KCB BANK RWANDA INTEGRATED REPORT by Yakub Ibrahim

BANK 2020 KCB BANK RWANDA PLC

INTEGRATED REPORT & FINANCIAL STATEMENTS

KCB Bank Rwanda Plc is Regulated by the National Bank of Rwanda.

About this report

he KCB Bank Rwanda Plc Integrated Report and Financial Statement 2020 is our statutory and regulatory reporting disclosure. It comprises information about activities, strategy, financial, and nonfinancial results for the period of January 1, 2020 to December 31, 2020. The aim is to comprehensively report to our existing and prospective investors in an integrated way to reflect how the organization operates

Framework The report has been prepared in compliance with global best practice and prudent accounting frameworks. It is aligned to the provisions of the Capital Markets Authority (CMA) guidelines, and National Bank of Rwanda (BNR) Prudential Guidelines. The Bank’s Annual Financial Statements were prepared in accordance with the International Financial Reporting Standards (IFRS). The report is part of our commitment to be transparent and accountable to our stakeholders. KCB Bank Rwanda Plc constantly considers whether there are additional reporting frameworks or metrics we could use to enhance our disclosures.

Assurance The Annual Financial Statements for KCB Bank Rwanda were audited by KPMG.

Contents Overview Overview ....................................................................................................................5 Our 2020 Milestones ..................................................................................................8 2020 - 2023 Strategy................................................................................................10 COVID-19 Related Initiatives ....................................................................................12 Operating Environment..............................................................................................14 Who Governs Us Board of Directors Profiles .......................................................................................18 Chairman’s Statement...............................................................................................20 Board of Directors Profiles .......................................................................................22 MD’s statement .......................................................................................................26 Executive Management Profiles ...............................................................................28 Our Social Investments KCB Foundation........................................................................................................34 Corporate Governance Statement Corporate Governance Statement.............................................................................38 Financial Statements Report of Directors...................................................................................................44 Independent Auditor’s Report....................................................................................48 Financial Statements & Notes..................................................................................50

To ensure that we report on issues that matter to our stakeholders please provide any feedback and questions to: contactus@rw.kcbbankgroup.com

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

KCB strongly recommends adherence to COVID-19 safety guidelines. All laid out Government regulations and health precautions were adhered to during the making of this report.

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OVERVIEW

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

OVERVIEW

Overview

CB KCB Bank Rwanda Plc (a member of KCB Group Plc) is a commercial bank regulated by the National Bank of Rwanda operating with a Network of 13 branches, a Corporate and Advantage Centre for the affluent customer, 26 ATMs and 480 banking agents, spread across the width and breadth of the country in order to take our products and services closer to the marketplace. We pride ourselves in being an innovative, warm and customer friendly bank offering a full range of financial solutions. We are Simple, Inspiring and Friendly, and practice these values as we work towards simplifying our clients’ world to enable their progress.

The Bank is well positioned to offer convenient banking services to every individual and business in Rwanda at an affordable cost. We offer competitive Affluent, Retail, SME, Micro, Corporate, Custody, Mortgage products and Agent Banking (KCB Iwacu) which has brought convenient banking services directly to our customers. They are now able to do their banking for even longer hours and comfortably in outlets. The Bank provides high-end digital banking services that cater to mobile transfers, payments and credit. Additionally, we offer money transfer services such as Western Union, Money gram, WorldRemit and RIA.

OUR PURPOSE

To simplify our customers lives while enabling their progress.

OUR VALUES

OUR BANKING CHANNELS

We are Simple, We are Friendly, We are Inspiring.

Branch banking ATM banking Internet banking Mobile banking Agent banking (Iwacu) Diaspora banking

Our Presence

BRANCH NETWORK: ]

KIGALI: • Main Branch – Avenue dela paix Street • Remera • MTN Centre • Kimironko • Gisozi • Nyabugogo • Tropical Plaza (Downtown)

UPCOUNTRY: • Muhanga • Huye • Rusizi • Rubavu • Musanze • Kayonza

KCB Foundation is committed to supporting the development of our communities through economic empowerment. Working with its employees and other stakeholders, the Foundation offers support in five thematic areas in line with the Millennium Development Goals (MDGs):

OUR FOUNDATION

Branches

480 Agents & POS / Merchants

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100k

Customers

ATMs

Enterprise Development Environment Education Health Humanitarian Intervention In Rwanda, the Foundation has undertaken various CSR activities from inception, such as supporting schools & hospitals, training youth entrepreneurs, providing livestock, electricity, medical insurance to communities and taking care of the environment and so much more. We aim to make a difference in the community where we operate in a sustainable manner.

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OVERVIEW

Our 2020 Milestones • KCB Bank Rwanda rolled out a host-to-host • KCB Bank partnership Rwanda rolled out a host-to-host partnership with Rwanda Water and Sanitation Corporation with Rwanda enabling Water and Sanitation Corporation enabling water bill payments on all digital channels. water bill payments on all digital channels. • KCB Bank Rwanda launched Instant • KCB ATM BankCard Rwanda launched Instant ATM Card Issuance and sale of prepaid electricity Issuance tokens through and sale of prepaid electricity tokens through the Bank’s digital channels. the Bank’s digital channels.

• KCB Bank Rwanda partnered with •Development KCB BankBank Rwanda of partnered with Development Bank of Rwanda (BRD) to provide long term Rwanda funding (BRD)for to provide long term funding for affordable housing affordable housing • KCB Bank Rwanda revamped input•finance KCB products Bank Rwanda for revamped input finance products for farmers and inputs suppliers farmers and inputs suppliers

• KCB Bank Rwanda advanced working • capital KCB Bank facilities Rwanda to SMEs advanced affected working capital facilities to SMEs affected by COVID-19 in the Economy Recovery by COVID-19 Fund initiative in the by Economy the Recovery Fund initiative by the Government of Rwanda. Government of Rwanda. • KCB Bank Rwanda partnered with• Rwanda KCB Bank SocialRwanda Securitypartnered Board towith Rwanda Social Security Board to provide long term mortgages. provide long term mortgages. • KCB Bank Tanzania implemented Customer • KCB Voice Bank Tanzania System that implemented enables Customer Voice System that enables the Bank to carry out online survey the aimed Bank at enhancing to carry outcustomer online survey aimed at enhancing customer experience by leveraging on feedback toexperience identify and by seal leveraging pain points. on feedback to identify and seal pain points.

• KCB Group commenced the implementation • KCB Group of thecommenced new BeyondtheBanking implementation of the new Beyond Banking Strategy which seeks to deliver the veryStrategy best in customer which seeks experience to deliverwhile the very best in customer experience while driving a digital future. driving a digital future.

• KCB Bank Rwanda rolled out • Electronic KCB Bank Customer Rwanda rolled out Electronic Customer Relationship Management (ECRM) to track Relationship customerManagement queries (ECRM) to track customer queries and resolution. and resolution.

. . • KCB Bank Rwanda partnered with•BRDKCB under BankExport Rwanda Growth partnered Fund with BRD under Export Growth Fund (EGF) for subsidised loans to exporters.(EGF) for subsidised loans to exporters.

• KCB Bank Rwanda donated FRW 100M • KCB towards BankCovid-19 Rwanda interventions. donated FRW 100M towards Covid-19 interventions.

• KCB Bank Rwanda set up SME managerial • KCB Bank digitalRwanda trainingsetonupbusiness SME managerial and financial digital training on business and financial management. management.

• KCB Bank Rwanda partnered with •ACELIKCB Africa, BankOpportunity Rwanda partnered International with ACELI and FAGACE Africa, for Opportunity International and FAGACE for agricultural and SMEs portfolio guarantee agricultural schemes.and SMEs portfolio guarantee schemes.

• KCB Bank Rwanda through KCB Foundation’s • KCB Bank igireRwanda programthrough supported KCB 100 Foundation’s teen mothers igire program who already supported own 100 teen mothers who already own businesses by training them on how to develop businesses theirbybusinesses. training them on how to develop their businesses.

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OVERVIEW

Our Purpose

Our Values

Simplifying your world to enable your progress

Our Vision

To be the preferred financial solutions provider in Africa with global reach.

• Inspiring • Simple • Friendly

2020 - 2023

STRATEGY

Our Behaviour

• I am a leader • I find solutions • I drive efficiency • I simplify work • I listen and care • I am positive and committed

Our Mission

To drive efficiency whilst growing market share in order to be the preferred financial solutions provider in Africa with global reach.

Our Promise Go Ahead

What drives us

Financial

Internal Business Process

• PBT • Efficiency • Shareholder Value

• System Reliability • Sustainability • Control Environment

Customer Perspective

Learning and Growth

• Customer Experience • Market Share • Shared Value

• Staff Productivity • Staff Development • Culture Change

Strategy Pillars Customer first, with leading value propositions Step change in efficiency and productivity Digital Leader and Digital to the Core Scale to achieve regional relevance

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How we achieve it • Modern IT Architecture, Processes, Capabilities and Talent • Enhance End-to End (E2E) Credit and Enterprise Risk Management. • Rigorous Performance Management with Enabling Culture and Organization Structure

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OVERVIEW

COVID-19 Related Initiatives

he global outbreak of COVID-19 poses the largest health and economic crisis in decades. The pandemic has had an adverse impact on economies, households, businesses, and financial institutions around the world. In response, the government announced various containment measures to limit the spread of the virus. These measures, adopted at various levels across the region, including restriction of movements to limit intra-country and crosscounty infections resulted in a slowdown in economic activity, turning the pandemic into an economic and health crisis. While we could never have predicted the nature or extent of the crisis we continue to face, the Bank was on sound footing operationally and financially going into the crisis. Our efforts to build and maintain strong capital levels gave us the flexibility to serve as an economic shock absorber for our customers and the general economy during these harshest of times.

The Bank adopted various measures to keep the customers and staff safe. It initiated various relief measures for customers including loan restructuring, waiver of mobile banking charges, provision on sanitizers and physical distancing protocols in all our branches. We also contributed to various COVID-19 response initiatives across the region to support our communities during the pandemic. All these measures were geared towards limiting the spread of the virus and easing the related economic hardships faced by the communities in which KCB operates. Through our various interventions, we demonstrated KCB as the partner that truly cares for those within its community and genuinely interested in enabling progress.

Support provided to SME customers

The Bank restructured SME loans thereby providing repayment holidays and moratoriums to over 500 SME customers while at the same time offering a wide range of business development skills to entrepreneurs through webinars.

Interventions COVID-19 Intervention RWF.

100 million

KCB Bank Rwanda has contributed RWF.100 million towards emergency interventions to cushion vulnerable citizens affected by the COVID-19 pandemic. The funds will be channeled through the Rwanda Ministry of Finance and Economic Planning COVID-19 Donation Fund to support Rwandans during this crisis.

COVID-19 Loans Restructured RWF.

74 billion

Cumulative value of restructured loan facilities by the bank to cushion customers against the effects of the COVID-19 pandemic. The relief accommodation was extended to distressed customers upon request in the form of principal only, interest only or both principal and interest moratorium.

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Waiver of Mobile Banking Charges

KCB waived all charges for balance inquiry and for transfers between mobile money wallets and bank accounts. This waiver resulted in a significant growth in mobile banking volumes.

Initiatives to support staff

Facilitation of staff to work from home through support towards set up of home offices, provision of internet connectivity and a closed user group for voice calls. Deployment of teams to work in shifts at the branches and the provision of reusable face masks, hand sanitizers and infrared thermometers in all workplaces. Health talks and trainings to create awareness and break the stigma about the pandemic were also conducted. The Bank availed additional access, through our health care partners, to specialized treatment and counsellors to offer psychological support.

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OVERVIEW

Operating Environment RWANDA

wanda’s economy shrunk 3.6% year-onyear in the third quarter of 2020 following a record 12.4% contraction in the previous period as activities gradually recovered from the COVID-19 pandemic shock. The services sector shrunk 7.0% driven by a 55.0% and 12.0% contraction in hotels & restaurants and trade & transport respectively. However, information & communication, manufacturing and agricultural activities grew by 43.0%, 6.0% and 2.0% respectively. The IMF projects a full year contraction of 0.2% in 2020 and a rebound to 5.7% in 2021 driven by improvements in the business environment and investment in major growth sectors. Rwanda’s annual inflation rate eased for the fifth straight month to 3.9% in December 2020. The inflation rates remained above 10% from January to September hitting a high of 13.5% in March 2020. Mild pressures on core inflation are expected over the medium term as a result of the continuous real exchange rate depreciation but the headline inflation is projected to drop to 1.3% in 2021. The exchange rate depreciated by 5.4% in the year with the Rwandan Franc (FRW) exchanging at 972 to the US Dollar but reserves remained adequate at 5.8 months of import cover. Rwanda was the first country in the region to enforce a total lockdown at the onset of the pandemic, leading to a slow growth in the number of infections and deaths in the country. Furthermore, the government initiated a raft of containment measures including enforcing social distancing, mandatory wearing of face masks and provision of medical support. On the monetary front, the National Bank of Rwanda reduced the Central Bank Rate (CBR) to 4.5%; lowered the reserve requirement ratio by 100 basis points to 4.0%; extended a lending facility worth RWF 50 billion that banks facing liquidity challenges could borrow from; allowed banks to restructure loans for impacted borrowers and introduced waivers for mobile money transactions.

Branches 13 ATMs 26 Agents 480 Merchant outlets 157 Staff 244

The Government of Rwanda further scaled up emergency health spending and support to vulnerable households in the form of regular in-kind transfers of basic foodstuffs; introduced tax relief measures including the suspension of down payments on outstanding tax for amicable settlement; softened the enforcement for tax arrears collection; extended the deadline for filing and paying corporation income tax; and fast tracked VAT refunds to SMEs. The Economic Recovery Fund (ERF) was also established by the government to support the recovery of businesses hardest hit by the pandemic resume operations and safeguard jobs. The fund estimated at US$ 900 million over the two fiscal years 2019/20 and 2020/21, aims to scale up social safety net programs for the most vulnerable, build key infrastructures, and support strategic enterprises, including smalland medium-size enterprises. Rwanda’s growth, coupled with a focus on the business environment, is expected to stimulate growth in private investment. Currently, foreign direct investment averages 3.0% of GDP and is expected to gradually increase as the country improves the ease of doing business. The 2020 World Bank Doing Business report ranks Rwanda second in Africa. The country is scheduled to host the Commonwealth Heads of Government Meeting (CHOGM) in 2021. The event was postponed from 2020 due to the pandemic. This meeting offers an opportunity for the country to showcase her investment opportunities.

John Bosco Birungi Chairman

Molly Rwigamba

Tom Ipomai

Antonia Mutoro

Timothy Kariuki Mwai

Alexis Nsengumuremyi

Joachim Steuerwald

George Odhiambo Managing Director

BOARD OF DIRECTORS

OVERVIEW

Brice Manzi Company Secretary

-0.2% GDP Performance

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WHO GOVERNS US

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WHO GOVERNS US

KCB BANK RWANDA Board of Directors

JOHN BOSCO BIRUNGI CHAIRMAN

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Molly Rwigamba DIRECTOR

MRS ANTONIA MUTORO DIRECTOR

TIMOTHY KARIUKI MWAI DIRECTOR

DR. ALEXIS NSENGUMUREMYI DIRECTOR

TOM IPOMAI DIRECTOR

JOACHIM STEUERWALD DIRECTOR

GEORGE ODHIAMBO MANAGING DIRECTOR

BRICE MANZI COMPANY SECRETARY

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WHO GOVERNS US

KCB BANK RWANDA Chairman's Statement

we aim to be digital to the core, increase our efficiency and productivity, and vitally put the customer first with value propositions.

he journey through the past 12 months has been one that reminded me of the immeasurable strength of this bank. Critically it showed us all how resilient our stakeholders can be.

