISSUE 2018 INCLUDING THE INFORMATION MEMORANDUM. PLEASE CONSULT YOUR PREFERRED ADVISOR IF REQUIRED. RIGHTS ISSUE CLOSES AT 4.00 P.M. ON FRIDAY, 9 NOVEMBER 2018. Available from Sales Agents or www.bk.rw

Sales Agent

Eligible Shareholder/Rump Investor: Name and Address:

REFERENCE PAL/Rump Form Serial No

CSD A/C

1. This Form A is only for Eligible Shareholders/Rump Investors who wish to appoint entirely at their own risk an attorney to act on their behalf for the Rights Issue. 2. This Form A will be required to be attached to a PAL or Rump Form. To: The Directors, BK Group PLC This appointment of Attorney is limited in respect of the BK Group PLC Rights Issue 2018 (Rights Issue). I/We hereby accept, subject to the terms of the Information Memorandum and the Memorandum and Articles of Association of BK Group PLC to appoint the persons as named in Attorney Details below to be my/our attorney (“Attorney”) in my/our name and on my/our behalf, to take appropriate action including complete any forms in connection with the New Shares and to do all or acts which the Attorney thinks fit with regard to any other forms. I/We agree to ratify everything the Attorney does or purports to do in accordance with this appointment of Attorney and to indemnify the Attorney against all claims and liabilities arising out of anything lawfully done by the Attorney. This power shall remain irrevocable until Friday, 9 November 2018 SIGNATURE OF ELIGIBLE SHAREHOLDER / RUMP INVESTOR Signature 1

Signature 2

Company Seal/Stamp (If applicable

Date: __________________________________ Provide Email & Tel/Mobile No:

ATTORNEY DETAILS Name

ID/Passport No.

Postal Address including postcode and Email

Tel/Mobile No

SIGNATURE OF ATTORNEY Signature 1

Signature 2

Company Seal/Stamp (If applicable

Date: __________________________________

[]

184

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 14: APPENDICES 14.5. IRREVOCABLE BANK GUARANTEE ON LETTERHEAD OF ISSUING BANK] Ref: • ] Date: • ]

The Directors BK Group PLC BK Group PLC Building KN4 Ave No 12, Plot No 790 P. O. Box 175, Kigali - Rwanda

Dear Sirs

BK GROUP PLC LTD - RIGHTS ISSUE 2018 IRREVOCABLE BANK GUARANTEE RESPECT OF PAYMENT FOR ALLOCATION OF NEW SHARES TO name of investor] (the “IBG”) WHEREAS name of investor] (the “Investor”) has by an RIF No] • ] applied for • ] New Shares in the BK GROUP PLC - RIGHTS ISSUE 2018 as set out in the Information Memorandum dated • ] (capitalised terms used in this IBG shall have the meaning and interpretation given to such terms in the BK Group PLC Information Memorandum), AND WHEREAS it has been stipulated in the BK Group PLC Information Memorandum that the Investor shall furnish you with an irrevocable on demand guarantee for the full value of the New Shares applied for at the Rights Issue Price, AND WHEREAS we name of guarantor] have agreed to give this IBG, NOW, at the request of the Investor and in consideration of you allocating to the Investor the New Shares or such lesser number as you shall in your sole and absolute discretion determine, we hereby irrevocably undertake to pay you in Rwanda Francs, upon your first written demand (vide email, fax, hand delivered letter or SWIFT) and without any delay or argument, such sums as may be demanded by you up to a maximum of Rwanda Francs amount in words] (Frw amount in figures]) without your needing to prove or show grounds or reasons for your demand or the sum specified therein by way of EFT/RTGS within 24 hours of the said demand or before 3.00 p.m. on November 21,] 2018 whichever occurs earlier, as set out in the BK Group PLC Information Memorandum. This IBG shall remain in force up to and including 3.00 p.m. on November 21,] 2018 and any demand in respect thereof should reach our office not later than the above date and time. This IBG shall be governed and construed in accordance with the Laws of Rwanda and we irrevocably submit to the non-exclusive jurisdiction of the Courts of Rwanda. IN WITNESS WHEREOF THIS IRREVOCABLE LETTER OF UNDERTAKING HAS BEEN EXECUTED BY US ON THIS • ] DAY OF • ] 2018.

