RMA guidelines make BNB ineligible to declare Dividends

The Bhutan National Bank (BNB) has not been able to declare any dividends for the year 2011 as per the annual report of Druk Holding and Investments (DHI).

Earlier with the encouragement of the Royal Monetary Authority (RMA), BNB had encouraged all the shareholders to buy the rights issue where each shareholder had the right to buy equivalent amount of shares at the book value which was valued Nu 450 per share at that time.

At that time many of the shareholders could not come up with money so they took huge loans. “Even from the institution’s side, DHI paid a substantial amount,” said the DHI Chairman Om Pradhan.

Further he said that the expectation of the shareholders was that they would get some dividends but RMA had certain guidelines instituted with regard to Cash Reserve Ratio and Statutory Liquidity Ratio.

“When they give these loans, they are required to have 300 percent back-up. The conditions that RMA put forth made the BNB ineligible to declare dividends,” he added.

The Chairman said “BNB has been discussing with RMA if some provision could be made but RMA has stood by the conditions that it has put up”.

Despite the profit, BNB would not be able to declare dividends for 2011. DHI has only 14% ownership in BNBL and the majority is owned by other institutions as well as private sector.

The Chairman of DHI, Lyonpo Om Pradhan said that in the year 2011, BNB made almost 100%. The performance according to DHI’s assessment was ‘very good’ and it was thought that BNBL should declare at least 50 percent dividend.

This was one bank where government wanted to encourage private sector in the past so it allows private sector investments and this is one of the trends which the government has been encouraging for many years and which, DHI will continue.

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  1. From KOL:

    Throwing good money after bad?

    RAA says BNB’s so-called ever-greening loan policy violates RMA norms
    2011 Annual Report: With irregularities of more than Nu 44M amounting from mismanagement, Bhutan National Bank’s ever-greening loan sanctioning system has come under audit scrutiny.
    According to the 2011 annual audit report, an ever-greening of loan occurred, when the bank sanctioned additional loans to clients to clear off the overdue interests. Such practices amounted to more than Nu 11M irregularities.
    This, auditors have pointed out, was against the royal monetary authority’s prudential regulations, as the bank deducted money to repay their interest, the moment the loan is sanctioned. “Such practices inflated the profit of the bank,” audit report stated.
    The bank, audit report stated, also sanctioned several service and tourism loans to a single borrower for different projects; but as the loan accounts had become defaulting, additional loans were sanctioned beyond repayment capacity of the borrower to clear the interest and principal overdue.
    Such practices are also against RMA’s prudential regulations, as the loan becomes bad and reduces its non-performing assets.
    However, the bank’s credit and risk management chief, Tandin Dukpa, said, although audits are technically right, the bank practises the system for its client’s convenience, as they have to depend on them. “What matters at the end of the day is service delivery,” he said.
    Tandin Dukpa said banks have to sanction additional loan to clients, as the initial loan is sanctioned, based on the estimated cost valuation done by engineers and client; but, as the cost of construction increases, banks have to provide more loans for the particular project to be completed.
    He also said that the bank deducts certain percent of the loan as interest amount, as clients would deposit the same money only. The loans would not be termed as bad, until the project is complete, because repayments do not start until its completion.
    BNB officials said the ever-greening loan practice is an in-house practice, and they are in the process of convincing RAA to allow them to continue.
    Auditors have also pointed out other mismanagement cases, where the bank issued loan to a client, without executing the mortgage deed of loans sanctioned and affixing legal stamps.
    Tandin Dukpa said they provide certain privilege for clients, who gain the bank’s trust. “So they fall in the category, where bank gives consideration for them.”
    The bank is also accused of sanctioning loan, without considering the project cost, and inadequate assessment of repayment sources against sanctioning loans.
    It also transferred the ‘bad’ loan amounting to Nu 33M of a private company from Royal Insurance Corporation of Bhutan without proper appraisal of repayment capacity.
    The total irregularities of the bank amounted to more than Nu 46M.

    By Tashi Dema

    BNB’s secret skeletons are now slowing falling off from their closet. Kuenzang Choden, as a follow up to your article here, please see if you could get us the DHI Chairman’s comments on how he feels about this matter – Nu. 44 million mismanagement case vis-à-vis the BNB’s unprofessional cheap justifications as stated by their credit head Mr. Tandin Drukpa.

  2. BNB all this while has functioned more like a private money lending house (PMLH) than a public owned national bank. In hearing Mr. Tandin’s statement on how BNB has been entertaining their privileged clients with an exclusively ‘out of rules’ facilities, it brings to the fore the true picture of the BNB’s double standards leaning administration. This is the real BNB in action! For them, leave alone RMA rules, even any standard universal banking rules has no relevance in today’s BNB working culture. Everything has been tuned into fitting within their well formatted client’s face value based banking. Their survival tricks has it that so long they succeed into keeping their high end clients and shareholders unconditionally happy and well serviced, no amount of financial mismanagement and scams would shake them. That’s why we hear the generous mention of AGMs even at the drop of a hat – every time things go wrong with them. They know precisely very well that so long their powerful shareholders could be bought with their lavish gifts and unreservedly services, BNB would have uninterrupted rides all through without anybody daring touch them.
    No wonder repetitive BNB scams in the past could only cause the Bhutanese public shock news and nothing else. The word accountability in today’s context has no meaning.

  3. Both DHI and BNB deserves each other, Both CEOs should have boxing match or basket ball match and see who wins. Om pradhan should be referee 

  4. Yangzom,

    They are only having back scratching games so that at the end of the day each one of them will gain by huge margins at the cost of the public money. They know how important one another’s complementary role is in order to staying afloat in the game. That’s why you must have noticed the DHI Chairman Om Pradhan’s disappointing remarks. The hallmark of these middle-of-the-road kind remarks speak volumes about their non-caring attitudes, let alone getting down into some serious facts finding business.

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