We were repeatedly tested through the unforgiving impacts of the COVID-19 pandemic. I am encouraged that despite this challenge, we stand strong, determined to achieve our goals more than ever. On a positive note, we partnered with the Government of Rwanda through a FRW 100 Million donation targeted to provide relief to citizens that were disproportionately affected by COVID-19. Rwanda’s GDP contracted by 0.4% in 2020 due to the pandemic, having grown by 9.4% in 2019. Several key sectors were especially affected. Tourism, Trade and Transportation to mention a few. This had a ripple effect on the financial sector. We restructured 50% of our loan book to ease the burden on our customers and within nine months, over 75% of the customers have bounced back to servicing their debt

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obligations. However, at the close of the year going into 2021 the economy is positioned to bounce back. Government based infrastructure spending and re-opening of businesses has provided a positive outlook for the Tourism sector and the diverse value chain attached to it, from hospitality, transport and agriculture. At the core of the bank’s business, we are implementing a 3-year strategy, which is aligned to provide our customers with innovative, value driven services. Titled Beyond Banking, we aim to be digital to the core, increase our efficiency and productivity, and vitally put the customer first with value propositions. I believe we are well prepared to achieve these goals because of the Technology infrastructure we invested in over the past few years as well as having a talented group of people that we know are the best for this bank. Credit policy and Risk management remain strong and have been built with the right mechanics to suit all our customers. Business performance over the past year was not as planned. As I mentioned, the COVID-19 pandemic had stretched effects on us all. Despite a Profit After Tax drop of 38%, we were able to grow our Balance Sheet from FRW 198 Billion, to FRW 232 Billion. Growth in our loan book was aided by investments in Manufacturing, Infrastructure and Services. The bank’s linkages to

regional resources through KCB Group has allowed us to participate in several projects through different available expertise and capital buffers. As part of the Beyond Banking strategy, expansion of the business through Mergers and Acquisitions remains a priority. KCB Group is currently in the process of finalizing the acquisition of Banque Populaire Du Rwanda (BPR). Shareholders approved a proposal to acquire up to 100 percent of issued ordinary shares. We are looking forward to a renewed approach to providing bigger and better services to customers everywhere in Rwanda. Our community development is still high up on our agenda. KCB Foundation’s IGIRE program was awarded the RDB Business Excellence Award as Skills Development Promoter of the Year. A worthy recognition for consistent development of Rwandan youth through technical and vocational education. So far, 400 youth have graduated under this program, and we foresee this number growing over the next few years. Looking forward, I am content that the bank has the right platform to succeed in the long term and we are confident that 2021 will be a fruitful year for our customers and the bank’s business in its entirety.

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WHO GOVERNS US

Board of Directors’ Profiles NAME: JOHN BOSCO BIRUNGI DESIGNATION: CHAIRMAN DATE OF APPOINTMENT TO BOARD: JANUARY 2018

Board of Directors’ Profiles

PROFILE

John joined the board in 2018. He holds an MBA in Finance from Brandeis University in Boston, Massachusetts and a BSc in Quantitative Economics from Makerere University, Uganda.

Antonia joined the Board in 2017. She holds a Diploma in Education from Kyambogo, a certificate in MSM Executive Program in Management of Change for Organization Transformation from Maastricht School of Management and a Master of Education from Leeds University in UK.

NAME: MRS ANTONIA MUTORO

John is currently the Director of UAP Insurance Rwanda, Elon Construction and JIBU Corporate. He previously served as CEO of Crystal Venture Ltd and on the Boards of MTN Rwanda, Rwanda Investment Group and CIMERWA. He worked in investment banking with Bank of America’s Global Industries Group in New York, in commercial banking and market research with Fleet Boston Bank and AC Nielsen respectively And as an Analyst with Trudeau & Trudeau Associates in Boston.

DESIGNATION: DIRECTOR DATE OF APPOINTMENT TO BOARD: NOVEMBER 2017

John is the founder of the Vision Sports Academy in Rwanda and the President of the Rwanda Table Tennis Federation.

She is currently the Director General of National Capacity Development and Employment Service Board (CESB) and Executive Secretary of National Capacity Building Secretariat (NCBS). She is the founder and Executive Director of the Institute of Pol icy Analysis and Research (IPAR) in Rwanda and has over 13 years of experience in governance, leadership and resource mobilization. Antonia previously served as Chairperson of Rwanda Governance Boards (RGB), Board member of Public Sector Capacity Building secretariat (PSCB) and Vice Chair Umutara Polytec University.

PROFILE PROFILE Molly is a managing partner at RR Associates and a director of KCB Bank Rwanda Ltd. Molly has over 15 years of experience as a legal and private sector expert and previously served as the CEO of Rwanda's Private Sector Federation. She has worked with the Government of Rwanda on key policy issues and reforms affecting private sector development to create a more conducive private sector environment. Molly was the vice-chair of Rwanda's Capital Markets Authority and serves on the boards of Rwanda's Work Force Development Authority, National Labor Council, Education Endowment Fund, and the Student Financing Agency. She holds a bachelor’s in law from the National University of Rwanda and a masters in international and comparative law from Sweden's Uppsala University.

NAME: MOLLY RWIGAMBA DESIGNATION: DIRECTOR DATE OF APPOINTMENT TO BOARD: APRIL 2013

Timothy joined the board in 2018. He holds a Bachelor’s degree in Agricultural Economics and a master of Science degree in Agricultural Economics from the University of Idaho, USA. He is a seasoned Human Resources professional with extensive experience at senior management and board levels who has shaped high performance culture in Multinational organizations and major growth brands, with robust development programs that have Produced double digit revenue growth. Timothy’s Specialties are: HR strategy and execution, organization review and development, talent engagement and development, Union negotiations, Q12, Gallup strength finder.

NAME: TIMOTHY KARIUKI MWAI DESIGNATION: DIRECTOR DATE OF APPOINTMENT TO BOARD: 2018

PROFILE Dr. Alexis joined the board in March 2021. He holds a bachelor’s degree in PROFILE NAME: TOM IPOMAI DESIGNATION: DIRECTOR DATE OF APPOINTMENT TO BOARD: JULY 2013

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Tom is a corporate finance specialist. He holds a degree in Computer Science from the University of Nairobi (1st Class Honours) and a Master of Philosophy (MPhil) in Management Studies from the University of Cambridge (Jesus College). He is a Certified Chartered Accountant (ACCA). Previously, Tom worked for the Central Bank of Kenya, Barclays Bank in the UK, Kenya and Zambia and with Deloitte in its Corporate Finance Advisory division. Tom runs a boutique consulting firm. Tom is a member of the Audit & Risk, the HR & Governance and the Nominations committees. He serves as a member of the boards of KCB Bank Kenya Limited and KCB Bank Rwanda Limited.

NAME: DR. ALEXIS NSENGUMUREMYI DESIGNATION: DIRECTOR DATE OF APPOINTMENT TO BOARD: MARCH 2021

Civil Engineering Sciences, a Master of Sciences in Civil Engineering from Washington International University and a PHD of Sciences in Civil Engineering, specializing in Dynamic Structures from Washington International University. Alexis is a seasoned engineer and founder of E.G.C. Ltd a local private company specializing in construction works of buildings, water and power supply. He is currently the chairman of the Chamber of Industry at Rwanda Private Sector Federation (PSF) and chairman of board of directors of the Association of the Rwanda Contractors (AEBTP). He has also served on the boards of Workforce Development Authority (WDA) and Rwanda Public Procurement Authority (RPPA).

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WHO GOVERNS US

PROFILE Joachim was appointed the chief technology office, KCB group plc effective on September 9th, NAME: JOACHIM STEUERWALD DESIGNATION: DIRECTOR DATE OF APPOINTMENT TO BOARD: SEPTEMBER 2019

He has over 34 years of work experience spanning several global executive technology management roles in banking and financial services, technology, automotive and aeronautics sectors. these include head of infrastructure ( airbus industries, Germany), team leader, software development (BMW Bank), group head of derivatives it (Deutsche bank group), chief architect and Chief Technology officer, global equities business services (deutsche bank group), global head of production management (Deutsche Bank Group corporate and investment bank, London, UK), Director of Enterprise Architecture (Oracle Corporation, London, UK and Nairobi, Kenya) and Technology Sales Director for Kenya and East Africa (Oracle Corporation). Joachim holds bachelor of computer science and mathematics from the Technical University of Munich.

PROFILE George joined the bank in September 2013. He previously served as Head, Business Analytics & Transformation at KCB Bank Kenya. George’s early career included Branch Management at Standard Chartered Bank Kenya, Area Manager at Barclays Bank Kenya, before becoming Head, Business Analytics, East & West Africa at Barclays Africa. A graduate of the University of Nairobi in BSc Mathematical Statistics & MSc Pure Mathematics, Post Graduate Diploma graduate in Corporate Governance from KCA University, Kenya and a holder of Practitioner Diploma in Executive Coaching awarded by the Academy of Executive Coaching, UK. He has 22 years’ experience in Commercial Banking.

NAME: GEORGE ODHIAMBO DESIGNATION: MANAGING DIRECTOR DATE OF APPOINTMENT TO BOARD: 2017

PROFILE NAME: BRICE MANZI DESIGNATION: COMPANY SECRETARY DATE OF APPOINTMENT: 2016

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Brice Manzi joined the bank in 2009 where he first served as Manager, Legal Services and Compliance. He has over 17 years’ experience in legal services. Other roles held include Attorney and Investment Specialist lawyer at Rwanda Social Security Board and Legal Consultant at KPS Associates. He holds a Bachelor of Laws Degree (LLB) from the University of Rwanda and a Post Graduate Diploma in Legal Practices (PG Dip. LP) from the Institute of Legal Practices and Development. He is a certified arbitrator from Chartered Institute of Arbitrators (CIarb).

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WHO GOVERNS US

KCB BANK RWANDA Managing Director's Statement

the bank waived fees on mobile banking transfers. Furthermore, we restructured loans worth FRW74 Billion to aid customers affected by the pandemic. Through these initiatives and the Economic Recovery Fund provided by the Government of Rwanda through development partners, we were able to stabilize several SMEs and Corporate businesses, which we believe will be a strong contribution to foundation for the economy going into 2021 and beyond. Our strategy going into 2020 had a primary focus on Beyond Banking, which is based on strengthening our digital offering, building efficiency and productivity in all areas of business, as well as creating value propositions for all our customers. This strategy is driven by stateof-the-art IT infrastructure, an enhanced end to end credit process, and rigorous performance management protocols. In 2020, we were able to launch instant card issuance in our branches, as well as increase the number of utility services on our mobile and internet banking platforms that cater to bill payments for postpaid water bills, prepaid electricity, and airtime purchases among others.

020 was a tumultuous year that taught us more about the importance of safety of our staff, customers, and society in general like no other recent year. The world experienced a pandemic in COVID-19 that affected billions of people in one way or the other. No one was prepared for the business effects of a global pandemic. Several people were affected medically, some experiencing the pain of COVID-19 symptoms, and others losing their lives because of this virus. Multiple businesses slowed down and, in many cases, closed. There was a cascading effect that cost people their jobs and subsequent livelihoods of many homes. As a pivotal part of the Rwandan community, we had to play our part. At the onset, we donated FRW100 Million for emergency interventions to cushion vulnerable citizens affected by the pandemic through the Ministry of Finance. In line with the Government of Rwanda’s initiatives to ease the process of online transactions,

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I am also happy to report that we launched our virtual account opening service, Mbanki, which allows anyone with a mobile phone and a valid national ID to open an account instantly at the comfort of their homes. A move that will undoubtedly drive financial inclusion in Rwanda. We launched a branch at Tropical Plaza in the Central Business district that caters for various SME and personal banking customers and soon will be able to host a self-service center, fully equipped to cater for all basic transactional requirements.

On the business front, the bank closed the year at FRW 20.3 Billion in revenues, a 2% drop from the same period in 2019. Credit loss was FRW1.6 Billion, from FRW699 Million in 2019. An expected increase given the effects of the pandemic. Expenses dropped from FRW6.5 Billion to FRW4 Billion, as part of a shrewd business recovery strategy. Overall, Profit After Tax dropped by 38% from FRW6.5 Billion to FRW4 Billion. Looking at Assets and Liabilities, there was notable growth in the bank’s loan book, from FRW135 Billion to FRW150 Billion, a positive indication of an economic revival at the close of 2020 going into 2021. Customer deposits grew by 13%, another reflection of economic growth potential, despite the stain of an economic downturn. Our overall sentiment is one of positivity. We look forward optimistically in a reversal of our business fortunes, which we hope will provide renewed energy to local businesses and the community at large. As part of our commitment to the Rwandan community, we continue to invest in a shared value approach through the KCB Foundation’s IGIRE program. We were able to train 100 teen mothers on various business strategies. Through this program we aim to educate several Rwandans over the next few years in technical and vocational skills to drive selfempowerment and employment rates as we play our role in support of growth of Rwanda’s SME base. 2021 is set to be a more productive year than its predecessor. Our intention is continue driving our digital agenda aggressively, providing efficiency in our credit process, as well as delivering multiple value prepositions to all customers. I firmly believe we have the right people and enthusiasm to deliver our ambitious strategy in the coming years.

Our intention is continue driving our digital agenda aggressively, providing efficiency in our credit process, as well as delivering multiple value prepositions to all customers.

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WHO GOVERNS US

Executive Management Profiles

PROFILE

Emmanuella joined KCB Bank Rwanda in 2011. PROFILE NAME: GEORGE ODHIAMBO

George joined the bank in September 2013. He previously served as Head, Business Analytics & Transformation at KCB Bank Kenya.

DESIGNATION: MANAGING DIRECTOR

George’s early career included Branch Management at Standard Chartered Bank Kenya, Area Manager at Barclays Bank Kenya, before becoming Head, Business Analytics, East & West Africa at Barclays Africa.

DATE OF APPOINTMENT : SEPTEMBER 2013

A graduate of the University of Nairobi in BSc Mathematical Statistics & MSc Pure Mathematics, Post Graduate Diploma graduate in Corporate Governance from KCA University, Kenya and a holder of Practitioner Diploma in Executive Coaching awarded by the Academy of Executive Coaching, UK. He has 22 years’ experience in Commercial Banking.

She holds a Bachelor’s Degree in Information Technology from Staffordshire University in Malaysia, an international advanced diploma in computer studies from NCC Education in the UK, a digital money certificate and several other

NAME: EMMANUELLA NZAHABONIMANA

professional certificates.

DESIGNATION: HEAD OF IT

Emmanuella has 10 years’ progressive experience in managing information

DATE OF APPOINTMENT: 2011

technology, product development and digital banking.

PROFILE PROFILE

NAME: ALBERT AKIMANZI

Eliane joined KCB Bank Rwanda in 2009 and has served the Bank in different roles ever since. She served as the Payments Officer at Muhanga Branch and later as a Teller at the main branch at Avenue de la Paix and finally as a Section Head at the Back office at Nyabugogo branch before joining the treasury department. Eliane joined the Treasury Department at Head Office as a Dealer in FX and Money Markets for about 5 years and also worked as the Acting Head of Department in different periods. Eliane holds a Bachelors’ Degree in Business Administration & Accounting from the Adventist University of Central Africa and has over 10 years of work experience in the banking sector.

NAME: ELIANE UWIZEYIMANA

DESIGNATION: HEAD OF MARKETING AND COMMUNICATIONS

DESIGNATION: HEAD OF TREASURY

DATE OF APPOINTMENT: SEPTEMBER 2015

DATE OF APPOINTMENT: 2009

As Head of Marketing and Corporate Communications, Albert Akimanzi leads the company’s Marketing, Innovation, Customer Experience, Corporate Communications, PR and Foundation teams. Before KCB Bank Rwanda, Albert served as Communication and External Affairs Manager at GTBank where he successfully positioned the company’s brand to accelerate growth in consumer, SME and Corporate businesses. Albert has spent the previous 6 years at KCB Bank Rwanda re-imagining customer experience through digitizing service delivery points and creating seamless delivery of a full range of top tier products. Through the Corporate Communications unit, the bank has created a practice of Sustainable banking and reporting, while investing in shared value community activities driven by the KCB Foundation.

PROFILE Bernard joined KCB Bank Rwanda in 2019. He has over 13 years’ experience in finance management across KCB group having worked in KCB kenya LTD, KCB Burundi LTD (6 years as head of finance).

PROFILE NAME: BRICE MANZI DESIGNATION: HEAD OF LEGAL SERVICES DATE OF APPOINTMENT: 2009

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Brice Manzi joined the bank in 2009 where he first served as Manager, Legal Services and Compliance. Brice has over 17 years’ experience in legal services. Other roles held include Attorney and Investment Specialist lawyer at Rwanda Social Security Board and Legal Consultant at KPS Associates.

He holds a bachelor of arts (Economics) from university of Nairobi and a Master’s in Business administration (MBA) Finance also from the university of Nairobi. Bernard is a certified public accountant of Kenya CPA(K) from Strathmore university A member of institute of certified public accountants of Kenya ICPAK.

NAME: BERNARD MUASYA DESIGNATION: HEAD OF FINANCE DATE OF APPOINTMENT: 2019

He holds a Bachelor of Laws Degree (LLB) from the University of Rwanda and a Post Graduate Diploma in Legal Practices (PG Dip. LP) from the Institute of Legal Practices and Development. He is a certified arbitrator from Chartered Institute of Arbitrators (CIarb).

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WHO GOVERNS US

Executive Management Profiles PROFILE NAME: INNOCENT NTWALI DESIGNATION: HEAD OF RETAIL BANKING DATE OF APPOINTMENT: MAY 2011

Innocent joined KCB Bank Rwanda in May 2011. He holds a Bachelors’ Degree in Economic Sciences and Management from Kigali Independent University and professional certificates in Digital Money and in Leading Digital Money Markets from the Digital Frontiers Institute at the Fletcher School of Law & Diplomacy, Tufts University. Innocent has over 17 years’ experience in banking. He previously worked at BCDI (current Ecobank Rwanda) where he served in various positions including Branch Management and has worked in different management positions since joining KCB Bank Rwanda, including Branch Manager of Huye branch, Branch Manager Avenue de la Paix branch, Senior Manager Personal Banking and Channels as well as Senior Manager Alternative Channels respectively.