Signed as per bank mandate]

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

185

SECTION 14: APPENDICES 14.6. IRREVOCABLE LETTER OF UNDERTAKING ON LETTERHEAD OF ISSUING INVESTOR/CUSTODIAN] Ref: • ] Date: • ] The Directors BK Group PLC BK Group PLC Building KN4 Ave No 12, Plot No 790 P.O. Box 175. Kigali, Rwanda

Dear Sirs

BK GROUP PLC LTD - RIGHTS ISSUE 2018 IRREVOCABLE LETTER OF UNDERTAKING IN RESPECT OF PAYMENT FOR ALLOCATION OF NEW SHARES TO name of investor] (the “ILU”) WHEREAS name of investor] (the “Investor”) has by an RIF No] • ] applied for • ] New Shares in the BK GROUP PLC - RIGHTS ISSUE 2018 as set out in the Information Memorandum dated • ] (capitalised terms used in this ILU shall have the meaning and interpretation given to such terms in the BK Group PLC Information Memorandum), AND WHEREAS it has been stipulated in the BK Group PLC Information Memorandum that the Investor shall furnish you with a letter of undertaking for the full value of the New Shares applied for at the Rights Issue Price, AND WHEREAS we name of guarantor] have agreed to give this ILU, NOW, at the request of the Investor and in consideration of you allocating to the Investor the New Shares or such lesser number as you shall in your sole and absolute discretion determine, we hereby irrevocably undertake to pay you in Rwanda Francs, upon your first written demand (vide email, fax, hand delivered letter or SWIFT) and without any delay or argument, such sums as may be demanded by you up to a maximum of Rwanda Francs amount in words] (Frw amount in figures]) without your needing to prove or show grounds or reasons for your demand or the sum specified therein by way of EFT/ RTGS within 24 hours of the said demand or before 3.00 p.m. on November 21,] 2018 whichever occurs earlier, as set out in the BK Group PLC Information Memorandum. This ILU shall remain in force up to and including 3.00 p.m. on November 21,] 2018 and any demand in respect thereof should reach our office not later than the above date and time. Should such payment not be made within two business weekdays by 3:30 p.m. following the deemed service of such notice then BK Group PLC shall be entitled without further notice to either: treat our application as having been repudiated and cancel the provisional allotment to us and re-allocate the provisionally New Shares on such terms and conditions as it shall think fit without prejudice to any rights to damages for such repudiation, or to allow us further time for payment on such terms and conditions as it shall think fit in which event we shall pay default interest on all sums outstanding at an agreed rate per annum calculated on daily balances and compounded monthly. This ILU shall be governed and construed in accordance with the Laws of Rwanda and we irrevocably submit to the non-exclusive jurisdiction of the Courts of Rwanda. IN WITNESS WHEREOF THIS IRREVOCABLE LETTER OF UNDERTAKING HAS BEEN EXECUTED BY US ON THIS • ] DAY OF • ] 2018.

signed as per mandate]

186

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 14: APPENDICES 14.7. CSD FORM 1 (A) â&#x20AC;&#x201C; ACCOUNT OPENING FORM (INDIVIDUALS)

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

187

SECTION 14: APPENDICES 14.8. CSD FORM 1 (B) â&#x20AC;&#x201C; ACCOUNT OPENING FORM (COMPANIES)

188

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

SECTION 14: APPENDICES 14.9. CSD FORM 5 â&#x20AC;&#x201C; PLEDGE FORM

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

189

SECTION 14: APPENDICES 14.10. C SD FORM 7 â&#x20AC;&#x201C; PRIVATE TRANSFER FORM

190

BK GROUP PLC RIGHTS ISSUE INFORMATION MEMORANDUM

www.bk.rw BK Group PLC Building | KN4 Ave No 12, Plot No 790 | P.O. Box 175 Kigali, Rwanda