To ease the limited capacity borrowings in the market, the Druk Holdings and Investments plans to set up a non-banking financial institution (NBFI).
NBFI aims to lend more amount of money than any of the financial institutions in Bhutan to help meet the requirement of investing in larger projects of DHI companies and the private sector.
The chief executive officer of DHI, Karma Yonten, said DHI has been studying the set up of such banks over the last two years, after which a presentation was made to the Royal Monetary Authority (RMA).
In the annual DHI press conference, Yonten said, “If DHI is going to take so much money from the banks then what would be left for the private sector?” The RMA stated it will consider the NBFI proposal once the regulation is in place.
DHI said the projects, like Dungsum Cement, which was established with the capital of Nu 4bn, of which Nu 2bn came as investment from India and the remaining Nu 2bn investment was made by the financial institution in Bhutan.
“It essentially leads to the crowding out of private sector borrowing from banks because DHI’s projects are so large,” Yonten added. He said DHI is looking into the 10 years projection of investments made by DHI. “The companies amongst the DHI are the largest in Bhutan, and currently, many of these companies do not have much borrowing from the local markets, but we are looking forward to 5 to 10 years from now, and we are seeing that many of these companies might need to actually borrow to finance some of their requirement.”
Karma Yonten said the financial institution might not be large enough to finance some of the requirement of DHI and its companies. He said though the private sector is eligible to borrow up to USD 10mn money outside Bhutan, however, it is very difficult as the banks cannot stand in as a guarantee.
“There are a lot of restrictions in the private sector and it requires large amounts of loans, and we have already reached the maximum allowable limits with the banks,” he further added.
With the creation of NBFI, he assured that it could help address the long-term requirement of both DHI and the private sector as well.
On the working of the bank, he said it does not plan on using the deposit of local customers in Bhutan, but instead, the bank plans on raising external commercial funds from outside Bhutan. NBFI will lend the money to fund the larger projects in Bhutan.
Yonten said most of the projects are export driven, which will help in earning INR. The borrowings will be made in dollars or other currency at cheaper rates so that the repayment of loans can be made with the same currencies borrowed.