PROFILE Johnny joined KCB Bank Rwanda in 2010 where he first worked as a Corporate Relationship Manager for 4 years and later as a Senior Manager of Corporate Banking for 4 years as well. Prior to joining KCB, Johnny worked for BPR part of Atlas Mara in setting up its Trade Finance Unit and in product development of Trade Sales. He also worked as Head of Trade Services at Ecobank Rwanda for 2 years after serving as Head of International Unit in the same Bank for 3 years. Johnny holds a bachelor’s degree in Finance from Kigali Institute of Science, Technology and Management and has over 15 years of work experience in the banking sector.

NAME: JOHNNY MATABISHI DESIGNATION: HEAD OF CORPORATE BANKING DATE OF APPOINTMENT: 2010

PROFILE Etienne joined KCB Bank Rwanda (KCBR) in August 2011. PROFILE NAME: ETIENNE NTAGANDA

NAME: NDAMAGE RESTUTA

Restuta joined KCB Bank Rwanda in December 2009. She holds a bachelor’s degree in Business Administration from School of Finance and Banking. Restuta has over 10 years’ progressive experience in banking operations that is trade finance, international and local payments, and all the other related back-office activities.

DESIGNATION: HEAD OF CREDIT

DESIGNATION: A.G HEAD OF OPERATIONS & LOGISTICS

DATE OF APPOINTMENT: AUGUST 2011

DATE OF APPOINTMENT:

Before joining KCBR, he served respectively as Head of Corporate Credits Department and Head of Commercial Department at BCR(Currently I&M Bank), Director of Credits at the former Bancor (Currently Access Bank) and Head of Commercial Banking Group at Access Bank Rwanda (After the takeover of Bancor). He holds a Bachelor’s degree in Economics from the National University of Burundi and an MBA in Banking from the Maastricht School of Management. Currently, he has 28 years’ experience in Commercial Banking and is the Chairperson of the National Fund for Environment (FONERWA).

DECEMBER 2009 Prior to joining the banking industry, Restuta worked as an auditor.

PROFILE

PROFILE NAME: JOEL MBYAYINGABO DESIGNATION: HEAD OF INTERNAL AUDIT DATE OF APPOINTMENT: 2015

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Innocent joined KCB Bank Rwanda in 2014.

Joel joined KCB Bank Rwanda in 2015 and he is currently serving the bank as Head of Internal Audit.

He holds a Bachelor’s degree in Business Management from Kigali Independent

He is a passionate banker with 10 years working experience where he has held various positions in different fields including Audit, Internal Control, Compliance, Anti-Fraud, IT and Operations. Joel holds a Master’s degree in Finance and Accounting.

University. Innocent previously worked as Manager of Non-Financial risk at the

He is a Certified Banker from the School of Banking Excellence, certified in I.C.T studies from the Kigali Institute of Science and Technology, member of ISACA Rwanda Chapter and a certified ISO/IEC 27001 Lead Auditor.

University and a Masters’ degree in Strategic Management from Mount Kenya Bank and as the Compliance team lead at Access Bank Plc.

NAME: INNOCENT AFRICA DESIGNATION: HEAD OF RISK AND COMPLIANCE DATE OF APPOINTMENT: 2014

He is a certified risk management professional with over 9 years’ experience in Enterprise risk management.

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OUR SOCIAL INVESTMENTS

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SOCIAL INVESTMENTS

KCB Foundation

Rwanda

t KCB Bank Rwanda, it is our firm belief that the bank can only prosper if the communities that have given us the social license to operate, thrive. This is what forms the baseline of our social and relationship capital. The Bank affirmed this belief when it adopted a raft of measures to provide support to our customers and communities at the onset of the COVID-19 pandemic. These measures included fee waivers and loan restructuring to provide the much-needed relief to our customers as well as donations to support various COVID-19 response programs across the communities we operate in. KCB Foundation continues to champion for sustainable development, reduction of poverty, and enhancement of the wellbeing of the communities in Rwanda. This is achieved through the shared value philosophy that champions for businesses to solve societal challenges, which anchors the foundation programmes. One of the programmes we drive focuses on enterprise development; KCB IGIRE – a targeted skills and enterprise training for the youth for self-reliance.

The Foundation continues to champion for sustainable development, reduction of poverty, and enhancement of the wellbeing of the communities in Rwanda.

400

Beneficiaries Rwf.

30M Seed Capital

200

Business plans

400 Students to Study

the youth by advocating and strengthening the linkages between the informal and private sectors. It’s in accordance with this that KCB Foundation launched a scholarship program in Rwanda dubbed ‘KCB Igire’ in partnership with National Youth Council (NYC) which has now sponsored 400 students to study vocational skills in the fields of Culinary Arts, Carpentry and ICT at different Colleges under Rwanda Polytechnic. Under the program, competitions are organized at the end of the six months of accelerated training where ten participants with most articulate bankable business proposals are given startup funds by the Foundation. The Igire Program is one of the KCB sustainable projects that we believe will have a ripple effect on the development of the Rwandan community in the years to come. KCB Igire In Rwanda • 400 Beneficiaries, • Rwf 200M investment • Rwf 30M seed capital • 200 Business Plans

KCB FOUNDATION IN 2020. Empowering Teen Mothers Because of the pandemic, the foundation’s activities were limited in 2020. Under the Igire program, 100 teen mothers were identified with an objective to train, mentor and support them with training on Business development, marketing and Legal framework and provide them with tool kits from the National Youth council’s program that was put in place to strengthen the livelihood of Vulnerable Youth groups identified to facilitate their businesses. Rwf 100 Million for Covid19 Intervention KCB Bank Rwanda has contributed RWF.100 million towards emergency interventions to cushion vulnerable citizens affected by the COVID19 pandemic. The funds will be channeled through the Rwanda Ministry of Finance and Economic Planning COVID-19 Donation Fund to support Rwandans during this crisis.

Rwf.

100M

Value of COVID-19 interventions

Vocational Skills

Rwf. Rwf.

200M investment

KCB IGIRE In an effort to equip the Rwandan youth for self-employment, KCB Bank Rwanda in partnership with the National Youth Council have opened a door of opportunity for the youth to acquire vocational skills through a Scholarship programme dubbed IGIRE.

100

The programme covers the following courses:

Why Igire? Youth comprise 28.1 percent of Rwanda’s estimated 12million people. The government targets to create 200,000 off-farm jobs per year, mainly for youth and women in the next couple of years. With Rwanda’s youth numbering 2.3 million, increasing livelihood opportunities for the next generation is crucial for the country’s economic development.

1. Welding 2. Culinary Art 3. Information & Communication Technology 4. Motor Vehicle Mechanics 5. Tiling

KCB Bank Rwanda under KCB Foundation is one of the private entities in the country that have crafted initiatives that feed into national employment programs and targets. KCB Foundation, the social investments arm of KCB Bank Group, acknowledges its role in job creation and putting efforts in supporting

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

teen mothers were identified with an objective to train, mentor and support them

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CORPORATE GOVERNANCE STATEMENT

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CORPORATE GOVERNANCE

CORPORATE GOVERNANCE STATEMENT KCB Bank Rwanda Plc is committed to world class corporate governance standards as set from time to time by the National Bank of Rwanda, Capital Market Authority and by itself in accordance with international best practice. The Directors are responsible for the long term strategic direction and for profitable growth of the Bank whilst being accountable to the shareholders for compliance and maintenance of the highest corporate governance standards and business ethics. During the year, the Board composed of eight Directors out of whom seven are non-executive Directors including the Chairman. The Board has created committees which meet regularly under well-defined and delegated terms of reference set by the Board. The committees are; Risk Management Committee, Audit Committee, Human Resources Committee, Credit Committee and, IT and Strategy Committee. The following table shows the record of membership and attendance to the Board and Committee meetings during the year ended 31 December 2020. Main Board

Audit Committee

Risk & Compliance Committee

Credit Committee

Nomination & Compensation Committee

IT & Strategy Committee

No of meetings held

Mr. Tom D.O Ipomai

Mr. George Odhiambo

Ms Antonia Mutoro

Mr. John Bosco Birungi

Ms. Spéciose Ayinkamiye

Ms Molly Rwigamba

Mr. Timothy Mwai

Mr. Joachim Steuerwald

Mr. Alexis Nsengumuremyi

7 4

5 5

The following management committees are in place to ensure that the Bank carries out its obligation efficiently and effectively; • • • • • •

Management Committee Assets and Liabilities Committee Credit committee Risk Management and Compliance Committee Procurement Committee Disciplinary Committee

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FINANCIAL STATEMENTS

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FINANCIAL STATEMENTS

DIRECTORS AND STATUTORY INFORMATION DIRECTORS Name Mr. John Bosco Birungi Mr. George Odhiambo* Mr. Alexis Nsengumuremyi Mrs. Spéciose Ayinkamiye Ms. Molly Rwigamba Mrs. Antonia Mutoro Mr. Timothy Kariuki Mwai* Mr. Tom D.O. Ipomai* Mr. Joachim Steuerwald**

Appointment Date Chairman Managing Director Director Director Director Director Director Director Director

Appointment Date 18-Jan-18 07-Nov-17 23-Oct-20 10-May-12 17-Apr-13 12-Nov-17 18-Jun-18 05-Jun-14 21-Jan-20

Retirement Date

10-May-20

* Kenyan **German REGISTERED OFFICE KCB Bank Rwanda Plc Avenue de la Paix P. O. Box 5620 Plot No.1229 & 6404 Kigali, Rwanda

AUDITOR KPMG Rwanda Limited 5th floor, Grand Pension Plaza Boulevard de la Révolution P.O Box 6755 Kigali, Rwanda

SECRETARY Brice Manzi P. O. Box 5620 Kigali, Rwanda

ADVOCATES A full list of advocates is available at the Head Office

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FINANCIAL STATEMENTS

REPORT OF THE DIRECTORS The Directors have the pleasure of submitting their report together with the audited financial statements for the year ended 31 December 2020 which disclose the state of affairs of the Bank. The Bank was incorporated on 19 June 2008 and was issued with a Banking license to operate in Rwanda by the National Bank of Rwanda on 9 September 2008. Operations commenced on 5 December 2008. PRINCIPAL ACTIVITIES The principal activity of KCB Bank Rwanda Plc is provision of commercial Banking services and other related services. RESULTS FOR THE YEAR The results for the year are set out on page 12. DIRECTORS The Directors who served during the year are set out on page 3. All the Directors are non-executive other than the Managing Director DIVIDENDS Directors do not recommend payment of dividend (2019: Nil) BUSINESS REVIEW AND FINANCIAL PERFORMANCE The Covid-19 pandemic has had a devastating impact on the global economy and has resulted in significant changes to government actions, economic and market drivers as well as consumer behavior. This year has been a particularly challenging period for the Bank, our customers, and the economy at large due to the Covid-19 pandemic. The Bank’s performance has remained resilient amidst reduced non-funded income from waiver of digital fees and increase in loan loss provisions due to significant increase in credit risk The Interest income recorded 9% increase from Frw 21.3billion to Frw 23.3 billion. This is mainly due to the growth in interest income from government securities and interest income on loans and advances corresponding to an increase in government securities from 14.3 billion to 26.4 billion and increase in loans and advances from 135.7 billion to 150.4 billion respectively. The Non funded income declined by 20% from Frw 6.7 billion to Frw 5.4billion due to the waiver fees on digital transactions to cushion our customers from the impact of the pandemic. Forex income improved especially in the last quarter as the pandemic impacts eased, that resulted in increased trade Total operating expenses increased by 12% from Frw 11.7 billion to Frw 13.0 billion mainly due to cost containment measures adopted by the Bank and closure of exceptional items by way of write off. The Bank’s loan loss provisions increased by 136% to Frw 1.7billion (2019: Frw 699 million) mainly due to significant increase in credit risk due to the Covid-19 pandemic. The profit before tax recorded a 32% decline from Frw 8.4 billion to Frw 5.7 billion mainly driven by significant increase in loan loss provisions

STATEMENT OF DIRECTORS’ RESPONSIBILITIES The Directors are responsible for the preparation of financial statements that give a true and fair view of KCB Bank Rwanda Plc which comprise the statement of financial position as at 31 December 2020 and the statements of profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes as set out on pages 10 to 63 in accordance with International Financial Reporting Standards, in the manner required by Law No. 17/2018 of 13/04/2018 governing companies in Rwanda and Regulation No. 28/2019 of 09/09/2019 on publication by banks of financial statements and other disclosures in Rwanda. The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management. In preparing the financial statements, the Directors are responsible for assessing the Bank’s ability to continue as a going concern, disclosing as applicable, the matters related to going concern and using the going concern basis of accounting unless the Directors intend to liquidate the Bank or to cease operations or have no realistic alternative but to do so. The Directors are responsible for overseeing the Bank’s financial reporting process. The directors have made an assessment of the ability of the Bank to continue as going concern and have no reason to believe that the business will not be a going concern in the year ahead. The independent auditor is responsible for expressing an opinion on whether the financial statements give a true and fair view of the bank’s financial position and performance as at the year and for the year ended 31 December 2020

Approval of financial statements The financial statements of KCB Bank Rwanda Plc, as identified in the first paragraph, were approved and authorized for issue by the board of directors on 19 February 2021 and were signed by:

Managing Director Chairman of the Board

AUDITOR The auditor, KPMG Rwanda Limited, was appointed in 2017 in accordance with Regulation N°04/2009 on accreditation and other requirements for external auditors of banks, insurers and insurance brokers. As required by regulation 28/2019 of 09/09/2019 KPMG will be replaced by Price water house coopers Rwanda (PWC Rwanda) for the audit of the year ending 31 December 2021.

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FINANCIAL STATEMENTS

Independent auditor’s report to the shareholders of KCB Group Plc (Continued) Key audit matters (continued) Key audit matter Information Technology systems and controls over financial reporting

To the members of KCB Bank Rwanda Plc

Report on the Audit of the Financial Statements

Opinion We have audited the financial statements of KCB Bank Rwanda Plc (“the Bank”) set out on pages 10 to 62, which comprise the statement of financial position as at 31 December 2020, and the statement of profit or loss and other comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and the notes to the financial statements, including significant accounting policies and other explanatory information. In our opinion, the accompanying financial statements give a true and fair view of the financial position of KCB Bank Rwanda Plc as at 31 December 2020, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and in the manner required by Law No. 17/2018 of 13/04/2018 governing companies in Rwanda and Regulation No. 28/2019 of 09/09/2019 on publication of financial statements and other disclosures by banks in Rwanda.

· ·

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 are independent of the Company in accordance with International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), and we have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

· ·

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. 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. These matters were addressed in the context of our audit of the financial statements taken as a whole, and in forming our opinion thereon, we do not provide a separate opinion on these matters.

· ·

How our audit addressed the key audit matter Our audit procedures in this area included:

• Measurement of expected credit losses (“ECL”) on loans and advances involves significant judgement and estimates. The key areas where we identified greater levels of management judgement and therefore increased levels of audit focus in the Bank’s determination of ECL are: • Economic scenarios – IFRS 9 Financial instruments, requires the Bank to measure ECLs on a forward-looking basis reflecting a range of future economic conditions. Significant management judgment is applied to determining the economic scenarios • used and the probability weightings applied to them especially • for the corporate portfolios. COVID-19 has further increased the level of uncertainty and complexity when management is making these estimates Significant increase in credit risk (“SICR”) – for the retail and • corporate portfolios the criteria selected to identify a significant • increase in credit risk is a key area of judgement within the Bank’s ECL calculation as these criteria determine whether • a 12 month or lifetime ECL is recorded. Model estimations – inherently judgemental modelling is used to estimate ECL which involves determining probabilities of • default (“PD”), loss given default (“LGD”), and exposures at default (“EAD”). The PD models used in the retail and corporate portfolios are the key drivers of the Bank’s ECL results and are therefore the most significant judgemental aspect of the • Bank’s ECL modelling approach. Qualitative adjustments – adjustments to the model driven • ECL results are raised by management to address known impairment model limitations or emerging trends. Such adjustments are inherently uncertain and significant management judgement is involved in estimating these • amounts especially in relation to the retail and corporate portfolios.

