The governor insisted the old private and government-owned companies list themselves in the stock exchange or issue bonds to the public rather than expect 100% capital from commercial banks
The Business community in the country should explore alternative means to acquire funds and not entirely depend on commercial banks, the Royal Monetary Authority (RMA) Governor Daw Tenzin said on Saturday at a meeting with the private sector, cabinet and commercial banks.
This statement comes at a time when the country is faced with a severe Indian rupee (INR) shortfall and liquidity crisis. Vehicle and housing loans have been suspended since March this year along with car imports as an interim measure due to which the private sector has been pushed to the brink. The business community has been cribbing over the issue citing rapid slump in business and defaults on existing loans with the commercial banks. The worst hit are the construction sector and automobile companies some of whom have resorted to retrenchment and cost cutting.
The business community’s submission to the cabinet to identify priority sectors for lending has been acknowledged by the government. Loans will be provided to business establishments that have the capacity to earn foreign currencies.
However, authorities haven’t shown the slightest sign to lift the ban on car imports nor the loans from commercial banks. Earlier, bank CEOs revealed they couldn’t lend even if the central bank lifted the ban as the liquidity crisis has hit all the commercial banks.
Commercial banks possess an adequate deposit base but a majority comprises corporate deposits that are short-term which can be withdrawn anytime and could drain the bank vaults. “There have been very minimum depositors since 2010 while INR denominated imports have gone up,” governor Daw Tenzin said at the meeting.
He said source of capital for any business need not necessarily be the banks and suggested options such as listing. “Old, established companies whether it is government-owned or private should list themselves as is the international norm”. This apparently isn’t happening in Bhutan.
Listed companies are firms whose shares are listed (quoted) on a stock exchange for public trading. Also called quoted company.
The governor said that individuals and companies hardly make any fixed deposits with the banks while banks have to rely on the deposits to lend out. “There are no deposits made and instead people wait for only the dividends,” he added.
Meanwhile, finance secretary Lam Dorji said all government-owned companies including trust funds have been notified to transfer funds from current accounts to fixed deposits which will enhance the liquidity base of commercial banks.
Despite complaints on non-availability of funds from banks by the private sector, the governor said central bank has done its bit to inject as much funds as possible into the economy. He reminded the gathering about the central bank’s decision to bring down the cash reserve ratio (CRR) from 17% to 5% which was done to enhance liquidity in commercial banks.
However, though the reduction of CRR to 5% increased cash in banks by about Nu 5.8B, a cash shortage still existed with some banks according to the findings of a study by the Bhutan Chamber of Commerce and Industries (BCCI). The study stated, while liquidity had been created through reduction of CRR, banks still hold on to the previous 17% level, to be able to pay dividends at the end of the year to its shareholders.
Druk PNB chief NK Arora said recently on national television, “it’s not that banks have no liquidity at all, banks have just grown wiser while lending because central bank cannot come to the rescue every time”.
Earlier he told The Bhutanese that one main cause of the liquidity issue was because huge projects like Dungsam cement project among others had to be financed through local banks which actually should have resorted to ECB or other means.
The BCCI study also stated 80% of the currently available liquidity is solely with Bank of Bhutan (BoB), and little available in other commercial banks.
The governor reiterated his earlier remarks that unlike in the past, business transactions especially imports are now channeled through the banks with proper documentation which shall completely eradicate fraud.
The governor also confirmed commercial banks in total have some Nu 9bn in liquidity which however cannot be lent out as they comprise mainly short-term deposits. Recent estimates by the BCCI reflected a minimum requirement of Nu 5.5bn to curb the financial crisis currently faced by the private sector.