The Bhutanese Leading the way.
Bhutan has 8 Financial Institutions (FIs) and 6 of them have all made less profits in 2024 than in 2023 with only two exceptions.
The Bhutan National Bank (BNB) which is usually a star performer every year made only Nu 660.95 million (mn) in profits in 2024 after taxes compared to Nu 1.156 billion (bn) in 2023. It had to keep a substantial amount to provision against risky loans and non-performing loans (NPLs).
The drop in profits is so steep and with other conditions to fulfill, there are chances that shareholders may either not get any dividend this year or a minimal one at best. For 2023 it had declared a 15.4% dividend.
Another major FI is the Royal Insurance Corporation of Bhutan, and despite a thriving insurance business they made Nu 965.83 mn in profits after tax in 2024 compared to Nu 1.127 bn in 2023.
RICBL declared a dividend of 33.19% for 2024 compared to 42% the previous year.
The Druk Punjab National Bank made Nu 335.71 mn in profits in 2024 compared to Nu 560.97 mn in 2023. It has declared a 10% dividend for 2024 compared to 15% the previous year.
The T-Bank made Nu 167.40 mn in profits in 2024 compared to Nu 228.14 mn in 2023. It has declared a 1:10 bonus shares which means one additional share for every 10 shares. It has also offered shareholders the opportunity to buy 1 share at a discounted price for every 5 shares which is a rights issue.
T-Bank also suffered since the RMA stopped it from giving loans for a few months since it had exceeded its Capital Limit in 2024. For 2023 T-Bank had issued 1:5 bonus shares.
Bhutan Development Bank Limited (BDBL) made Nu 156.56 mn in profits in 2024 compared to Nu 165.29 mn in 2023.
Bhutan Insurance Limited made Nu 205.55 mn in profits in 2024 compared to Nu 246.37 mn in 2023. BIL offered a 18.5% dividend compared to 21% in 2023.
The only two FIs that have done better are the government owned behemoths, which are Bank of Bhutan (BoB) and National Pension and Provident Fund (NPPF).
BoB made a record Nu 1.526 bn in profits in 2024 compared to Nu 958.33 mn in 2023. The BoB did well as it could keep its NPL low and had the natural advantage of a much larger deposit base primarily due to government agencies preferring to keep their money in the bank. It also made money out of services like MBoB. An observer said given its size advantage and government preference, BoB can afford to invest heavily in services like MBoB and this in turn generates a lot of usage and revenue. Given its huge fund size, it is also able to give loans cheaper.
The NPPF made a record Nu 3.7 bn profit in 2024 compared to Nu 3.3 bn in 2023 which was also a record for the time. NPPF has the biggest fund size of all FIs as all government employees PF and Pensions are paid into NPPF. It made money from its loans to its members, fixed deposits kept in other FIs and government bonds. It is also trying to inflate its presence in equities.
A financial expert who also serves as a board member on one of the FIs said the overall performance of the FIs in 2024 shows that the economy overall is not in a good shape. He said the slump in tourism numbers, loan moratorium on the housing loan and large NPLs are affecting FIs.
He said money is not coming in the hands of the people, and this, in turn, is impacting banks.
Giving the example of tourism, he said if the tourism numbers are good then money would come in the hands of guides, drivers and others, and they would spend in the shops and restaurants. The tourists themselves would also spend. In the absence of the above, there is no consumption or demand.
He pointed to examples where shops are struggling to pay rent.
The expert said that the biggest ticket expenditure is the hydro projects, but while this would significantly push up GDP figures due to its size, it would have minimal impact in Bhutan as the jobs would be executed by foreign contractors and most of the money would leave the country.
He said that the major activities of the 13th Plan have not been rolled out and even if it is the money release seems to be very poor. He said the ESP release is also not having much of an impact though the BDBL is trying its best with the funds it has got.
The expert said a major weakness is that there is no focus to help and give credit access to the Micro, Medium and Small Enterprises.
The expert prescribed that the government needs to flush the economy with money for big projects and the RMA needs to relax certain norms like CRR and SLR to allow aggressive lending.
Another financial expert and investor, also on the condition of anonymity, said there is a liquidity problem in the economy as a lot of liquidity has been absorbed by the past government, especially through Bonds. He said FIs are playing safe and buying bonds, both government and private, whose rates at times are almost at par with lending rates without the risks of commercial lending.
This second expert said that Bhutan is in almost a strange dual economy where the GDP numbers and big projects look good, but, on the ground, it feels like a recession with ordinary people not having money and sectors like tourism not doing well and agriculture stagnant.
He said, “The big corporations, and especially the government owned ones are all doing well, but a lot of the people are not doing well with tourism, trading and other sectors down.”
He said that while hydro projects and other big projects do well, the money does not come to the household and so the livelihood of the people are also important.
The second expert believes that the poorer performance of the FIs show that the real economy has already caught up with most FIs and if things don’t improve then next year even the BoB and NPPF will be hit, even though they have been insulated by their size and government preference or business.
The second expert says that it is imperative that the government needs to pump in money to revive the economy before it is too late. He said the tourism policies must adjust so it can bring in bigger numbers of tourists, and the government must take up a host of construction and other activities. He said the government seems to be in a cautious mood when it comes to spending. He said Bhutan must also secure in FDIs. He said that even when it comes to hydro construction, the entry of large numbers of workers will also help the economy.
