The Bhutanese Leading the way.
Private sector welcomes the cuts
Following the Bank of Bhutan’s (BoB) move to slash its loan interest rates earlier this month, all other banks like Bhutan National Bank (BNB), Tashi Bank (T-Bank), Bhutan Development Bank (BDB) including the National Pension and Provident Fund (NPPF) have also cut interest rates in an array of products (see main box).
Royal Insurance Corporation of Bhutan (RICB) and Bhutan Insurance Limited (BIL) are also in the process of revising their loan interest rates and are expected to follow suit soon.
The Prime Minister in a statement thanked the banks for reducing their loan interest rates. The government for sometime has been highlighting the issue of high loan interest rates.
The next biggest bank after BoB which is the BNB has cut interest rates but not in as many fields like the Bank of Bhutan.
The BNB has cut rates in select areas like in manufacturing from the current 13 percent to 11.75 to 12.25 depending on the loan duration and in Transport from the current 14 percent to 12 percent among others.
In commercial housing the cut has been marginal from the existing 13 to 13.50 to 12.50 to 13 percent. For non-commercial housing or home ownership the new rate is lower at 10.50 percent. One of the BNB’s biggest cut is the consumer loan based on a person’s salary which has been cut from the current 14 to a lower 11 percent. For trade and commerce the cut is from 15 percent to 12.50 percent. The rate for Agricultural loans is at 10 percent.
The Bhutan Development Bank which has a sizeable rural and agricultural client has cut its all important agricultural loan from the current 12 percent to 10.55 percent. The manufacturing loan is cut from 13 percent to 11.30 to 12.30 percent. The transport loan has been cut from 14 to 12.50 percent. In the service sector BDB has cut the rate from 13 to 14 percent to now to 11.35 to 12.85 percent. In the housing sector BDB has cut from 13.50 to 14 percent to now 11.35 to 12.85 percent too. Personal loans have gone from 15 to 13.50 percent while salary based consumer loan interest rates declined from 13 to 9.75 percent.
T-Bank has made a sizeable reduction in Education loan from the current 15 percent to now 13 percent and it has also reduced the Entrepreneurship Development Program loan from 13 percent to 10.75 percent. T-Bank has made the strongest reduction in Transport loans among all the banks. For commercial transport the reduction is from 14 to 10.95 percent and for non-commercial it is from 13 to 9.85 percent. In case of the service sector the loan reduction is from 13 to 11.20 percent. In housing the reduction is from 13 to 10.50 percent.
The Druk-PNB has provided some provisional figures as the board is yet to finalize the final rate reductions but like BoB it is offering floating and semi fixed interest rates where the interest rates would change depending on the market conditions. There would be a certain risk carried by the borrower for initially lower interest rates.
The NPPF has cut its 5 year education loan from 10 percent to 9.50 percent while it has cut the 10 year education loan from 11 percent to 9.70 percent. The 15 year education loan is cut from 12 to 10 percent. In the commercial housing loan category the earlier 20 year long 13.19 percent loan is now 12.49 percent while for its member’s home loan the rate slipped from 11 percent to 9.81 percent. The 15 year long loans for corporate and institutions dropped from 13.19 percent to now 11 to 9.41 percent. The NPPF says through the above measures there would be a Nu 52 mn reduction in interest income in 2016-17 but it hopes this will positively affect the economy and bring long term positive measures.
All of the above happened after the Royal Monetary Authority (RMA) brought in the Minimum Lending Rate (MLR) reform which fixed a minimum rate below which banks cannot lend. The MLR is currently at 6.75 percent. The MLR replaced the old base rate system which was rigid and set a much higher minimum lending rate of an average of around 11 percent forcing banks to charge high interest rates.
A RMA official said that the currently the RMA was satisfied with the way the banks have responded to the MLR. The official said that it would watch the increase of loans in the consumption sector that increases imports as a sharp increase would not be desirable. RMA has been encouraging the banks to strengthen loans and reduce rates for loans to productive sectors that create jobs, replace imports and increase growth like Agriculture, cottage industries, manufacturing etc. RMA also encouraged loans in socials sectors like homeownership which the banks have responded to by lowering non-commercial home ownership loans.
The Bhutan Chamber of Commerce and Industries (BCCI) President Aum Phub Zam said that the reduction in the loan interest rates will definitely help the private sector. She said, “Businesses are burdened with high interest rates and so as a result they are not able to maximize in other areas like employees salary, etc. So it is a relief.”
She said even the government would benefit as when contractors bid for government jobs they also factor in the loan interest rates and lower interest rates would mean lower costs. She said the reduction in rates would have a snowballing effect and thus benefit the whole economy.
The General Secretary of the Association of Bhutanese Industries (ABI) Jochu Thinley said that lower interest rates in the manufacturing sector would reduce the cost of production for exported goods enabling better competition. He said that especially new industries would benefit and old industries that have loans would also benefit as there would be a restructuring of loans.