Obtaining an understanding of the credit management processes and the key systems which included assessing the design and implementation as well as operating effectiveness of controls used in the determination of ECL. Using our data and analytics specialists to independently assess probability of default modelling based on historical days past due reports. We assessed the reasonableness of loss given default and exposure at default assumptions by evaluating the model inputs to supporting reports and recalculating a sample to ascertain accuracy. Involving our own Financial Risk Management specialists to assist us in assessing the appropriateness of the Bank’s methodology for determining the economic scenarios and other management overlays applied by checking consistency with the economic environment. Challenging the accuracy of the key inputs and assumptions into the IFRS 9 ECL (impairment) models. This was performed by: Assessing the reasonableness of economic forecasts and challenging assumptions applied by involving our specialists in the evaluation of the forward-looking information model and PDs by considering local economic conditions; Evaluating the appropriateness of the Bank’s SICR determinations by assessing the qualitative and quantitative factors used by management in their evaluation of the classification into stages 1, 2 and 3; Assessing the reasonableness of the adjustments to the macroeconomic overlay model(s) to incorporate the impact of economic uncertainty by inspecting the calculation methodology. Assessing the appropriateness of parameters used in the models in respect of Probability of Default (PDs), Loss Given Default (LGDs), and Exposure at Default (EADs) by assessing consistency with IFRS 9 requirements and; Assessing the adequacy of the disclosures related to the ECL on loans and advances to customers in the financial statements in accordance with IFRS 7 Financial Instruments: Disclosures.

We determined that the ECL on loans and advances to customers to be a key audit matter due to the high degree of estimation uncertainty and significant judgement applied by management in the determination of the ECL.

Other information The Directors are responsible for the other information¬¬. The other information comprises the information included in the KCB Bank Rwanda Plc Annual Report and Financial Statements for the year ended 31 December 2020, but does not include the financial statements and our auditor’s report thereon. Our opinion on the 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 financial statements, our responsibility is to read the other information 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.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS Independent auditor’s report to the shareholders of KCB Group Plc (Continued)

Directors’ responsibilities for the financial statements The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with IFRSs and in the manner required by Law No. 17/2018 of 13/04/2018 governing companies in Rwanda and Regulation No. 28/2019 of 09/09/2019 on publication of financial statements and other disclosures by banks in Rwanda, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Bank’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 Bank or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the 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 financial statements. 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 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 Bank’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 Bank’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 Bank to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. We communicate with 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.

Independent auditor’s report to the shareholders of KCB Group Plc (Continued)

As required by Law No. 17/2018 of 13/04/2018 governing companies in Rwanda and Regulation No. 28/2019 of 09/09/2019 on publication of financial statements and other disclosures by banks in Rwanda, we report to you, based on our audit, that: 1. We have obtained all the information and explanations which, to the best of our knowledge and belief, were necessary for the purpose of our audit; 2. Proper accounting records have been kept by the Bank, so far as appears from our examination; 3. We have no relationship, interest or debt with KCB Bank Rwanda Plc. As indicated in our report on the financial statements, we comply with ethical requirements. These are the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code), which includes comprehensive independence and other requirements. 4. We have reported internal control matters together with our recommendations to management in a separate management letter. 5. According to the best of the information and the explanations given to us as auditor, as shown by the accounting and other documents of the company, the annual financial statements comply with Article 123 of Law No. 17/2018 of 13/04/2018 Governing Companies in Rwanda. The engagement partner responsible for the audit resulting in this independent auditor’s report is CPA Stephen Ineget. PV/CPA 0293/0067.

KPMG Rwanda Limited Certified Public Accountants 5th Floor, Grand Pension Plaza P O Box 6755 Kigali, Rwanda

From the matters communicated with Directors, we determine those matters that were of most significance in the audit of the 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

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2020

KCB STATEMENT OF FINANCIAL POSITION FOR THE YEAR ENDED 31 DECEMBER 2020

2020

2019

Frw ‘000

Frw ‘000 21,379,748

8 9

23,365,368 (8,389,348) 14,976,020

(7,375,608) 14,004,140

Fees and commission expense Foreign exchange income

10 a 10 b

4,123,320 (506,829)

4,481,878 (324,366)

Other income

10 c

1,399,611

1,303,529

Note Interest income Interest expense Net interest income

10 d Non funded income Total Operating income Expected credit losses Impairment of Non-current assets held for sale

11 12

Net operating income Personnel expenses Depreciation and amortization Other operating expenses

13 24(a-c) 14

Total operating expenses

399,682

1,291,530

5,415,784

6,752,571

20,391,804

20,756,711

(1,651,491) -

(699,300) (23,314)

18,740,313

20,034,097

(5,204,560) (2,129,991) (5,673,073)

(5,044,533) (2,009,475) (4,540,618)

4,047,374

6,545,946

Note ASSETS Cash and balances with National Bank of Rwanda Balances due from other Banks Held to maturity investments Loans and advances to customers Due from related parties Other assets Deferred tax asset Property and equipment Intangible assets

17 18 20 21 22(a) 23 30 24 (a) 24(b)

Right of use Asset

24(c)

TOTAL ASSETS

Other comprehensive income for the year Total comprehensive income for the year Earnings per share Diluted and basic The notes set out on pages 14 to 63 form an integral part of these financial statements

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

5,732,689 (1,685,315) 4,047,374

4,047,374

6.43

8,439,471 (1,893,525) 6,545,946 6,545,946

12.83

2019 Frw ‘000

20,360,827 23,500,016 26,446,593 150,426,864 972,307 2,452,101 745,556 1,935,383 1,451,107

18,719,315 16,903,715 14,256,029 135,781,681 439,909 2,854,494 372,647 2,066,247 1,784,530

4,402,693

4,938,205

232,693,447

198,116,772

LIABILITIES AND EQUITY Balances due to other Banks

40,259,523

26,238,645

Customer deposits

140,878,850

123,222,207

27 22(b) 28 24(d)

7,472,617 2,981,538 246,013 3,666,478

7,085,814 5,941,039 620,573 4,698,602

Long term debt Balances due to related parties Tax payable Lease liabilities Other liabilities

Total liabilities Profit before tax Income tax expense Profit for the year

2020 Frw ‘000

CAPITAL AND RESERVES Share capital Share premium Retained earnings Statutory Credit Risk Reserve Total equity TOTAL LIABILITIES AND EQUITY

31 32 (a) 32 (b) 32 (c)

1,605,783

2,592,875

197,110,802

170,399,755

20,148,149 1,076,185 13,821,403 536,908

16,329,895 1,076,185 10,073,654 237,283

35,582,645

27,717,017

232,693,447

198,116,772

The financial statements set out on pages 10 to 63 were approved and authorized for issue by the Board of Directors on 19 February 2021 and are signed by:

_____________________________ _____________________________ Managing Director Chairman of the Board Date: 24 April 2021 Date: 24 April 2021

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

54 2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS 1,076,185

3,818,254 20,148,149

Profit for the year Other comprehensive income Transfer to Statutory credit Risk Reserve Total comprehensive income

Total comprehensive income for the year

At 1 January 2019 Adjustment on initial application of IFRS 16 Adjusted opening balance at 1 January 2019

1,076,185

16,329,895

Frw’000 1,076,185 1,076,185

Frw’000 16,329,895 16,329,895 -

Share premium Share capital

237,283

(237,283)

6,545,946

Frw’000 (4,995) 35,375 -

Retained earnings

13,821,403

4,047,374 (299,625)

10,073,654

Frw’000

Retained earnings

10,073,654

536,908

299,625

237,283

Frw’000

Statutory credit risk reserve

Statutory credit risk reserve Frw’000 -

1,076,185

16,329,895

Frw’000

KCB BANK RWANDA STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER

At 1 January 2020 Total comprehensive income for the year Profit for the year Other comprehensive income Transfer from statutory credit risk reserve Transactions with owners of the bank Additional Capital At 31 December 2020

Share premium

Share capital

KCB BANK RWANDA STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER

27,717,017

6,545,946

Frw’000 92,721 35,375 25,165

Total

3,818,254) 35,582,645

4,047,374 -

27,717,017

Frw’000

Total

FINANCIAL STATEMENTS FINANCIAL STATEMENTS

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS 55

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER Cash flows from operating activities Cash flows generated from/(used in) from operations Tax paid Net cash flows generated from/(used in) from operating activities

Note 33(a) 28

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

2020 Frw ‘000 3,947,240 (2,432,784) 1,514,456

2019 Frw ‘000 (28,272,517) (2,160,461) (30,432,978)

(11,500,000) 417,236 (514,853) (99,679) (11,697,296) (1,417,163) (1,547,784) 3,818,254 2,690,000 3,543,307

8,671,040 (882,007) (1,973,068) 5,815,965 (4,816,122) (1,163,074) 7,085,814 1,106,618

(6,639,533)

(23,510,395)

12,135,235 5,495,702

35,645,630 12,135,235

Cash flows from investing activities Purchase of held to maturity investments Sale/maturity of held to maturity investments Purchase of property and equipment Purchase of intangible assets Net cash flows from/(used in) investing activities Long term debt paid in the year Repayment of lease liability Proceeds on issuance of share capital Long term debt received in the year Net cash flows used in financing activities

24 (b) 24 (c) 27 31 27

Net increase /(decrease)in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 Decemb er

33 (b) 33 (b)

1. REPORTING ENTITY KCB Bank Rwanda Plc (the ‘Bank’) is a commercial Bank licensed under Law No. 08/99 Governing Banks and Other Financial Institutions. The Bank is incorporated in Rwanda under Law N°07/2009 of 27/04/2009 as amended to date. KCB Bank Rwanda Plc is 100% a subsidiary of KCB Group PLC, a company incorporated in Kenya and listed at the Nairobi Securities Exchange (NSE), Uganda Securities Exchange, Dar-es-Salaam Stock Exchange and Rwanda Stock Exchange. The address of the Bank’s registered office is as follows: KCB Bank Rwanda PLC Avenue de la paix Plot No. 1229 & 6404 P.O Box 5620 Kigali, Rwanda 2. BASIS OF PREPARATION BASIS OF ACCOUNTING These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and in the manner required by Law No. 17/2018 of 13/04/2018 governing companies in Rwanda and Regulation No. 28/2019 of 09/09/2019 on publication of financial statements and other disclosures by banks in Rwanda. Details of the Bank’s significant accounting policies are described at Note 3. FUNCTIONAL AND PRESENTATIONAL CURRENCY These financial statements are presented in Rwandan Francs (Frw) which is the Bank’s functional currency All values are rounded to the nearest thousand (Frw’000) except when otherwise indicated. USE OF ESTIMATES AND JUDGMENTS In preparing these financial statements, management has made judgments, estimates and assumptions that affect the application of the bank’s accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively. Assumptions and estimation uncertainties Information about assumptions and estimation uncertainties that have a significant risk of resulting in a material adjustment in the year ended 31 December 2020 is set out below in relation to the impairment of financial instruments and in the following notes in relation to other areas. The estimates and underlying assumptions are reviewed on an on-going basis. Revisions to accounting estimates are recognized 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 recognized in the financial statements are described in Note 5

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

Note 5 - determination of the fair value of financial instruments with significant observable inputs Note 5 - identification and measurement of impairment including increased estimation uncertainty as a result of Covid-19 Note 3 – impairment of financial assets including increased estimation uncertainty as a result of Covid-19 3 SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies adopted in the preparation of these financial statements have been applied consistently and to all periods presented in these financial statements. (a) Revenue and expenses recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. The following specific criteria must be met before revenue is recognized. (i) Interest and similar income and expense For all financial instruments measured at amortized cost and interest bearing financial instruments classified as available-for-sale financial instruments, interest income or expense is recognized at the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or shorter period, where appropriate, to the net carrying amount of the financial asset or financial liability. The carrying amount of the financial asset or financial liability is adjusted if the Bank revises its estimates of payments or receipts. The adjusted carrying amount is calculated based on the original effective interest rate and the change in carrying amount is recognized as interest income or expense. Interest income is recognized in the profit or loss for all interest bearing instruments on an accrual basis taking into account the effective yield on the asset. (ii) Fees and commission income Fees and commissions are generally recognized on an accrual basis when the service has been provided. Loan commitment fees for loans that are likely to be drawn down are deferred (together with related direct costs) and recognized as an adjustment to the effective interest rate on the loan. Commission and fees arising from negotiating, or participating in the negotiation of a transaction for a third party is recognized on completion of the underlying transaction. Other fees and commission income including account servicing fees, investment management fees, sales com (iii) Government grant The Bank on receiving government funding in the form of a liability will analyse the relevant terms and conditions to conclude on the appropriate accounting and disclosure, including whether government grant accounting under IAS 20 is applicable. In particular, the bank compares the interest rate payable on the loan with market pricing for other similar new borrowings at inception to determine whether the rate approximates market terms or is significantly off-market. Similar borrowings would be those with similar maturity, collateral and seniority/subordination. If the bank concludes that the funding does not contain a significant benefit relative to market

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) pricing, then it accounts for the borrowing wholly under IFRS 9. If the bank concludes that the funding contains a significant benefit relative to market pricing, the benefit of the off-market element is accounted for as a government grant under IAS 20 – i.e. a financial liability for the funding would be initially recognised under IFRS 9 at fair value considering market rates for similar borrowings and the difference between the net funds received and this fair value would be treated as a government grant under IAS 20. The benefit of a government grant is recognised in profit or loss on a systematic basis as the entity recognises as expenses the related costs for which the grant is intended to compensate. (b) Property and equipment Property and equipment are stated at cost 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 capitalized as part of that equipment. Property and equipment is de-recognized 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 recognized net within ‘other operating income’ in income statement. Depreciation is recognized in the 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: Leasehold improvements 10%; the shorter of the lease term estimated useful lives Motor vehicles 25% Furniture and fittings 10% Office equipment 20% Computers 20% Property and equipment are periodically 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 recognized in the statement of profit or loss. The asset’s residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end. Changes in the expected useful life are accounted for by changing the depreciation period or method, as appropriate, and treated as changes in accounting estimates. Property and equipment is de-recognized upon disposal or when no future economic benefits are expected to arise from the continued use of the asset. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

amount of the item) is included in the statement of profit or loss in the period the item is de-recognized.

with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions.

The costs of replacing part of an item of property and equipment is recognized 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 derecognized. The costs of the day-to-day servicing of property and equipment are recognized in profit or loss as incurred.

If, as a result of a transfer, a financial asset is derecognized in its entirety but the transfer results in the Bank obtaining a new financial asset or assuming a new financial liability, the Bank recognizes the new financial asset or financial liability at fair value.

(c) Intangible assets Intangible assets that are acquired separately are carried at cost less amortization and accumulated impairment losses. Amortization is recognized in the 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. Property and equipment are periodically 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 (d) Provisions Provisions are recognized 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 net of any disbursement. (e) Financial instruments (i) Recognition The Bank financial position, initially recognizes cash, amounts due from/ due to group companies, 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 recognized on the trade date at which the Bank becomes a party to the contractual provisions of the instrument. (ii) De-recognition The Bank derecognizes 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 Bank is recognized as a separate asset or liability.

Where a financial asset is derecognized in its entirety, the difference between the carrying amount and the sum of the consideration received together with any gain or loss previously recognized in other comprehensive income, are recognized in profit or loss. The Bank derecognizes a financial liability when its contractual obligations are discharged or cancelled or expire. The difference between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss. (iii) Classification and measurement of financial assets and financial liabilities Under IFRS 9, on initial recognition, a financial asset is classified as measured at: amortised cost; FVOCI - debt investment; FVOCI - equity investment; or FVTPL. The classification of financial assets under IFRS 9 is generally based on the business model in which a financial asset is managed and its contractual cash flow characteristics. Derivatives embedded in contracts where the host is a financial asset in the scope of the standard are never separated. Instead, the hybrid financial instrument as a whole is assessed for classification. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

• • • • •

it is held within a business model whose objective is to hold assets to collect contractual cash flows; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt investment is measured at FVOCI if it meets both of the following conditions and is not designated as at FVTPL: it is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and its contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Bank may irrevocably elect to present subsequent changes in the investment's fair value in OCl. This election is made on an investmentby-investment basis. All financial assets not classified as measured at amortised cost or FVOCI as described above are measured at FVTPL. This includes all derivative financial assets. On initial recognition, the Bank may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. A financial asset (unless it is a trade receivable without a significant financing component that is initially measured at the transaction price) is initially measured at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition.

The following accounting policies apply to the subsequent measurement of financial assets. Title

Key requirements

Financial assets at FVTPL

These assets are subsequently measured at fair value. Net gains and losses, including any interest or dividend income, are recognised in profit or loss.

Financial assets at amortised cost

These assets are subsequently measured at amortised cost using the effective interest method. The amortised cost is reduced by impairment losses (see (ii) below). Interest income, foreign exchange gains and losses and impairment are recognised in profit or loss. Any gain or loss on derecognition is recognised in profit or loss.

Debt investments at FVOC

These assets are subsequently measured at fair value. Interest income calculated using the effective interest method, foreign exchange gains and losses and impairment are recognised in profit or loss. Other net gains and losses are recognised in OCI. On derecognition, gains and losses accumulated in OCI are reclassified to profit or loss.

