The Bhutanese Leading the way.
In a recent meeting between the Royal Monetary Authority (RMA) and board of T-Bank, a board member asked the RMA Governor if Financial Institutions (FIs) can give dividends for 2021.
However, the Governor replied in the negative saying this is not the right time to give dividends especially with the Kidu, the times and the various measures.
This triggered a sell off of stocks of FIs in the stock market and even a dip in their values which pushed the entire stock market down over the recent weeks from a high of 1036.65 points on 8 November 2021 to 1018.35 on 30th December, a fall of around 18 points in total.
For example, the RICBL stock that had sold at 73 per stock and higher was being sold for as low as Nu 72 on Friday.
BNB which had crossed even Nu 34 in value per stock was being sold at as low as 33 to to 33.50. Druk-PNB, BIL and T- Bank were also selling at reduced values.
The reduction in the value of the stocks and their selling off is not an indication of the performance or strength of these companies as all of them have done fairly well in 2021, but the signal from RMA means no dividend for the second year running.
Many retail investors in Bhutan invest to get annual dividends and when dividends don’t happen or don’t live up to expectation then they tend to sell their stocks even at reduced prices.
For many investors this is a second year in row that banks have not been allowed to give dividends and so they see little reason to hope for it in the third year even.
In the case of certain FIs, it is already the third year of disappointment as in 2019 they got very little dividends due to RMA’s norms.
One main reason the RMA is not keen on allowing any dividends is to put the FIs in better shape when June 2022 comes where the loan deferral will come to an end.
A RMA stress test already shows that Non Performing Loans (NPLs) are expected to jump from 14% to 29% after June 2022.
Around 80% of the hotel loans are also expected to become NPL after June 2022.
The RMA normally requires banks to provision their profits against NPLs and so preventing the banks from declaring dividends in 2020 and 2021 will ensure banks have money to provisions against the expected spike in NPLs.
The sell off in the stocks also coincide with the discovery of a new variant called Omicron which is expected to be more contagious than Delta and is spreading fast in many countries. This means that reopening plans for the economy will be further delayed.
