New banks eat old banks’ lunch

The banking sector according to the Royal Monetary Authority (RMA) of Bhutan has seen a decline of 17.7% of their total assets.

In the RMA’s annual report released yesterday, it stated that the commercial banks’ reserves declined from Nu15.4bn as of June 2011 to Nu 10.5bn in June 2012, representing 17.7% of their total assets. Of their total reserves, 22% were held as Composition of Commercial Bank’s Reserves (CRR), 9% as cash in hand and bulk of the remaining 69% as other deposits. In addition to these reserves (excluding cash in hand), the banks held Nu 2.6bn worth of foreign assets, denominated in Indian Rupees (Nu 1.3bn) and convertible foreign currency (Nu1.3bn).

With the licensing of three new commercial banks, RMA reports that there has been a very visible shift in share composition of banks to total deposits mobilized and credit activity and it exhibits that the newer banks are ‘eating the lunch of the old bank’- new commercial banks contributed only 6.1% to the overall deposit of the banking sector during their entry, showing no interest but steady flow of capital.

There was a steady increase in the percentage share of new banks to overall deposits. The percentage share of old commercial banks to total deposits have gradually declined from 93.9% as of June 2010 to 89.1% as of June 2011 and further to 82.4% in 2012.


Old banks’ deposit levels experienced negative growth during June 2012, indicative of financial sector market size constraints. The new banks mobilized total deposits amounting to Nu 2.2bn at the time of their entry in 2010 . As of June 2010, the banking sector mobilized deposits totaling Nu.36.4bn (including deposits of the Bank of Bhutan Limited and Bhutan National Bank Limited).

Similarly, new commercial banks’ credit levels grew steadily from Nu 4.6bn in 2010 to Nu 8.4bn in 2011 and further to Nu11.1bn in 2012, the growth in overall credit has remained positive.

The combined assets of the Non-Bank Financial Institutions (NBFIs) showed a growth of 12.5% between June 2011 (Nu 6.4bn) and June 2012 (Nu 7.2bn). The growth in assets of the NBFIs was attributed mainly due to an increase in claims on the private sector. Due to demand deposits with the commercial banks, the overall reserves of the NBFIs increased to Nu 455.9mn as of June 2012. As of June 2012, the NBFIs claim on private sector increased to Nu 5.9bn. The NBFIs overall credit portfolio accounted 93.6% of their total assets as of June 2012.

The NBFIs’ reserves represent 6.3% of their total assets. Of these reserves, 94% (Nu.428.7mn) were in the form of bank balances and only 6% (Nu 27.2mn) was held in the form of cash in hand. On the liabilities side, the NBFIs’ domestic borrowings from the financial institutions continued to remain at Nu 3.2bn during the year.

Of credits offered and accepted, the developments in Credit Markets seems bleak as the financial sector’s (banks and non-banks, excluding the National Pension and Provident Fund) overall loan exposure increased from Nu 29.8bn in 2010 to Nu 51.3bn as of June 2012. Banking sector credit continued to remain concentrated in the private sector, constituting 94.5% of total credit as of June 2012.

The total loan portfolio of the NBFIs increased to Nu 6.4bn as of June 2012 from Nu 3.7bn as of June 2010. Of the total loan portfolio, the building and construction sector constituted the highest share (29.3%), followed by trade and commerce (23.5%) and transport (16.9%), while the rest were allocated to other sectors of the economy.

In overall credit composition, the building and construction sector figures increased to 26.5% in June 2012 from 25.6% during 2010. Personal loans as exposed by financial institutions expanded from 2008 and now it constitutes 16.2% of total credit.

Like personal loans, exposure to the transport sector remains high with a percentage share of 9.5% in 2012 up from 7.7% in 2010. Meanwhile, other sectors (including staff loans, small business and artisans’ scheme, and the EDP loan) were also one of the most exposed sectors during 2012.

Puran Gurung / Thimphu


Check Also

Joint Study finds multiple fractures in Right Bank of Punatsangchu I

Left Bank PHPA 1 Last year Bhutan and India agreed to drill multiple rock samples …


  1. If this was tailored to the readership, I am impressed. The readers of the Bhutanese are obviously  very sophisticated in matters of banking finance and monetary policy.

Leave a Reply

Your email address will not be published. Required fields are marked *