Govt requests RMA to help reduce bank interest rates to lighten loan burden and strengthen economy

On the issue of lowering the interest rate on bank loans, Finance Minister Namgay Dorji said that, as of now, the status is that the World Bank has completed a study saying it is possible and the Royal Monetary Authority (RMA) is in the process of studying the report.

“Thorough study is being done on this and we will come to a final decision. So therefore, the informal report, as mentioned in the World Bank study, indicates that there is some room for reduction in the interest rate. However, the RMA will do their own review,” Lyonpo added.

Lyonchhen Tshering Tobgay during meet-the-press session said, “We have a system. We developed a system where the banks will not fail, but that seems businesses is making system fail, and we believe that this is not acceptable.”

He also said that banks also must take some risk. He said banks are a profit-making enterprise, however, the government’s interest is to strengthen, deepen and expand the economy, thereby generating jobs so that citizens do not suffer.

“Our entrepreneurs, our businessmen and women must work for themselves, not for the banks. But too often, we hear complaints from those who know that, in reality, they are expending half their life working for the banks,” Lyonchhen added.

Lyonchhen pointed out that although a bank may have a base rate of 10 percent or 10.5 percent on loans, the same bank charges 14 percent to 16 percent knowingly. “That too for projects that has been fully covered with collateral and sometime several times over, which is lazy banking,” the Prime Minister said.

“We are requesting RMA to review their system and to come up with guidelines, which is not meant to undermine the banks. The banks are important, they have served us well, but we need a system that will continue to serve the bank well and at a same time serve businesses and serve the common people a little better,” he said.

In addition, Economic Affairs Minister, Lekey Dorji, said that it is difficult to have an investment and to generate employment with high bank interest rate. The study found that there were no base rate for banks earlier, whereby the base rate, but not a uniform rate, was introduced in 2012 by the earlier central bank.

Lyonpo Lekey Dorji said that if they look into five commercial banks, the interest rate is almost same while the central bank does follow the prevention guideline for banks not to fail.

“I personally talked with RMA Governor, saying that we need to do something on how government can generate employment when there is no investment? In order to have the investment, I requested the RMA to relook at the base rate,” he added.

He said the government has requested RMA to review the base rate as there is some room for dynamism in the financial market.

Base rates are minimum rate of lending below which a bank cannot lend.

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