Equity investments at FVOCI

These assets are subsequently measured at fair value. Dividends are recognised as income in profit or loss unless the dividend clearly represents a recovery of part of the cost of the investment. Other net gains and losses are recognised in OCI and are never reclassified to profit or loss.

The Bank enters into transactions whereby it transfers assets recognized 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 derecognized from the statement of financial position. Transfers of assets

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) The financial assets at amortised cost consist of trade receivables, cash and cash equivalents, and corporate debt securities. Under IFRS 9, loss allowances are measured on either of the following bases: • 12-month ECLs: these are ECLs that result from possible default events within the 12 months after the reporting date; and • Lifetime ECLs: these are ECLs that result from all possible default events over the expected life of a financial instrument. • Impairment of financial assets • The Bank measures loss allowances at an amount equal to lifetime ECLs, except for the following, which are measured as 12-month ECLs: • Debt securities that are determined to have low credit risk at the reporting date; and • Other debt securities and bank balances for which credit risk (i.e. the risk of default occurring over the expected life of the financial instrument) has not increased significantly since initial recognition. • The Bank has elected to measure loss allowances for trade receivables and contract assets at an amount equal to lifetime ECLs. When determining whether the credit risk of a financial asset has increased significantly since initial recognition and when estimating ECLs, the Bank considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Bank’s historical experience and informed credit assessment and including forward-looking information.

Presentation of impairment Loss allowances for financial assets measured at amortised cost are deducted from the gross carrying amount of the assets. For debt securities at FVOCI, the loss allowance is recognised in OCI, instead of reducing the carrying amount of the asset. Impairment losses related to trade and other receivables, including contract assets, are presented separately in the statement of profit or loss and OCI. Impairment losses on other financial assets are presented under 'finance costs', similar to the presentation under IAS 39, and not presented separately in the statement of profit or loss and OCI due to materiality considerations.

made in order to qualify for a government grant, the government grant is accounted for in accordance with IAS 20.

to items recognized directly in equity or other comprehensive income, in which case it is recognized in equity or in other comprehensive income.

(vi) Amortized cost measurement

Current 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.

(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 recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously.

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 amortization, and the current fair value, less any impairment loss previously recognized in profit or loss. Changes in impairment provisions attributable to time value are reflected as a component of interest income.

The Bank assumes that the credit risk on a financial asset has increased significantly if it is more than 30 days past due.

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 Bank uses widely recognized 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.

The Bank considers a financial asset to be in default when: • the borrower is unlikely to pay its credit obligations to the Bank in full, without recourse by the Bank to actions such as realising security (if any is held); or • The financial asset is more than 90 days past due. The Bank considers a debt security to have low credit risk when its credit risk rating is equivalent to the globally understood definition of 'investment grade'. The Bank considers this to be B+ per Rating Agency Fitch. The maximum period considered when estimating ECLs is the maximum contractual period over which the Bank is exposed to credit risk. Measurement of ECLs ECLs are a probability-weighted estimate of credit losses. Credit losses are measured as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Bank expects to receive). ECLs are discounted at the effective interest rate of the financial asset. Credit-impaired financial assets At each reporting date, the Bank assesses whether financial assets carried at amortised cost and debt securities at FVOCI are credit-impaired. A financial asset is 'credit-impaired' when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

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 Bank’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.

This initial difference, usually an increase, in fair value indicated by valuation techniques is recognized 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 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. A law or regulation, or other governmental action, may require or incentivise the Bank to make a loan to a borrower at a below-market rate in order to provide a concession to the borrower. If the Bank makes a below-market rate loan in order to provide a concession to the borrower, then the resulting loan is measured at fair value in accordance with IFRS 13 and any additional amount paid to the borrower is accounted for separately as a loss unless it qualifies for recognition as a separate asset. If the loan is

The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.

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 recognized in profit or loss, then the impairment loss is reversed, with the amount of the reversal recognized in profit or loss. However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is recognized in other comprehensive income. The Bank writes off certain loans and advances and investment securities when they are determined to be uncollectible. (iv) 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 amortized cost in the statement of financial position. Financial liabilities Debt and equity instruments are classified, as either financial liabilities or as equity in accordance with the substance of the contractual agreement. After initial recognition, the Bank measures all financial liabilities including customer deposits and borrowings other than liabilities held for trading at amortized cost. Liabilities held for trading (financial liabilities acquired principally for the purpose of generating a profit from short-term fluctuations in price or dealer's margin) are subsequently measured at their fair values. Interest-bearing borrowings are initially measured at fair value, and are subsequently measured at amortized cost, using the effective interest rate method. Any difference between the proceeds (net of transaction costs) and the settlement or redemption of borrowings is recognized over the term of the borrowings. De-recognition of financial liability Financial liabilities are derecognized and the consideration paid and payable is recognized in profit or loss. f) Taxation Income tax expense comprises current and deferred tax. Income tax expense is recognized in profit or loss except to the extent that it relates

Deferred tax is recognized 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 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 recognized only to the extent that it is probable that future taxable profits will be available against which the asset can be utilized. Deferred 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 realized. Deferred 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 realized simultaneously. g) Financial guarantees In the ordinary course of business, the Bank gives financial guarantees consisting of letters of credit, guarantees and acceptances. Financial guarantees are initially recognized in the financial statements at fair value. Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially recognized less, when appropriate, cumulative amortization recognized in the statement of profit or loss, and the best estimate of expenditure required to settle any financial obligation arising as a result of the guarantee. The premium received is recognized in the statement of profit or loss in ‘Net fees and commission income’ on a straight line basis over the life of the guarantee. h) Fiduciary assets The Bank 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 are not reported in the financial statements, as they are not the assets of the Bank. i) Intangible assets The Bank’s intangible assets include software.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any chances in estimate being accounted for on a prospective basis. The costs associated with maintaining computer software are recognized as expenses when incurred. However, expenditure that enhances or extends the benefits of computer software beyond their original specifications and lives is recognized as capital improvements and added to the original cost of the software. j) Dividends on ordinary shares Dividends on ordinary shares are recognized as a liability and deducted from equity when they are approved by the Bank's shareholders. Interim dividends are deducted from equity when they are declared and no longer at the discretion of the Bank. Dividends for the year that are approved after the statement of financial position date are disclosed as an event after the reporting date. k) Employee benefits I. Retirement benefit costs The Bank 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 Bank’s contributions are charged to the profit or loss in the period to which they relate. The Bank has a defined contribution scheme where both the employer and employee contribute. Contributions are kept in a separate reserve. The Bank‘s contributions are charged to the profit or loss in the period to which they relate. II. 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. Leave pay to employees is paid based on the number of days accrued in relation to the daily pay rate. A provision is recognized for the amount expected to be paid if the Bank 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. l) Segment reporting An operating segment is a component of the Bank 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 Bank’s other components, whose operating results are reviewed regularly to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

The Bank prepares segment reports for the following operating segments: Retail Banking, corporate Banking, Treasury, Mortgage and other operational segments. m) 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 Bank 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. n) Related parties In the normal course of business, the Bank has entered into transactions with related parties. o) Foreign currencies In preparing the financial statements, transactions in currencies other than the Bank’s functional currency (foreign currencies) are recognized at the rates of exchange prevailing at the dates of the transactions. At the end of each reporting period, monetary items denominated in foreign currencies are retranslated at the rates prevailing at that date. Nonmonetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated. p) Statutory credit reserve The Bank computes provisions in accordance with the requirements of IFRS. The Bank is also required to make provisions in accordance with requirements of the National Bank of Rwanda (BNR). Where provisions determined using IFRS are lower than provisions determined using the BNR regulation, the difference has been treated as an appropriation from retained earnings and placed in a non-distributable reserve. Where provisions determined under IFRS are higher than those determined using the BNR regulation, the provisions are deemed adequate by the BNR regulations. q) Non–current assets held for sale Non-current assets held for sale represents assets previously held by the Bank as security on defaulted loans which the Bank can acquire during the recovery process in line with article 21 of the Mortgage Law No 10/2009. These assets are held in the statement of financial position as current assets measured at the lower of the carrying amount and fair value less costs to sell. r) Impairment of non-financial assets The carrying amounts of the non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. An impairment loss is recognized if the carrying amount of an asset exceeds its recoverable amount. The recoverable amount of an asset is the greater of its value in use and its fair value less costs to sell.

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) 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 recognized in profit or loss. Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized. s) Comparatives Where necessary, comparative figures have been adjusted or excluded to conform to changes in presentation in the current year. t) New IFRSs and interpretations New standards and interpretations effective and adopted during the year ended 31 December 2020 The following amendments are effective from 1 January 2020 Standard

Effective date

IFRS 3 Definition of a Business

1 January 2020

Amendments to references to the Conceptual Framework in IFRS Standards

1 January 2020

Amendments to IAS1 and IAS8 Definition of Material

1 January 2020

Interest rate benchmark reform (Amendments to IFRS 9, IAS 39 and IFRS 7)

1 January 2020

The above standards did not have a significant impact on the company's financial statements. New and amended standards and Interpretations in issue but not yet effective A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31 December 2020 and have not been applied in preparing these financial statements. The company does not plan to early adopt these standards. These are summarised below: Standard

Key requirements

Effective Date *

IFRS 17 Insurance Contracts

IFRS 17 was issued in May 2017 as replacement for IFRS 4 Insurance Contracts. It requires a current measurement model where estimates are re-measured in each reporting period. The new rules will affect the financial statements and key performance indicators of all entities that issue insurance contracts or investment contracts with discretionary participation features.

Classification of Liabilities as Current or Non-current – Amendments to IAS 1

The narrow-scope amendments to IAS 1 Presentation of Financial Statements clarify that liabilities are classified as either current or non- current, depending on the rights that exist at the end of the reporting period. Classification is unaffected by the expectations of the entity or events after the reporting date (e.g. the receipt of a waver or a breach of covenant). The amendments also clarify what IAS 1 means when it refers to the ‘settlement’ of a liability. The amendments could affect the classification of liabilities, particularly for entities that previously considered management’s intentions to determine classification and for some liabilities that can be converted into equity. They must be applied retrospectively in accordance with the normal requirements in IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors.

Originally 1 January 2021, but extended to 1 January 2023 by the IASB in March 2020 1 January 2022 [deferred to 1 January 2023]

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) 4 FINANCIAL RISK MANAGEMENT

Standard

Key requirements

Effective Date *

Property, Plant and Equipment: Proceeds before intended use – Amendments to IAS 16

The amendment to IAS 16 Property, Plant and Equipment (PP&E) prohibits an entity from deducting from the cost of an item of PP&E any proceeds received from selling items produced while the entity is preparing the asset for its intended use. It also clarifies that an entity is ‘testing whether the asset is functioning properly’ when it assesses the technical and physical performance of the asset. The financial performance of the asset is not relevant to this assessment. Entities must disclose separately the amounts of proceeds and costs relating to items produced that are not an output of the entity’s ordinary activities.

1 January 2020

Reference to the Conceptual Framework – Amendments to IFRS 3

Minor amendments were made to IFRS 3 Business Combinations to update the references to the Conceptual Framework for Financial Reporting and add an exception for the recognition of liabilities and contingent liabilities within the scope of IAS 37 Provisions, Contingent Liabilities and Contingent Assets and Interpretation 21 Levies. The amendments also confirm that contingent assets should not be recognised at the acquisition date.

1 January 2022

Onerous Contracts – Cost o f Fu l f i l l i n g a C o n t ra c t Amendments to IAS 37

The amendment to IAS 37 clarifies that the direct costs of fulfilling a contract include both the incremental costs of fulfilling the contract and an allocation of other costs directly related to fulfilling contracts. Before recognising a separate provision for an onerous contract, the entity recognises any impairment loss that has occurred on assets used in fulfilling the contract.

1 January 2022

Sale or contribution of assets between an investor and its associate or joint venture – Amendments to IFRS 10 and IAS 28

The IASB has made limited scope amendments to IFRS 10 Consolidated financial statements and IAS 28 Investments in associates and joint ventures. The amendments clarify the accounting treatment for sales or contribution of assets between an investor and its associates or joint ventures. They confirm that the accounting treatment depends on whether the non- monetary assets sold or contributed to an associate or joint venture constitute a ‘business’ (as defined in IFRS 3 Business Combinations). Where the non-monetary assets constitute a business, the investor will recognise the full gain or loss on the sale or contribution of assets. If the assets do not meet the definition of a business, the gain or loss is recognised by the investor only to the extent of the other investor’s interests in the associate or joint venture. The amendments apply prospectively. ** In December 2015 the IASB decided to defer the application date of this amendment until such time as the IASB has finalised its research project on the equity method.

n/a **

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

The Bank’s risk management policies are established to identify and analyze the risks faced by the Bank, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank, 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 Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework. The Board of Directors of the Bank has established the Credit, Audit, Risk, Human Resources and IT & Strategy committees, which are responsible for developing and monitoring the Bank’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 Risk Committee is responsible for monitoring compliance with the Bank’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 Risk 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.

These standards are not expected to have a material impact on the entity in the current or future reporting periods and on foreseeable future transactions.

The Bank’s activities expose it to a variety of financial risks; including credit risk, liquidity risk, market risk, operational risk and interest rates risk. Consequently, the Bank has put in place risk management programmer which seeks to minimize potential adverse effects on the Bank’s financial performance.

The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data. (a) Credit risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations; and arises principally from the Bank’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 Bank. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure.

2020 (Frw ‘000)

Loans and advances to customers

All other financial assets subject to credit risk

Loans and advances to customers

All other financial assets subject to credit risk

Stage I

141,538,963

108,996,558

103,907,495

56,895,895

Stage II

4,659,518

30,058,060

Stage III

7,321,351

267,768

3,364,004

153,519,832

109,264,326

137,329,559

56,895,895

(3,092,968)

(1,509,541)

(1,547,878)

(1,778,873)

150,426,864

107,754,785

135,781,681

55,117,022

Gross Less impairment allowances:

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

Analysis of all other financial assets subject to credit risk is shown below: (i) Management of credit risk 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 Bank’s credit risk; including: 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 authorization structure for the approval and renewal of credit facilities. Authorizations 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 categorize 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; 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 Bank’s credit policies and procedures. 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 Bank’s credit processes are undertaken by Internal Audit Department.

The Bank assesses the 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 Bank are segmented into five rating classes. The Bank’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 Bank regularly validates the performance of the rating and their predictive power with regard to default events. The Bank’s internal ratings scale is as follows: Staging

CBK grading

Grade 1

Normal

Grade 2

Watch

Grade 2

Substandard

Grade 4

Doubtful

Grade 5

Loss

Normal and Watch loans The Bank classifies loans and advances under this category for those exposures that are up to date and in line with contractual agreements. Such loans would have demonstrated financial conditions, risk factors and capacity to repay that are acceptable. These exposures will normally be maintained largely within approved product programs and with no signs of impairment or distress. The loans are collectively impaired and provision made based on the historical loss ratio.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) 2020 31-Dec-20 (a) Stage I ECL Net 31-Dec-19 Stage I ECL Net

Corporate Frw ‘000 88165911 (8,659) 88,157,252

Mortgages Frw ‘000 24,173,746 (396,501) 23,777,245

Retail Frw ‘000 5,672,028 (1,408,100) 4,263,928

SME Frw ‘000 23,527,278 (273,057) 23,254,221

Total Frw ‘000 141,538,963 (2,086,317) 139,452,646

58,935,946 (62,734) 58,873,213

20,387,550 (104,218) 20,283,332

7,136,430 (193,458) 6,942,972

17,447,569 (89,937) 17,357,632

103,907,495 (450,346) 103,457,149

229,138 (488) 228,650

1,564,942 (67,299) 1,497,643

650,754 (589,558) 61,196

2,214,683 (23,883) 2,190,800

4,659,518 (681,229) 3,978,289

17,945,833 (10,134) 17,935,699 26,875 -

8,811,129 (37,430) 8,773,700 492 6,113,326 (18,043) 6,095,283

1,335,464 (56,559) 1,278,905 5,934 506,539 (182,889) 323,650

1,965,634 (22,856) 1,942,778 5,934 701,486 (124,490) 576,996

30,058,060 (126,978) 29,931,082 33,301 7,321,351 (325,422) 6,995,929

678,424 (458,127) 220,297

1,448,419 (202,442) 1,245,977

594,703 (225,114) 369,589

642,458 (84,871) 557,587

3,364,004 (970,554) 2,393,450

(B) Stage II 31-Dec-20 Stage II ECL Net 31-Dec-19 Stage II ECL Net 31-Dec-2020 Stage II ECL Net 31-Dec-19 Stage III ECL Net

Impaired loans and advances Impaired loans and advances are those for which the Bank determines that it will be unable to collect all principal and interest due according to the contractual terms of the loan agreements. These loans are graded 3 to 5 in the Bank’s internal credit risk grading system as required by the regulator. According to the National Bank of Rwanda guidelines, loans and advances overdue by above 90 days are considered non-performing. The specific provision for impairment of loans and advances is made on grades 3, 4 and 5 of the rating categories. Grade 3 loans are provided for at a rate of 20%, Grade 4- 50% and Grade 5- 100% Covid 19 impact on impairment losses on loans and advances The Covid-19 pandemic has resulted in a significant impact on the risks that the Bank is exposed to and the output of financial models, most specifically those used to determine credit risk exposures. This high degree of uncertainty has forced the Bank to reassess assumptions, and existing methods of estimation and judgements, used in the preparation of these financial results. There remains a risk that future performance and actual results may differ from the judgements and assumptions used. The most substantial impact on the Bank relates to credit risk due to increased allowances for credit losses in the year. The increased credit risk is majorly because of: • Declining performance in certain sectors of the economy e.g., hospitality and education sectors hence increased possibility of default. • Downward changes in credit ratings (both internal and external) • Increased time to realization of collateral for some portfolios and sectors as well as reassessment of the quality of collateral • Increased days past due for loans issued • Macroeconomic factors that have impacted the forward-looking estimates • Increased modification losses because of the restructurings. •

Increased write offs of the loans that we are unlikely to recover.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

The estimation of impairment losses on loans and advances include an unbiased and probability-weighted estimate of future losses determined by evaluating a range of possible macroeconomic outcomes. IFRS 9 models have used the following three parameters in ECL allowance calculations: probability of default (PD), loss given defaults (LGD) and exposure at default (EAD). Given the deteriorating macroeconomic environment, specific increases in PDs and LGDs were made to appropriately capture the Covid-19 environment.

