BDBL declares dividends after 13 years

How BDBL went from 192 mn loss in 2022 to 378 mn profit in 2023

If there is a bank that serves farmers and rural folk in Bhutan, then it is the Bhutan Development Bank Limited (BDBL), and so it was a matter of major concern when the bank went into a loan moratorium from 13 May 2022 due to high Non-Performing Loans (NPL) and suffered a Nu 192.44 million (mn) loss in 2022.

However, in a major turnaround the BDBL in 2023 declared a profit of Nu 378.92 million after tax.

2022 was a tough year with the loan moratorium due to the high NPL but BDBL suffered very high NPLs from 2018-22 when compared to other Financial Institutions.

The turnaround was not automatic but due to deliberate reforms in BDBL starting from 2023 when a new management was brought in.

The board brought in a new CEO Tshering Om and other members from different fields like credit, human resources, and finance.

The formerly permanent General Manager posts were all changed to contract system with higher pay and a yearly review to evaluate their performance.

The changes were made in response to the challenges of operational issues and NPLs. In order to resolve the NPLs and the large backlog of cases, the company hired a Chief Legal Counsel as well.

The BDBL Board itself saw a lot of changes as several members resigned and there was a new board with legal and financial expertise comprising both senior civil servants and private sector members. There are now seven board members of which 4 are women also ensuring gender diversity.

The major task before the management was coming out of the NPL and here reforms were carried out and so the NPL was reduced from 20.08% in January 2023 to 14.6% by 31st December 2023.

Due to the NPL reforms the RMA on 23rd March 2023 lifted the loan moratorium on 11 braches.

RMA lifted the moratorium on consumer loan and loan against fixed deposit in all branches on 20 July 2023.

RMA further relaxed the moratorium by allowing the bank to lend to existing clients across all branches for client retention and RMA fully lifted the full moratorium on 20 December 2023.

The BDBL had some excess liquidity with it due to high Statutory Liquidity Ratio requirement and this was invested to gain Nu 307.82 mn in income compared to Nu 148.34 mn in 2022.

The BDBL also reduced costs by halting all capital expenditure in 2023. BDBL till 2019 had a peak of 644 employees and as many resigned not as many were hired after streamlining operations.

For example, 168 employees resigned in 2023 but only 68 were hired. BDBL also launched an Organizational Development Initiative from November 2023 and its results will help further optimize use of human resources.

The cabinet on 21 August 2023 directed the merger of the NCSIDBL with the BDBL and this merger strengthened BDBL in terms of capital.

The merger also benefitted the government which owed BDBL Nu 1,500 mn in bonds. Given that the government had given NCSIDBL a Nu 700 mn loan the government could liquidate the Nu 700 mn of the Nu 1,500 mn bond leaving behind Nu 800 mn in the bond owed to BDBL.

BDBL could also give a 46% to 72% pay hike with provision of 25% annual PBVI subject to fulfilling the annual performance compact.

The pay revision motivated the staff and also helped prevent attrition.

Apart from the Nu 378.92 mn profit after tax the bank for the first time gave Nu 153.481 mn in dividends to its shareholders since it became a bank from a corporation in 2010.

BDBL is owned 99.08% by the Ministry of Finance, 0.65% by BoB, 0.26% by RICBL and 0.13% by BNBL.

The various reforms and changes allowed the bank to reduce its NPL, get the moratorium lifted and also generate profit.

Going forward, BDBL has to address some key challenges with the main one being deep issues due to the organizational structure and high operational costs with many branches, expensive fund sources and limitations of the current workforce.

The BDBL’s aim is to achieve the pre- moratorium credit growth but at the same time ensure quality credit growth.

With the loan deferment coming to an end in June 2024 the BDBL aims to exit this phase with meticulous care, planning and implementation to avoid a decline in credit quality and ensure good performance.

A major challenge for BDBL is not only in terms of the loss of manpower creating a staff shortage, but also a significant loss in expertise.

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