Banks see subdued growth in credit

Banking: Despite the gaining momentum of economic activities, most commercial banks in the country saw slow growth in credit and rising cost of deposits.

For banks, deposits are considered liability since it has to payout interests. This means that funds lying idle with the banks could hurt them. So they lend out a certain portion of the money at a higher interest.

Last year, the Druk PNB disbursed a credit of Nu 4.45 billion (B) against a deposit of Nu 6.89B. However, its deposit has grown by around 20 percent compared with 2014 and credit has only grown by around 13 percent.

The bank, however, managed to earn a profit of Nu 128.9 million (M), about 29 percent up from 2014. “Credit grew by very little margin,” Druk PNB’s CEO Mukesh Dave said.

He attributed the increase in profit to the non-interest income such as issue of bank guarantee, ATM transaction charges and remittance charges.  This subsequently resulted in small increase in income from interest while non-interest income grew by Nu 39M.

T-bank has also witnessed its credit grow by less than a percent and deposits kept increasing by more than 11 percent. The bank recorded a meager increase in profit from Nu 36.02M in 2014 to Nu 36.76M last year.

On the other hand, Bank of Bhutan saw its deposit decline from Nu 33.3B in 2014 to 32.1B last year. However, its credit grew from Nu 20.8B to Nu 22.6B. This was again due to more than Nu 1B growth in loans and advances to other banks, the interest rates of which is lower than normal lending rates.

The Bank consequently witnessed its profit decline from Nu 813 to Nu 795 last year.

Some bankers attributed the subdued credit growth to the new guidelines on various loans. Although the loan restrictions were lifted in the last quarter of 2014, a banker said debt to equity ratio for consumer, housing and vehicle loans were revised through the central bank’s guideline. This means that owner or loan proponent has to put in more equity and repayment source is thoroughly scrutinised. This was to ensure that banks lend responsibly.

Another banker said that revision in cash reserve ratio (CRR) and higher requirement of capital adequacy ratio is blocking the fund, which otherwise could be loaned out.

Bhutan National Bank, on the other hand was able to fetch Nu 21.87B as deposits while it had booked Nu 19.57B for loans and advances. The banks credit, unlike other banks has increased by 13 percent and deposits grew by about 10 percent. It earned a net profit of Nu 785M.

Tshering Dorji

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