The table below show the profile of the loans and advances to customers analysed according to the internal ratings grading system:

As the outbreak continues to progress, it is challenging to predict the full extent and duration of its business and economic impact. Management adjustments were therefore required, in addition to the model outputs, to provide a more appropriate assessment of risk. The 2020 impact has been an increase in impairment of Frw 794m because of covid-19 model adjustments

Stage II

Stage III

12 - Month ECL

Lifetime ECL

Total

RWF'000

124,793,393

Especially mentioned

21,759,133

Substandard

677,580

Doubtful

696,878

Loss

6,401,728

124,793,393

21,759,133

7,776,187

154,328,712

(2,086,317)

(681,229)

(325,422)

(3,092,968)

Current

During the year ended 31 December 2020, there were 361 facilities with a book value of approximately Frw 69.8B that were modified resulting in a modification gain of Frw 978M. During 2020, a gain of Frw 408M was unwound. a) Impairment and provisioning policies The Bank 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.

Stage I

2020

Gross carrying amount ECL allowance

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.

Modification gain

569,580

Fair valuation loss

(1,378,460)

The impairment provision recognized 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 grades 3 to 5 stated above.

Net loans & advances

121,898,196

21,077,904

7,450,765

150,426,864

The Bank’s exposure to credit risk on loans and advances to customers is analyzed in Note 21. The Bank also complies with Central Bank’s prudential guidelines on collective and specific impairment losses.

2020

Collateral held against impaired loans is maintained at fair value. The valuation of collateral is monitored regularly and is back-tested at least annually. Current

Stage II

Stage III

Lifetime ECL

Total

RWF'000

103,907,495

Collateral generally is not held for balance with other banks, except when securities are held as part of reverse purchase and securities borrowing activity. Collateral usually is not held against investment securities.

Especially mentioned

30,058,060

Maximum exposure to credit risk before collateral held or other credit enhancements

Substandard

1,610,083

Doubtful

1,297,779

Loss

456,142

103,907,495

30,058,060

3,364,004

137,329,559

(486,133)

(96,486)

(965,259)

(1,547,878)

103,421,362

29,961,574

2,398,745

135,781,681

2020 (Frw ‘000) (Frw ‘000)

2020 (Frw ‘000) %

(Frw ‘000)

Gross carrying amount

Balances with National Bank of Rwanda

20,360,827

9.06%

18,965,207

9.93%

Balances due from other banks

23,500,016

10.46%

16,903,837

8.85%

ECL allowance

Government securities

26,447,876

11.77%

14,256,501

7.47%

Net loans & advances

150,426,864

67.32%

137,329,559

71.91%

882,192

0.39%

3,506,806

1.84%

221,617,775

100%

190,961,910

100%

Loans and advances to customers Other assets (Excluding Prepayments) Net

The National Bank of Rwanda’s loan grading 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; •

Stage I 12 - Month ECL

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

Deterioration in the value of collateral.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

The Bank’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. The Bank makes available to its customers guarantees which may require the Bank to make payments on their behalf and enters into commitments to extend lines to secure their liquidity needs.

b) Credit risk exposure 2020

2019

Frw'000

Letters of credit and guarantees (including standby letters of credit) commit the Bank 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 Bank to similar risks to loans and are mitigated by the same control processes and policies.

Balances with Central Bank

20,360,827

18,965,207

Amounts due from other banks

23,500,016

16,903,837

•

972,307

439,909

Government securities

26,447,876

14,256,501

• •

Write-off policy The Bank writes off a loan balance as and when the Credit Committee determines that the loans are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower’s financial position such that the borrower can no longer pay the obligation or that proceeds from collateral will not be sufficient to pay back the entire exposure. Collateral on loans and advances 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. Concentration of credit risk The Bank’s financial instruments do not represent a concentration of credit risk because the Bank deals with a variety of customers and its loans and advances are structured and spread among a number of customers. The Bank monitors concentrations of credit risk by sector, and a sectoral analysis of credit risk concentration is presented in Note 21.

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. Risk 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 as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured. The outstanding balances and collaterals held by the Bank as at 31 December 2020 and 31 December 2019 against credit impaired/non-performing loans and advances to customers is as below:

31-Dec-20 Credit impaired assets

Gross exposure Frw'000

Impairment Allowance Frw'000

Carrying amount Frw'000

Fair value of collateral held Frw'000

Stage I

142,347,844

2,086,317

140,261,527

147,131,365

Stage II

4,659,517

681,229

3,978,289

20,632,018

Stage III

7,321,351

325,422

6,995,929

49,833,013

Modification gain Fair valuation loss Total

(1,378,460) 150,426,865

217,596,396

7,321,351

325,422

6,995,929

49,833,013

Stage I

103,907,495

486,133

103,421,362

237,066,184

Stage II

30,058,060

96,486

29,961,574

75,043,972

Stage III

3,364,004

965,259

2,398,745

4,839,285

137,329,559

1,547,878

135,781,681

316,949,441

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

Other assets

882,192

4,551,568

72,163,218

55,117,022

2019

Frw'000

- Guarantee and performance bonds:

20,360,827

18,965,207

Book value

23,500,016

16,903,837

972,307

439,909

9,111,948

9,844,161

At end of year ii) Off-balance sheet items:

Value of collateral Excess cover

i) Loans and advances to customers are secured by collateral in the form of charges over land and buildings and/or plant and machinery or corporate guarantees. Different loan facilities held by the Bank are supported by collaterals as shown below: Grade 1 Normal RWF'000

Grade 2 Watch RWF'000

Grade 2 Substandard RWF'000

Grade 4 Doubtful RWF'000

Grade 5 Loss RWF'000

RWF'000

Gross Loans

124,793,393

21,759,133

677,581

696,878

6,401,727

154,328,712

Value of collaterals

157,399,406

52,480,486

1,604,780

774,684

5,337,041

217,596,397

32,606,013

30,721,353

927,199

77,806

(1,064,687)

63,267,685

Grade 1 Normal RWF'000

Grade 2 Watch RWF'000

Grade 2 Substandard RWF'000

Grade 4 Doubtful RWF'000

Grade 5 Loss RWF'000

RWF'000

Gross Loans

103,907,495

30,058,060

1,610,083

1,297,779

456,142

137,329,559

Value of collaterals

237,066,184

75,043,972

2,877,862

1,431,726

529,696

316,949,440

Excess Cover

133,158,689

44,985,912

1,267,779

133,947

73,554

179,619,881

2020

Excess Cover

2019 3,092,968

Total

Due from related parties

569,580

153,519,832

31-Dec-19

i) Items not subject to collateral:

Total

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

25,725,293 (3,797,177) 124,347,742 (66,785,083) (74,596,712) NET LIQUIDITY GAP

46,556,523

196,864,789 9,275,305 1,466,591 83,609,880 91,661 102,421,352 Total financial liabilities

2,981,538 2,981,538 Balances due to related Parties

1,802,688 1,466,591 274,985 30,553 Lease Liabilities

91,661

1,605,783 1,605,783 Other liabilities

140,878,850 61,465,876 79,412,974 Customer deposits

7,472,617 7,472,617 Long term debt

40,259,523 21,869,019 18,390,504 Balances due to other Banks

222,590,082 5,478,128 125,814,333 16,824,797 46,648,184 27,824,640 TOTAL FINANCIAL ASSETS

882,192 882,192 Other assets

150,426,864 5,478,128 120,599,799

972,307 972,307

26,447,876 5,214,534 2,000,000

23,500,016 -

20,360,827 -

13,852,490 10,148,168

20%

348,279

20%

Loans and advances to customers

Minimum liquidity ratio regulatory requirement

21%

36%

22%

Balances due from related parties

35%

Minimum for the year

13,000,000

Maximum for the year

6,233,342

30%

Held to maturity investments

28%

23,500,016

Average for the year

1 - 3 months Frw ‘000

31%

Up to 1 month Frw ‘000

31%

As at 31 December 2020

At close of the year

The table below summarizes the liquidity risk of the Bank as at 31 December 2020:

2019

(b) Liquidity risk (continued)

2020

FINANCIAL RISK MANAGEMENT (Continued)

Details of the reported Bank’s ratio of net liquid assets to deposits from customers at the reporting date and during the reporting year were as follows:

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers.

Balances due from other Banks

3 - 12 months Frw ‘000

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 Bank’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 Bank as a whole.

1 - 5 years Frw ‘000

The impact on to covid-19 to liquidity and the impact was on cash flow in term of increasing interest earned not collected for the customers on loan repayment moratorium. The levels of deposits increased with additional liquidity injected in the bank through BNR support of customers worth Frw 2.69B The Bank’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 Bank’s reputation.

20,360,827

Over 5 years Frw ‘000

• b) Liquidity risk Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities.

Cash in hand and balances National Bank of Rwanda

Total Frw ‘000

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

3,666,478

FINANCIAL STATEMENTS

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

c) Market risk Currency risk The Bank 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 Bank translates monetary assets and liabilities denominated in foreign currencies at the rate of exchange in effect at the reporting date. The Bank records all gains or losses on changes in currency exchange rates in profit or loss. The following is a summary of currency exposure as at 31 December 2020 and 2019 for each foreign currency to which the Bank is exposed. 31 December 2020 The accrued interest on financial assets and liabilities whose maturities is more than 1 year has not been included in the note above.

19,175,961 55,332,233 NET LIQUIDITY GAP

(27,419,624)

(8,801,859)

(44,742,006)

44,807,217

169,779,182 9,920,626 Total financial liabilities

48,548,199

31,573,299

62,795,392

16,941,666

5,941,039 Balances due to related Parties

5,941,039

4,698,602 2,834,812 Lease Liabilities

30,553

91,661

274,985

1,466,591

2,592,875 Other liabilities

2,592,875

123,222,207 Customer deposits

28,893,407

31,481,638

62,520,407

326,755

7,085,814 7,085,814 Long term debt

26,238,645 Balances due to other Banks

11,090,325

15,148,320

188,955,143 65,252,859 TOTAL FINANCIAL ASSETS

21,128,575

22,771,440

18,053,386

61,748,883

2,854,494 Other assets

2,256,908

222,701

374885

135,781,681 65,252,859 Loans and advances to customers

152,352

5,867,725

6,398,342

58,110,403

439,909 439,909 Balances due from related parties

10,992,434 Held to maturity investments

Balances due from other Banks

14,256,029 -

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

3,263,595

16,903,715 16,903,715

18,719,315 Cash in hand and balances National Bank of Rwanda

18,719,315

Total Frw ‘000 3 - 12 months Frw ‘000 1 - 3 months Frw ‘000 Up to 1 month Frw ‘000 As at 31 December 2019

The table below summarizes the liquidity risk of the Bank as at 31 December 2019:

(b) Liquidity risk (continued)

FINANCIAL RISK MANAGEMENT (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

1 - 5 years Frw ‘000

Over 5 years Frw ‘000

FINANCIAL STATEMENTS

ASSETS Cash in hand and balances National Bank of Rwanda Balances due from related parties

USD Frw ‘000

Euro Frw ‘000

GBP Frw ‘000

KShs Frw ‘000

Other Frw ‘000

Total Frw ‘000

16,871,554

302,846

2,567,590

12.008

48,097

19,790,099

696,203

8,241

7,223

711,765

Other assets Due from other Banks Loans and advances

0 18,129,380

6,825

30,119

7,232

18,173,601

5,025,951

40,723,088

317,912

2,597,709

7,342

55,365

43,701,416

5,633,197

8,696

274,645

6.329

4,072

5,920,616

36,166,618

294,487

2,357,022

17,569

38,835,696

1,126,953

211.271

968

1,128,311

42,926,768

303,279

2,631,878

18,543

4,155

45,884,624

(2,203,680)

14,633

(34,169)

(11,201)

51,210

(2,183,208)

LIABILITIES Balance due to other Banks Deposits from customers Balances due to related parties Other liabilities

The following table demonstrates the sensitivity to a reasonably possible change in the below mentioned exchange rates, 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).

Increase/Decrease in the exchange rate

Effect on profit before tax 2020

2019

Frw ‘000

USD

10%

209,527

220,368

GBP

10%

3,739

3,417

EUR

10%

1,382

1,463

KSHS

10%

5,043

1,120

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

76 2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS 7.83%

Lease Liabilities

(31,872,441)

38,454,062

30,553

20,033,005

46,556,523

91,661

46,648,184

13,000,000

10,148,168

23,500,016

(67,757,390)

83,609,880

274,985

61,465,876

21,869,019

15,852,490

2,000,000

13,852,490

Frw ‘000

3 - 12 months

7.8%

Held to maturity investments

7.83%

Lease Liabilities

INTEREST SENSITIVITY GAP

Total financial liabilities

0.0%

Other liabilities

Balances due to related Parties

3.9%

7.83% Customer deposits

Long term debt

Balances due to other Banks

7.7%

0.0%

Other assets

TOTAL FINANCIAL ASSETS

0.0%

Due from related parties

15.51%

4.3%

Balances due from other Banks Loans and advances to customers

0.0%

Cash and Balances with BNR

As at 31 December 2020

Average interest rate Frw ‘000

(10,968,526)

11,120,878

30,553

11,090,325

152,352

(8,801,859)

31,573,299

91,661

31,481,638

22,771,440

5,867,725

16,903,715

Frw ‘000

Frw ‘000 -

1 - 3 months

Up to 1 month

The table below summarizes the interest rate risk of the Bank as at 31 December 2019:

FINANCIAL RISK MANAGEMENT (Continued)

(45,404,616)

62,795,392

274,985

62,520,407

17,390,776

10,992,434

6,398,342

Frw ‘000

3 - 12 months

Frw ‘000

1 - 5 years

44,432,332

16,941,666

1,466,591

326,755

15,148,320

61,373,998

3,263,595

58,110,403

Frw ‘000

1 - 5 years

124,347,742

1,466,591

125,814,333

5,214,534

121,408,680

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

INTEREST SENSITIVITY GAP

Total financial liabilities

0.0%

Other liabilities

Balances due to related Parties

4.8%

7.85%

Long term debt Customer deposits

18,390,504

6.25%

Balances due to other Banks -

6,581,621

6,233,342

TOTAL FINANCIAL ASSETS

9.08%

0.0%

Other assets Held to maturity investments

348,279

Frw ‘000

0.0%

16.30%

4.37%

0.0%

1 - 3 months

Up to 1 month

Due from related parties

Loans and advances to customers

Balances due from other Banks

Cash and Balances with BNR

As at 31 December 2020

Average interest rate Frw ‘000

55,332,233

9,920,626

2,834,812

7,085,814

65,252,859

Frw ‘000

Over 5 years

(1,993,211)

7,471,339

1,802,688

5,668,651

5,478,128

Frw ‘000

Over 5 years

(19,229,847)

41,243,565

5,941,039

6,409,119

28,893,407

22,013,718

2,854,494

439,909

18,719,315

Frw ‘000

Non-interest bearing

(41,986,021)

65,771,256

2,981,538

1,605,783

59,379,969

1,803,966

23,785,235

2,452,101

972,307

20,360,827

Frw ‘000

Non-interest bearing

15,359,717

173,595,426

5,941,039

4,698,602

6,409,119

123,222,207

7,085,814

26,238,645

188,955,143

14,256,029

2,854,494

439,909

135,781,681

16,903,715

18,719,315

Frw ‘000

Total

27,295,202

196,864,789

2,981,538

3,666,478

1,605,783

140,878,850

7,472,617

40,259,523

224,159,991

26,447,876

2,452,101

972,307

150,426,864

23,500,016

20,360,827

Frw ‘000

Total

The Bank takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected movements arise. The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored daily. The tables below summarize the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by the earlier of contractual reprising or maturity dates. The Bank does not bear interest rate risk on off balance sheet items. All figures are in thousands of Rwandan Francs.

