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Financial institutions in the country have recorded significant growth in their liquidity positions amid a sluggish growth in credit, according to data published by the Royal Monetary Authority (RMA).

Liquidity (cash) in bank and non-bank financial institutions increased to Nu 29.52 billion (B) in March 2022 from Nu 20.87B in March 2021. In other words, the liquidity position increased by Nu 8.65B or 41 percent.

A sluggish growth in lending and accumulation of excess liquidity affect the profitability of financial institutions, as interests have to be paid to the depositors. More importantly, however, it signals a lack of expansion in economic activities, according to officials.




The central bank’s data show that the surge in the liquidity is not only because of the increase in deposits but also lack of enough growth in lending despite the establishment of National CSI Development Bank and National Credit Guarantee Scheme, which provides collateral-free loans.

The total deposits increased by 15 percent from March 2021 to March this year, according to the RMA’s Financial Sector Performance report published recently. However, loans increased by 5.7 percent only during the same period.

In absolute terms, deposits increased from Nu 164.37B to Nu 188.84B, while loans increased from Nu 169B to Nu 179.57B.

Financial institutions say that the pandemic has led to a shrink in their investment avenues. However, officials from the banking sector say that the demand for credit is expected to pick up with the normalisation of the Covid-19 protocols.  

Finance Minister Namgay Tshering in earlier interviews said that the slow growth of credit is a concern amid efforts to revive the economy. He said the country needed to make use of the available liquidity for private sector growth and economic recovery.




The data show that the loans to deposit ratio of banks fell from 80.12 percent to 73.23 percent in the past year. This means that the growth of deposits has exceeded that of lending.

Despite the pandemic, deposits from public companies surged from Nu 688 million (M) in March 2021 to Nu 1.156B in March this year. The deposits of private companies also increased from Nu 5.94B to 9.498B.

Deposits from retailers or individuals increased to Nu 118B from Nu 97.576B during the same period. Deposits of foreign currencies, however, declined from Nu 425.26M to Nu 333M (converted into ngultrum).

The profitability of financial institutions has increased as the profit after tax as of March 2022 stood at Nu 3.37B compared to a profit of Nu 1.63B in March 2021.




According to the report, the liquidity position of the financial sector is expected to remain stable. “The domestic financial system has already played a significant role in supporting the liquidity needs of businesses so far in this pandemic.”

The deposit structure has remained stable and largely unaffected since June 2021, it states.

The profit was mainly brought about by the decrease in non-performing loan (NPL), which decreased from Nu 24.77B in March 2021 to Nu 17.56B in March this year.

About 28 percent, which is the highest share of the total loan, has been disbursed in the tourism sector. The NPL in the tourism sector constitutes 33 percent of the total NPL, which is also the highest share of the total NPL.

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