Major reforms initiated under new CEO

MB Subba

The Royal Insurance Corporation of Bhutan Limited (RICBL), one of the oldest financial institutions, had suffered such a huge loss in 2018 that it was not able to afford a pay raise to its employees.

In 2018, the RICBL suffered a whopping loss of Nu 1.2 billion (B) pertaining mainly to non-performing loans (NPL).

According to company officials, the overall financial performance in 2019 was not satisfactory despite a series of reforms. The annual financial statements for the year are still being prepared.

The company’s CEO, Karma, said that the company did not revise the salary due to the huge financial loss. But he added that the lack of a pay raise was a “non-issue”, saying that he had explained his position to the employees.

Other reasons for the poor performance were interest expenses on borrowings and non-essential expenses.

But the CEO said that the company saved about Nu 100M by cutting non-essential expenses. The company also did well on the insurance front and made a profit of Nu 600M.

With a series of reforms, the company’s performance had significantly improved except in NPL. But the CEO said the Covid-19 pandemic had further complicated the NPL issue.

According to the CEO, the transformation process in RICBL would take some years. “In the next five years or so, RICBL will be the most profitable and professional institution in the country,” he said.

The 44-year-old insurance company’s losses pertain to loans and advances to customers, which for 2018 was Nu 18.97B. The NPL constituted more than 50 percent of the total lending.

The CEO acknowledged lapses in the loan appraisal process for the high NPL among other problems that are being corrected.

The reforms initiated under the new CEO include organisational development exercise and inter-departmental transfer of employees. He said the company did away with five non-essential branch offices while retaining those that offered business prospects.

The company is also focusing on improving its functioning and risk management system. CEO Karma said that the company has separated the business, operations, risk management and policy parts so that each would have specific functions.

“Now we have branches that focus on business. The corporate office will do product and scheme designing and risk management, monitoring, auditing and reconciliation,” he said.

The RICBL, he said, was the most complicated among the financial institutions as it provides all types of insurances, including re-insurance, which is highly specialised.

In other countries, insurance companies do not provide multiple schemes, according to him. “Nowhere else in the world there is another RICBL,” he said.

But the CEO added the company’s diversified business lines put RICBL in a better position than other financial institutions like banks, which depends on loans and deposits.

The insurance company annually receives about Nu 1.5B as life insurance premium, which is not likely to be affected by Covid-19 pandemic.

The CEO said he is also continuously assessing whether the company is headed in the right direction through various means. According to him, the company has placed a risk management officer in every department.

The RICBL has been recording consistent growth in insurance business accounting for 12.47 percent growth in premium income in 2018. The deterioration of the financial performance is mainly attributed to the increase in the impairment of loans and advances.

As part of its revival and reform process, RICBL will stress on providing services through digital platforms. “We want to take services to the people using information technology,” Karma said.

The company is also training its people on insurance and other skills development programme.

From being an entity largely owned by the government earlier, today public and private organisations own 61 percent of the company, 18 percent by Druk Holding and Investments Limited, and the remaining 21 percent by His Majesty’s Welfare Fund.

Both the authorised capital and the paid-up capital of RICBL rose to Nu 5B and Nu 1.2B respectively as of December 31, 2015.