Interest rate risk 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 also reduce 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 financial assets and liabilities carried on the statement of financial position.

Interest rate risk

FINANCIAL RISK MANAGEMENT (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

FINANCIAL STATEMENTS FINANCIAL STATEMENTS

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS 77

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

2020 Frw ‘000

2019 Frw ‘000

20,148,149

16,329,895

1,076,185

10,275,562

3,729,616

315,345

594,954

Net after tax profit

2,023,687

6,545,946

Transfer to statutory Credit Risk Reserve

(536,908)

(237,283)

33,302,020

28,039,313

(1,451,107)

(1,784,530)

(745,556)

(372,647)

31,105,357

25,882,136

2,406,555

1,277,784

Total capital

33,511,912

27,159,920

Risk weighted assets

192,524,376

178,236,915

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

17.41%

15.24%

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

16.16%

14.52%

d) Operational risk Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’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 behavior. Operational risks arise from all of the Bank’s operations and are faced by all business units.

Share premium

The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Bank’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity.

Adjustment on initial application of IFRS9

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 Bank standards for the management of operational risk in the following areas: • Requirements for appropriate segregation of duties, including the independent authorization 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 Bank’s standards is supported by a programmer 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 Bank. e) 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 maximize 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 analyzed 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 and subordinated debt 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 recognized and the Bank recognizes 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.

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

Core capital (Tier 1) Ordinary share capital Prior retained earning

Less investment in Intangible Asset Less Deferred Assets Total tier Supplementary Capital (Tier 2): Subordinated term debt

Capital ratios:

The minimum capital funds unimpaired by losses of a licensed Bank shall, at any one time, not be less than Rwandan Francs five billion. Unless a higher minimum ratio has been set by the Central Bank for an individual Bank, every Bank, shall, at all time, maintain a total capital of 15% of its total weighted assets of which 10% is core capital. Total regulatory capital expressed as a percentage of total risk-weighted

15.5%

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

12.5%

5. 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. In the context of Covid-19, management judgemental adjustments at both the customer and portfolio levels have been adopted in order to account for model deficiencies and expert credit judgement applied following management review and challenge. Internal governance and controls were put in place in order to monitor the post-model adjustments based on the economic performance in the midst of the pandemic. (a) Impairment losses on loans and advances The methodology for impairment of loans and advance is as included under note 3(e). (b) Fair value of financial instruments Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. All financial instruments are initially recognized at fair value, which is normally the transaction price. All financial instruments are initially recognized at fair value, which is normally the transaction price. Subsequent to initial recognition, some of the Bank’s financial instruments are carried at fair value. The fair values of quoted financial instruments in active markets are based on current prices with no subjective judgments, if the market for a financial instrument does not exist or is not active including for unlisted securities, the Bank established fair value by using valuation

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

techniques. These include the use of recent arm’s length transactions, discounted cash flow analysis and other valuation techniques commonly used by market participants. Where representative prices are unreliable because of illiquid markets, the determination of fair value may require estimation of certain parameters, which are calibrated against industry standards and observable market data, or the use of valuation models that are based on observable market data. The fair value of the majority of the Bank’s financial instruments are based on observable market prices or derived from observable market parameters. (c) Deferred tax assets Deferred tax assets are recognized for all unused tax losses to the extent that it is possible that taxable profit will be available against which the losses can be utilized. Significant Directors’ judgment is required to determine the amount of deferred tax asset that can be recognized, based upon the likely timing and level of future taxable profits together with future tax planning strategies. (d) Property and equipment Property and equipment is depreciated over its useful life taking into account residual values, where appropriate. The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors. In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmers are taken into account. Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values. The rates used are set out on accounting policy 3(b). 6. SEGMENT REPORTING

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. Corporate Banking – incorporating Banking services such as current accounts, fixed deposits, overdrafts, loans and other credit facilities both in local and foreign currencies. Treasury operates the Bank’s foreign exchange business as well as investments in Treasury Bills and Bonds. Other Bank’s operations comprise of custody and other normal operations. Transactions between the business segments are on normal commercial terms and conditions. Segment assets and liabilities mainly comprise operating assets and liabilities. The table below analysis the breakdown of segmental assets, liabilities, income and expenses;

Net interest income Net Fees and commission

Corporate banking Frw ‘000 5,210,654

Retail banking Frw ‘000 8,708,937

2,010,206

1,606,285

Foreign exchange income Other income

Treasury Frw ‘000 1,056,428

Other Frw ‘000 -

Total Frw ‘000 14,976,019

3,616,491

1,399,611

126,183

196,345

77,154

399,682

(838,861)

(5,757,003)

(175,915)

(7,887,335)

(14,659,114)

6,508,182

4,754,564

2,280,124

(7,810,181)

5,732,689

Net interest income

5,785,727

6,989,630

1,228,782

14,004,139

Fees and commission

2,123,767

2,033,745

4,157,512

1,303,529

1,291,530

Operating expenses Profit before tax

Retail banking Frw ‘000 63,372,634

Treasury Frw ‘000 26,447,876

Other Frw ‘000 54,943,595

Total Frw ‘000 232,693,447

102,232,649

72,493,245

5,668,651

16,716,257

197,110,802

35,582,645

Total Assets

77,560,204

59,769,356

50,125,545

10,661,667

198,116,772

Total Liabilities

79,350,643

68,098,206

2,272,694

20,678,212

170,399,755

27,717,017

Total Assets Total Liabilities Shareholders’ funds 2019

Shareholders’ funds 7. FAIR VALUE MEASUREMENT

a) Accounting classification and fair values The following sets out the Bank’s basis of establishing fair values of financial instruments: Loans and advances to customers are net of allowance for impairment. The estimated fair value of loans and advances represents the discounted amount of future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value.

The Bank’s main business comprises of the following reportable segments:

31-Dec-20

Corporate banking Frw ‘000 87,929,342

31-Dec-20

The estimated fair value of deposits with no stated maturity is the amount repayable on demand. Estimated fair value of fixed interest bearing deposits without quoted market prices is based on discounting cash flows using the prevailing market rates for debts with similar maturities and interest rates. A substantial proportion of deposits mature within 12 months and hence fair value approximates the carrying amounts. Cash and balances with National Bank of Rwanda are measure at amortized cost and their value approximates their carrying amount. b) Valuation hierarchy The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique: Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities; Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly; and Level 3: techniques which use inputs which have significant effect on the recorded fair value that are not based on observable market data. The Bank does not have any financial instruments at fair value (2019: nil). All the carrying amounts of the financial instruments at amortised cost as at year end approximate to the fair value of the same.

2019

Foreign exchange income Other income Operating expenses Profit before tax

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

434,162

857,368

(675,977)

(5,137,433)

(127,119)

(6,376,710)

(12,317,239)

7,667,679

4,743,310

2,405,192

(6,376,710)

8,439,471

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

The table below sets out the carrying amounts of each class of financial assets and liabilities. The carrying amounts approximate the fair value: FVOCI Frw ‘000

FVTPL Frw ‘000

Carrying amount Frw ‘000

Fair Value Frw ‘000

Cash and balances with central Bank

20,360,827

Balances due from other Banks

23,500,016

Non-current assets held for sale

Held to maturity investments

26,447,876

Loans and advances to customers

151,235,744

150,426,864

31-Dec-20 Assets

Balances due from related parties

972,307

Other assets

2,452,101

Total financial assets

224,968,871

224,159,991

Balances due to other Banks

40,259,523

Customer deposits

140,878,850

Other liabilities

5,273,544

2,981,538

Liabilities

Balances due to related parties

INTEREST INCOME 2020 Frw ‘000 21,784,654 1,438,223 142,491 23,365,368

2019 Frw ‘000 19,902,668 1,300,145 176,935 21,379,748

7,888,081 501,267 8,389,348

6,714,598 661,010 7,375,608

3,428,658 694,662 4,123,320

3,492,492 989,386 4,481,878

FEES AND COMMISSIONS INCOME Fees & commission expense

506,829

324,666

FOREIGN EXCHANGE INCOME Foreign exchange

786,472

1,108,216

Revaluation gain/losses

613,139

195,313

1,399,611

1,303,529

Accrued Negotiation fees

111,653

Bonus provision reversed

378,000

Over accrued EIB Interest reversed

332,500

Recoveries on written of loans

137,602

282,493

Other income

184,926

186,884

Modification gain

569,580

(1,378,460)

INTEREST INCOME Interest on loans and advances Interest on held to maturity investments Interest on placements and Bank balances

INTEREST EXPENSE Interest on customers’ deposits Interest on borrowed funds FEES AND COMMISSIONS INCOME Services fees &Commission Lending fees

Long term borrowing

7,472,617

Total financial liabilities

196,866,072

FVOCI Frw ‘000

FVTPL Frw ‘000

Carrying amount Frw ‘000

Fair Value Frw ‘000

Cash and balances with central Bank

18,719,315

Balances due from other Banks

16,903,715

Non-current assets held for sale

Held to maturity investments

14,256,029

Loans and advances to customers

135,781,681

Balances due from related parties

439,909

Other assets

2,854,494

Total financial assets

188,955,143

Balances due to other Banks

26,238,645

Customer deposits

123,222,207

Other liabilities

6,409,119

Expected credit loss Stage 3 loans

5,941,039

Expected credit loss off balance sheet

31-Dec-19 Assets

OTHER INCOME

Fair valuation loss Benefit on Low interest deposit

Liabilities

Balances due to related parties Long term borrowing

7,085,814

Total financial liabilities

168,896,824

886,034 399,682

1,291,530

1,405,656

(212,561)

139,433

357,772

EXPECTED CREDIT LOSSES Expected credit loss Stage 1 & 2 loans

Reversal of Expected credit loss Other Financial Assets Bad debts written off Net impairment of Loans and advances

9,561

13,223

(9,559)

540,866

106,400

1,651,491

699,300

23,814

IMPAIRMENT OF NON-CURRENT ASSETS Impairment of non-current assets held for sale

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

This relates to land recognized by the bank as a non-current asset held for sale. This asset was acquired by the bank through an auction to foreclose a non-performing loan. However, Article 1 of BNR Instruction N° 05/2000 requires that such assets acquired through recovery loan processes should not be held by the bank for more than 2 years. This regulation is a trigger for impairment testing as the Bank has not been able to dispose the asset within the 2 year period PERSONNEL EXPENSES Salaries and wages Medical expenses Pension scheme contributions Other benefits

OTHER OPERATING EXPENSES Administrative expenses Auditor’s remuneration Directors’ emoluments: as Directors As executives

2020 Frw ‘000 4,075,351 351,151 444,760 333,298

2019 Frw ‘000 4,052,475 260,892 323,247 407,919

5,204,560

5,044,533

5,200,643 50,000 168,819 253,611 5,673,073

3,998,108 46,500 254,346 241,664 4,540,618

2,058,224

2,252,284

(372,909)

632,451

1,685,315

(991,210) 1,893,525

INCOME TAX EXPENSE

EARNINGS PER SHARE Net Profit attributable to equity shareholders Weighted average paid up ordinary shares 629,629,667 shares (2019: 510,309,217 shares Diluted and basic earnings per share

2020 Frw ‘000 4,047,374

2019 Frw ‘000 6,545,946

6.43

12.83

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of theses financial statements which would require the restatement of earnings per share. Basic and dilutive earnings per share are the same as the Bank did not issue any potentially dilutive instruments. CASH AND BALANCES WITH NATIONAL BANK OF RWANDA Cash on hand Balances with National Bank of Rwanda: Cash reverse ratio Other current accounts Gross cash & balances with BNR ECL on legacy BNR items Net cash & balances with BNR

2020 Frw ‘000 7,825,613

2019 Frw ‘000 5,768,488

6,415,205 6,120,009 20,360,827 20,360,827

7,569,831 5,626,888 18,965,207 (245,892) 18,719,315

Current tax expense

Current tax Change in estimate related to prior years Deferred tax expense Deferred tax charge (note 30) (Over)/under provision in the previous years Total tax expense

The tax on the Bank’s profit before income tax differs from the theoretical amount that would arise using the statutory income tax rate as follows: 2020

Effective tax rate

Accounting profit before tax Tax at the applicable rate of 30%

2020 Frw ‘000

31-Dec-20

5,732,689 30.0%

1,719,807

2020 Frw ‘000 8,439,471

30.0%

2,531,841

Tax effects of: Understatement of current tax in prior year

Deferred tax effect on provisions Prior year Deferred tax not recognised Expenses not deductible for tax purposes

11.7%

(991,210)

5.93%

115,402

4.6%

387,429

Deferred tax effect on fixed assets Effect of non-taxable incomes Gain on net monetary position

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

7.37%

(149,894) 1,685,315

0.4%

The National Bank of Rwanda retains a minimum cash ratio reserve equivalent to 5% of the Bank’s customer deposits that is not available for the Bank’s use. The restricted cash therefore at 31 December is Frw 3,343,796,000 (2019 Frw 5,626,888,000). BALANCES DUE FROM OTHER BANKS Placements with local Banks Balances with foreign Banks Gross balances due from other banks Expected Credit Loss Net balances due from other banks

2020 Frw ‘000 6,822,305 16,678,149 23,500,454 (438) 23,500,016

2019 Frw ‘000 843,134 16,060,703 16,903,837 (122) 16,903,715

The National Bank of Rwanda retains a minimum cash ratio reserve equivalent to 5% of the Bank’s customer deposits that is not available for the Bank’s use. The restricted cash therefore at 31 December is Frw 3,343,796,000 (2019 Frw 5,626,888,000). NON-CURRENT ASSETS HELD FOR SALE As at 1 January Assets disposed in the open market Impairment provision (note 12) As at 31 December

2020 Frw ‘000 -

2019 Frw ‘000 68,314 (45,000) (23,314) -

Non-current asset held for sale represents assets previously held by the Bank as security on defaulted loans which the Bank acquired during the recovery process in line with article 21 of the Mortgage Law No 10/2009. The properties are in the process of being disposed in the open market.

