The five commercial banks and three non-banking financial institutions (two insurance companies and one pension entity) earned a combined net profit of Nu 802M in 2017-2018.

The asset growth of financial sector has averaged 10.5 percent, increasing from Nu 107B in June 2015 to Nu 161B in June last year.

According to the Royal Monetary Authority’s annual report, total credit of the financial sector stood at Nu 108.81B billion as of June 2018 compared with Nu 95.06 billion in June 2017.

However, banks are confronted with excess liquidity. Banking norms mandate a minimum of 20 percent or the total liabilities as statutory requirement. The statutory liquidity ration (SLR), which the banks must set aside in form of its liabilities, is 31 percent.

Surplus liquidity occurs where cash flows into the banking system persistently exceed withdrawals. Excess liquidity could prove unhealthy for the banks because the cost of maintaining the cash flow could exceed the interest income or in other words the banks are not able to lend what was deposited.

“Banking sector has persistent liquidity surplus due to the accumulation of net foreign assets in excess,” the annual report stated. As on June 2018, the total liquidity surplus was recorded at Nu. 18.49 billion.

This is happening despite an increase in loans by Nu 13B. The sector-wise analysis reveals that out of the total loans of Nu 108.81B, housing sector has the highest portfolio with Nu 25.72B (23.6 percent) followed by service & tourism sector with Nu 25.21B (23.2 percent), and trade and commerce with Nu 15.02B (13.8 percent).

“Development in credit is generally influenced by liquidity in the banking sector, quality of assets, cost of fund and economic conditions. With nascent stage of capital market development and continued reliance on credit from the banking sector, the domestic credit market has been on an expansionary mode in the recent years,” the report stated.

It also pointed out that  As of June 2018, the financial institutions recorded a credit growth of 13.3 percent, largely contributed by higher growth in transport (27.2 percent), services (25.9 percent) and housing sector (18.5 percent). With the implementation of the PSL, credit to agriculture increased by 11.1 percent in June 2018.

The report also stated that almost 90 percent of credit was allocated to the private sector.

However, the RMA found that Bhutan’s credit growth reflects high volatility since credit to commercial sector grew by 22.2 percent while there is increasing allocation of credit in consumption and import led sectors, leading to unevenly distribution of credit and rising bad assets in these sectors.

The economy, according to the RMA, is witnessing a sign of deteriorating Non-Performing Loan (NPL) from Nu 10.80B in June 2017 to Nu 12.54B in June 2018. The sector with the highest NPL during the period under review is trade and commerce with 21.3 percent, followed by service  and tourism with 19.3 percent, and housing with 18 percent.

Tshering Dorji


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