Credit grows by almost 17 percent

Consequently, the entire financial sector harvested a net profit of almost Nu 3 billion

Economy: As of December last year, the economy absorbed about Nu 74.7 billion (B) in loans from the entire financial sector in the country. This is an increase from Nu 63.99B in December 2014, a rise by 16.86 percent.

According to the financial sector performance review conducted by the Central Bank, this figure is inclusive of interest in suspense. The growth in total loans was attributed to strong demand in the housing and trade sectors.

Housing had the highest loan with Nu 18.29B (24 percent), followed by trade and commerce sector with Nu 14.28B. Personal loans represented about 16 percent of the total loan with Nu 11.75B.

It was also revealed that 83 percent of the total credit, or credit worth Nu 62.06B, was provided by the banks and 17 percent (Nu 12.72B) by non-banking financial institutions.

Banks recorded an increased credit from Nu 55.32B in 2014 to Nu 62B last year, a growth of 12 percent. Similarly, the total loans and advances of non-banks increased by 47 percent, from Nu 8.67B to Nu 12.72 billion.

However, the total non-performing loans (NPL) of the financial sector increased from Nu 4B in December 2014 to Nu 4.5B in December 2015, indicating an increase of 11 percent. However, the gross NPL ratio or the ratio of NPL to total loans stood at 6.03 percent in 2015 as compared to 6.33 percent in 2014.

It is important, to note, says the report, that the improvement in the ratio could be attributed to the increase in the total loans, which has offset the increase in NPL.

Out of the total NPL, more than 55 percent were classified under the loss category, which includes the term expired loans and loans under litigation. This amounts to Nu 2.51B. NPL classified under the sub-standard and doubtful category amounts to more than Nu 1B and Nu 908 million (M) respectively.

On the deposits side, the total deposit base of the banking sector showed a year on year growth of 3.81 percent amounting to Nu 2.87B. Deposits increased to Nu 78.2B in 2015 as compared to Nu 75.3B in the previous financial year.

The increase in the overall deposit base was mainly due to increase in time deposits by 11.1 percent because of increase in fixed deposits and recurring deposits. Current deposits decreased by almost the same percentage.

However, saving deposits has increased from Nu 17.25B in December 2014 to Nu 19B in December 2015. Demand deposits decreased by 2 percent to Nu 40.5B because of the decrease in current deposit.

In terms of deposits by customer type, out of the total deposits, more than 53 percent comprised of corporate deposits amounting to Nu 42B.

“Corporate deposits continued to dominate the deposit holding pattern of the banks,” says the report. This was followed by deposits by government corporations and the government.

Consequently, the financial institutions recorded a net profit of almost Nu 3B in December 2015 compared with a net profit of Nu 2.25B in December 2014.

The rise in financial sector’s profit is attributed mainly to the increase in the total interest income by Nu 1.24B. While the interest expenses also increased by Nu 644M, increase in interest income was comparatively higher than the increase in interest expenses.

Even on the liquidity front, because of the decrease in the quick assets, excess liquidity of the financial sector decreased from Nu 21.46B in December 2014 to Nu 11.38B last year.

The total asset of financial sector has increased by 7.13 percent during the same period from Nu 109.7B to Nu 117.55B. However, the banking sector continues to dominate the share of the total assets of financial sector with 86.84 percent. Non-banking financial institutions hold the remaining 13.16 percent of total assets.

Tshering Dorji

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