Fixed deposits surged from Nu 71.28B in June 2020 to Nu 78.46B in a year

MB Subba 

The Covid-19 pandemic has not differentiated by social class, gender or nationality, as it infected millions and claimed lives in the hundreds of thousands across the world.

Economically, however, it did differentiate, as governments tried to minimise the economic impact with fiscal and monetary measures.

At home, many Bhutanese lost their earnings, partially or fully, and those in the high-income group made gains in terms of savings amid the economic woes.

Many private companies and individuals not only deferred payment of equated monthly instalments (EMI), but also availed concessional credit facilities from financial institutions as part of monetary policies introduced to respond to the pandemic.

Financial indicators show that the saving levels of people with regular incomes, including house owners, increased significantly after the EMI deferment. The bigger the amount of the loan, the bigger the savings.

Despite the widespread disruptions in economic activities, financial institutions concurrently recorded a surge in deposits, which bankers and economists said was a result of the increased savings.

Economist and managing director of Ugyen Trading Group, Damber S Kharka (PhD), said that the EMI deferment and the increase in deposits can be correlated. “When EMI is deferred, most of the clients will prefer to keep their money in fixed deposits,” he said, adding that investment avenues have shrunk.

Fixed deposits surged from Nu 71.28 billion (B) in June 2020 to Nu 78.46B in June 2021, according to the financial sector performance review for June 2021. During the same period, saving deposits increased to Nu 61.23B from Nu 46.496B.   

Chief executive officer (CEO) of the Bank of Bhutan, Dorji Kadin, said that the increase in deposits not only indicated that money in the hands of people had increased, but also that there were not enough investment avenues.

Retail or individual deposits, which constituted almost 60 percent of the total deposit holdings, surged by more than 28 percent in July 2021 from June 2020.

In absolute terms, retail deposits increased from Nu 81.7B to Nu 104.84B during the period. Similarly, deposits by private companies increased by 105 percent (from Nu 5.6B to Nu 11.5B).

An analyst said that deposits had increased when the national economy was experiencing a negative growth. “Almost all private companies and individuals, including landlords, availed loan deferment irrespective of whether they were affected or not,” he said.

Rough calculations show that large enterprises and landlords that opted to defer EMI payment could save in the millions of ngultrums.

For instance, a person who has availed a commercial housing loan of Nu 50 million (M), would have to deposit about Nu 582,200, as EMI at the rate of 12.9 percent if the repayment duration was 20 years.

This would imply that the person would save about Nu 7M through a full deferment of EMI in 12 months.

A Thimphu-based businessperson said that she had availed loans amounting to about Nu 500M for the construction of hotels and resorts. The total EMI on the loans, according to her, came to about Nu 3M.

The analysts also said that the EMI deferment had not only increased expenditure for the banks, but also affected the circulation of money in the economy.

Dorji Kadin said that operation costs had increased, as they had to pay interest on deposits. He said that the annual rate of increase in the bank’s investments had slowed down from more than 20 percent to less than 10 percent amid the pandemic, due to a slowdown in the construction sector, among other factors.

Damber S Kharka said that the banks’ ability to circulate money in the economy has been affected. “There is also a decrease in demand for borrowing in the market,” he said.

Loans in the housing and agriculture sectors constituted 26 percent and 3.8 percent of the total loan holding, respectively.

The tourism/service sector, where 28 percent of the loans are disbursed, was one of the most affected.

Financial support programmes also led to the increase in savings and deposits.

A Thimphu-based businessman said that he contributed some of the money saved through EMI deferment to the Covid -19 fund.

It was said that the State Trading Corporation of Bhutan had requested the government to lift the moratorium on the import of Toyota Prado luxury cars following a surge in demand.

“It indicates that people have money when rising inflation is affecting the common people,” said a corporate employee.

Those in the wholesale business, many said, made the most, as export was restricted and wholesalers started retailing. However, figures were not available.

The cost of the interest payment (waivers) for the period of nine months (100 percent waiver from July to September and 50 percent waiver from October 2020 to March 2021) is estimated at Nu 7.5 billion (B), according to official figures.

The government has decided to partially extend the loan deferment scheme until June 2022.

Edited by Tashi Dema