(34,535) 1,893,525

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

Treasury bills Treasury bonds IFC Bond Gross held to maturity investment

2020 Frw ‘000 20,842,731 5,605,145 333,298

2019 Frw ‘000 10,898,622 3,357,879 407,919

Expected credit loss Net held to maturity investment

(1,283) 26,446,593

(472) 14,256,029

Maturing between 0-3 months Maturing between 3-12 months Maturing between 1-5 years Maturing between 5-10 years

21,085,800 147,542 5,214,534 -

9,978,000 1014134 3,264,067 -

26,447,876

14,256,501

HELD TO MATURITY INVESTMENTS

RELATED PARTY DISCLOSURES

2020 Frw ‘000

2019 Frw ‘000

253,274

328,330

a) Due from related parties: KCB Bank Kenya Limited KCB Bank South Sudan Limited KCB Bank Burundi Limited

26,536

688,107

43,943

9,781

KCB Bank Tanzania Limited KCB Bank Uganda Limited

Treasury bills and bonds are debt securities issued by the Government of the Republic of Rwanda. The bills and bonds are categorized as held to maturity and carried at amortized cost. The weighted average effective interest rates on treasury bonds and bills as at 31 December 2020, was 11.15% and 7,17% respectively (31 December 2019: 11.86% and 5.05% respectively). The bank had a borrowing stock in reverse repo of 3.8b as at 31 December 2020. LOANS AND ADVANCES TO CUSTOMERS (a)Sectorial analysis of loans and advances Mortgage Small and Medium Enterprises Consumer Corporate Sub-total

2020 Frw ‘000

2019 Frw ‘000

30,606,331 20,096,428 9,066,596 77,560,204 137,329,559

Expected credit loss

(3,092,968)

(1,547,878)

Fair value loss on below market lending

(1,378,460)

569,580 150,426,864

135,781,681

Classified according to rating category: Grade 1: Normal

124,793,393

103,907,729

21,759,133

30,057,826

Grade 3: Substandard

677,581

1,610,083

Grade 4: Doubtful

696,878

1,297,779

6,401,727

456,142

154,328,712

137,329,559

Expected credit loss

(3,092,968)

(1,547,878)

Fair value loss on below market lending

(1,378,460)

Grade 2: Watch

Grade 5: Loss

Modification gains on restructured loans

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

23,703 (

31,319 (

972,307

439,909

2,924,191

2,657,230

1,077

281

388,462

KCB Bank Tanzania Limited

52,228

1,799,586

KCB Bank Uganda Limited

4,042

1,095,480

2,981,538 (2,009,231)

5,941,039 (5,501,130)

378,388

279,332

23,416

135,110

(42,602) 359,202

(36,054) 378,388

3,050,160

1,484,671

b) Balances due to related parties KCB Bank Kenya Limited KCB Bank South Sudan Limited KCB Bank Burundi Limited

Net balances due from group companies c) Loans and advances to Directors and senior management staff:

31,852,015 26,443,445 6,829,322 89,203,930 154,328,712

Modification gains and fair value loss Net carrying amount

Expected credit losses

569,580

150,426,864

135,781,681

As at 1 January Loans and advances during the year Loans and advances repaid during the year As at 31 December OTHER ASSETS Prepayments Clearing account

122,158

573,099

Other receivables As at 31 December

764,938 3,937,256

2,493,798 4,551,568

Expected credit loss

(1,485,155)

(1,697,074)

Net other assets

2,452,101

2,854,494

1st January

1,697,074

1,439,915

(Reversal)/Charge for the year

(211,919)

257,159

As at 31 December

1,485,155

1,697,074

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

30. PROPERTY AND EQUIPMENT

At 1 January 2020

Frw ‘000

Capital work in Progress Frw ‘000

Frw ‘000

196,915

2,857,545

10,607

9,248,564

85,300

185,050

710,511

(195,657)

Leasehold improvements

Computer Equipment

Motor Vehicle

Furniture & Equipment

Frw ‘000

4,928,876

1,254,621

180,242

259,919

Total

COST: At 1 January 2020 Additions Transfers from work in progress Disposal At 31 December 2020

5,109,118

1,514,540

29,340

9,763,418

4,218,553

755,564

186,655

2,021,546

226,647

179,378

10,260

229,432

645,717

4,445,200

934,942

196,915

2,250,978

7,828,036

663,918

579,598

691,867

1,935,383

Depreciation At 1 January 2020 Charge for the year Disposal At 31 December 2020

7,182,318

Carrying amount At 31 December 2020

At 1 January 2019

Leasehold improvements

Computer Equipment

Motor Vehicle

Furniture & Equipment

Frw ‘000

Capital work in Progress Frw ‘000

Total

Additions

4,928,876

856,170

196,915

2,375,402

9,194

8,366,557

11,620

72,248

2,771,207

2,855,075

409,895

(2,769,794)

(1,973,068)

Transfers from work in progress Disposal At 31 December 2020

386,831 -

4,928,876

1,254,621

196,915

2,857,545

10,607

9,248,564

Depreciation At 1 January 2020 Charge for the year Disposal At 31 December 2020

6,446,450

3,829,510

624,275

166,136

1,826,529

389,043

131,289

20,519

195,017

735,868

4,218,553

755,564

186,655

2,021,546

7,182,318

710,323

499,058

10,260

835,999

10,607

2,066,247

Carrying amount At 31 December 2020

The Leasehold improvements consist of refurbishment of the leased premises to suit the business of the Bank. All risks and benefits in connection with the improvements are the responsibility of the Bank and are not transferable to the owners of the premises.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

2019 Frw ‘000 836,152 1,973,068 2,809,220

AMORTISATION At 1 January Amortization for the Year At 31 December

1,024,690 433,102 1,457,792

709,930 314,760 1,024,690

Carrying amount At 31 December

1,451,107

1,784,530

Intangible assets relate to the cost of acquiring long term licensing rights for the usage of the core Banking system, interfaces and other Banking software.

At 1 January Additions At 31 December

2020 Frw ‘000 8,512,268 515,660 9,027,928

2019 Frw ‘000 4,736,656 3,775,612 8,512,268

AMORTISATION At 1 January Amortization for the Year At 31 December

3,574,063 1,051,172 4,625,235

2,615,216 958,847 3,574,063

Carrying amount At 31 December

4,402,693

4,938,205

At start of year Additions Repayment of principal

2020 Frw ‘000 4,698,602 515,660 (1,176,690)

2019 Frw ‘000 2,086,064 3,775,612 (822,892)

Repayment of interest At end of year

( 371,094) 3,666,478

(340,182) 4,698,602

RIGHT OF USE ASSET

Frw ‘000

COST: At 1 January 2020

At 1 January Additions At 31 December

2020 Frw ‘000 2,809,220 99,679 2,908,899

INTANGIBLE ASSETS

LEASE LIABILITIES

Amortisation and depreciation charged to profit or loss is arrived at as follows:

Depreciation on property and equipment – note 24(a)

645,717

735,868

Amortisation of intangible assets – note 24(b)

433,102

314,760

Depreciation of right of use asset – note 24 (c)

1,051,172

958,847

Total

2,129,991

2,009,475

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) BALANCES DUE TO OTHER BANKS Balances and placements due to local Banks Balances and placements due to foreign Banks

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

2020 Frw ‘000 37,033,395 3,226,128

2019 Frw ‘000 25,039,408 1,199,237

40,259,523

26,238,645

The weighted average effective interest rate on deposits from other Banks as at 31 December 2019 was 8.5% (31 December 2018: 10.5%). 2020 Frw ‘000 77,247,765 45,084,683 18,546,402

2019 Frw ‘000 73,723,858 33,617,526 15,880,823

140,878,850

123,222,207

98,412,974 42,465,876 -

28,893,407 31,481,638 62,520,407 326,755

140,878,850

123,222,207

CUSTOMER DEPOSITS Current accounts Fixed deposit accounts Savings accounts

Payable on demand Payable within 1 to 3 months Payable within 3 to 12 months Payable within 1 to 5 years

The weighted average effective interest rate on interest bearing customer deposits as at 31 December 2020 was 4.2% (2019: 4.2%).

As at 1 January 2020

IFC Frw ‘000 -

GoR Frw ‘000 -

EIB Frw ‘000 7,085,814

Parent Company Frw ‘000 -

Total Frw ‘000 7,085,814

Principal repayment

(1,417,163)

New Debt in the year

2,690,000

Government grant benefit

(886,034)

At 1 January 2020

As at 31 December 2020 As at 31 December 2019 Principal repayment

OTHER LIABILITIES

Debt equity conversion

As at 31 December 2020

1,803,966

5,668,651

7,472,617

Other payables Accruals

As at 1 January 2019

3,955,973

860,150

4,816,123

Principal repayment

(3,955,973)

(860,150)

(4,816,123) -

Debt equity conversion

As at 31 December 2019

7,085,814

Up to 1 month Frw ‘000

1 - 3 months Frw ‘000

3 - 12 months Frw ‘000

1 - 5 years Frw ‘000

Over 5 years Frw ‘000

Total Frw ‘000

As at 31 December 2020

1,417,163

4,251,488

1,803,966

7,472,617

As at 31 December 2019

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

4,251,488

1,417,163

7,085,814

2019 Frw ‘000 528,750 (2,160,461) 2,252,284 620,573

2020 Frw ‘000 1,088,829 516,954 1,605,783

2019 Frw ‘000 855,597 1,737,278 2,592,875

Plant and equipment Frw ‘000

Other temporary differences Frw ‘000

Net deferred tax Frw ‘000

494,030

(866,677)

(372,647)

34,542 528,572

(407,451) (1,274,128)

(372,909) (745,556)

252,976 (265,534) 506,588 494,030

(266,864) (725,675) 125,862 (866,677)

(13,888) (991,209) 632,450 (372,647)

As at 1 January Taxes paid Tax charge for the year As at 31 December

2020 Frw ‘000 620,573 (2,432,784) 2,058,224 246,013

TAX PAYABLE

Foreign exchange revaluation

The IFC loan is denominated in Rwanda Francs it matured in May 2019. Its effective interest rate is 5.4% per annum (2018- 5.4%). IFC The GoR debt is a 15 year old direct support to customers that were affected by Covid 19 as part of the economic recovery fund. The funds are on zero interest and have been matched to the maturity of the loans for the supported customers. The grant benefit is a result of subjecting the same funds to market rates at the BNR rate of 5%. Recognition of the government grant was on condition that the bank restructures the existing facilities to the extent of the borrowing from BNR and that the restructures would result in the interest rates for the customers being lowered from market (contractual) rate to 5% which is deemed below market. Since this condition has been achieved, the grant benefit has been recognized. As per IAS 20, the benefit of a government grant is recognised in profit or loss on a systematic basis as the entity recognises as expenses the related costs for which the grant is intended to compensate. The loss being compensated is represented by the fair value loss on restructured facilities being at Frw 1,378,460,000

7,085,814

(886,034)

7,085,814

Total Frw ‘000

The EIB loan is denominated in Rwanda Francs. Its effective interest rate is 7.83% per annum (2019- 7.83%).

1,417,163

Interbank Frw ‘000

The Loan from International Finance Corporation is on normal commercial terms and repayable on quarterly basis with effect from 24 February 2013 until 2018. The loan from European Investment Bank (EIB) is on normal commercial terms and repayable on a half a year basis beginning 15 October 2015 until maturity in 2020. The loan from the parent company is on normal commercial terms and convertible.

Maturing as follows:

GoR Frw ‘000

Principal repayment

Foreign exchange revaluation

New Debt in the year

2,690,000

Short time borrowings

DEFFERRED TAX ASSET Arising from: 01-Jan-20 Prior year under/ (over) provision Charged/ (credited) to P&L 31-Dec-20 Arising from: 01-Jan-19 Prior year under/ (over) provision Charged/ (credited) to P&L 31-Dec-20

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

SHARE CAPITAL The holders of ordinary shares are entitled for dividends when declared and are voted per share during the annual general meeting. In the year the shareholder injected capital worth Frw 3,818,254,000 which translated to an additional 119,320,450 shares

STATUTORY CREDIT RISK RESERVE This reserve is used to record provision for regulatory impairment losses on financial assets over and above those derived by IFRS 9 Expected credit losses modelling.

2020

2019

Frw 000

1,250,000,000

625,000,000

40,000,000

20,000,000

629,629,667

510,309,217

20,148,149

16,329,895

2020

2019

Frw 000

16,329,895

3,818,254

20,148,149

16,329,895

Authorised: Authorized share capital: Issued, called and paid share capital: Ordinary shares of Frw 32 each:

1 January Authorized share capital: 31 December RESERVES

SHARE PREMIUM The share premium arises from issue of shares at a price higher than the par value of the shares. This amount is not available for distribution. There was no movement in the account balance in 2020.

Share premium

2020

2019

Frw 000

1,076,185

RESERVES This comprise prior year profits less any appropriation to credit risk plus current year profit. 2019

Frw 000

237,283

Transfer from retained earnings

299,625

237,283

Balance at 31 December

536,908

237,283

2020

2019

Frw 000

5,732,689

8,439,471

Depreciation of property and equipment

645,717

735,868

Amortization of intangible assets

433,102

314,760

Depreciation of right of use asset*

1,051,172

958,847

Government grant

(886,034)

6,976,646

10,448,946

402,393

2,086,852

(1,964,268)

1,702,068

(882,597)

NOTES ON STATEMENT OF CASH FLOWS

Cash flows from operating activities Profit before tax Adjustments for:

Cash flows from operations before working capital changes Other assets Cash ratio reserve Balances due from other Banks Balances due to other Banks Customer deposits

2,541,868 17,656,643

(21,317,053)

Other liabilities

(987,092)

(1,565,161)

Due from related parties

(532,398)

445,282

68,314

Due to related parties Net loans and advances

(2,959,501)

3,508,493

(14,645,183)

(25,309,529)

3,947,240

(28,272,517)

Frw 000

10,073,654

3,764,991

Profit for the year

4,047,374

6,545,946

Transfer to statutory credit risk reserve

(299,625)

(237,283)

2020

2019

13,821,403

10,073,654

Frw 000

Cash in hand

7,825,613

5,768,488

Balances with the National Bank of Rwanda

3,343,796

5,723,677

23,500,016

16,903,715

(40,259,523)

(26,238,645)

11,085,800

9,978,000

5,495,702

12,135,235

Balance at 1 January

Balance at 31 December

Net cash flows generated/(used in) from operations Analysis of cash and cash equivalents

Due from Banks Due to Banks Held to maturity investments

2019

Balance at 1 January

Non-current assets held for sale 2020

2020

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

CUSTODY SERVICES The Bank offers custody services to customers trading in the Rwanda Stock Exchange. Customers’ investments in the capital markets are managed separately from the Bank’s assets and investments. As at 31 December, the Bank was in custody of certificates of titles of custody customers’ investments with following values;

Certificates of titles

2020

2019

Frw 000

206,995,622

207,876,833

CONTINGENT LIABILITIES AND COMMITMENTS To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. These consist of financial guarantees, letters of credit and other undrawn commitments to lend. Even though these obligations may not be recognized in the statement of financial position, they do contain credit risk and are therefore part of the overall risk of the Bank. Letters of credit and guarantees (including standby letters of credit) commit the Bank 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 Bank’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 Bank 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

36. EVENTS AFTER REPORTING DATE There are no other events after the reporting date that require disclosure in or adjustments to the financial statements as at the date of this report 37. ULTIMATE HOLDING COMPANY The ultimate holding company is KCB GROUP PLC, which is incorporated and domiciled in Kenya. The parent company is listed on the Nairobi Stock Exchange. 2020

2019

Frw 000

Core capital (Tier 1)

31,105,357

25,882,136

Supplementary capital (Tier 2)

2,406,555

1,277,784

Total capital

33,511,912

27,159,920

192,524,376

178,236,915

Tier 1 ratio: Core capital/ Total risk weighted assets ratio

16.16%

14.52%

Tier 2 ratio: Total capital/Total risk weighted assets ratio

17.41%

15.24%

154,328,712

137,329,559

34,394,639

27,455,623

188,723,351

164,785,182

Debt securities

OTC derivatives

134,559,402

117,713,199

Northern province

2,512,226

2,425,702

Eastern province

2,642,638

3,770,872

Western province

8,223,506

8,806,885

Southern province

6,390,940

4,612,901

154,328,712

137,329,559

A. Capital Strength

Total risk weighted assets

B. Credit Risk Total gross credit risk exposure without mitigation

Guarantees Letters of credit, acceptances, indemnities and other engagements entered into on behalf of customers at year end

Expected Credit Loss Net

01-Jan Charged/ (credited) to P&L 31-Dec

2020

2019

Frw 000

34,394,639

27,455,623

34,394,639

27,455,623

(24,386)

(14,825)

34,370,253

27,440,798

14,825

1,501

9,561

13,324

24,386

14,825

Off- balance sheet items Loans, commitments & off balance sheet

Regional Distribution of Exposure Region City of Kigali

Total

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. Based on information currently available, the unresolved claims which existed at year end are unlikely to result into any material effect on the operations of the Bank. As at 31 December 2020, a provision of Frw 219,471,228 has been made towards litigations and claims.

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

FINANCIAL STATEMENTS

FINANCIAL STATEMENTS KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued)

KCB BANK RWANDA PLC NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER (Continued) 2020

2019

2020

2019

Frw 000

Other assets held abroad

20,713,828

19,409,772

Liabilities to abroad

11,550,033

14,649,559

31-Dec-20

31-Dec-19

Number of Board members

Number of executive directors

Number of non-executive directors

Number of female directors

Number of male directors

Number of females in the Executive committee

Number of males in the Executive committee

Credit exposures abroad

Sector Distribution of Exposure Government

2,468,574

1,820,195

Manufacturing

45,634,252

29,079,491

Infrastructure & Construction

58,197,736

57,487,426

services & Commerce

41,170,913

42,210,380

6,857,237

6,732,067

154,328,712

137,329,559

34,394,639

27,455,623

Agriculture & Livestock

Others Total

Off- balance sheet items Non-performing loans indicators Gross Non-performing loans (NPL) NPL ratio

Management and board composition

Number of Executive committee 7,776,187

8,024,286

5.04%

5.84%

4,828,238

3,411,140

Insider lending Loans to directors, shareholders and subsidiaries Loan to employees

TYPE Fraudulent Transfers

Restructured Loans No. of Borrowers

299

62,925,359

2,671,702

1,314,858

90,320

40.77%

1.95%

Liquidity coverage ratio

268%

104%

Net stable funding ratio

111%

105%

381,208

330,414

419,326

235,174

Amount outstanding (Frw ‘000) Provision thereon (Frw ‘000) (regulatory) Restructured Loans as % of Gross Loans

Number and type of frauds and their corresponding amount for the period ended 31 December 2020 NUMBER 2

FRW ‘000 5,200

Liquidity

Market risk Interest rate risk Equity position risk Foreign exchange risk

2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

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2020 | INTEGRATED REPORT & FINANCIAL STATEMENTS

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KCB BANK RWANDA INTEGRATED REPORT

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Executive Management Profiles

Our 2020 Milestones

Board of Directors Profiles

Operating Environment

2020 - 2023 Strategy