Although Financial Sector Performance Report of March 2019 complied by Royal Monetary Authority (RMA) from different financial sectors reveals high exposure of loans towards Housing and the Service and Tourism Sectors, financial institutions argued that though they are concerned by this, each institution have varying strategies and risk assessment program which would help avoid them from incurring risk or going bankrupt.
Some banks said that though it is reflected that housing and service sector loans are highly exposed in the report published by the RMA, there might be only few banks who have loans highly exposed in these sectors and some banks might not be even affected because the report presented by the RMA is a consolidated collected from all the financial institutions.
Out of the total loans of Nu 125.01 bn, the Housing sector has the highest loans with Nu 30.31 bn followed by Service and Tourism sector with Nu 30.19 billion. The bulk of the tourism loans are in Hotels.
In terms of absolute increase in loans for the period ended March 2019, the loans to Service and Tourism sector experienced the most rapid increase by Nu 6.2 billion followed by loans to Housing sector by Nu 5.98 bn. From the total loan outstanding, 83 per cent comprises of loans provided by the banking sector and remaining 17 per cent by non-banking sector. The loans of both the banking and nonbanking sector has increased by Nu 16.63 bn and Nu 2 bn respectively.
The asset quality of the financial sector has deteriorated with the increase in Non Performing Loans from Nu 15.56 bn in March 2018 to Nu 20.02 bn in March 2019, showing an increase of Nu 4.46 bn. Analysis on the sectoral NPL of the financial sector for March 2019 reveals that Service and Tourism has the highest share with 26.97 per cent, followed by Trade and Commerce with 24.03 per cent, Housing with 12.28 per cent and Production and Manufacturing with 10.79 per cent.
BOB Media Spokesperson, Passang Norbu said that though the bank has stopped issuing new housing loans the bank is still giving additional loan to those who have availed loans before and who are in the midst of the construction process. “The bank can’t say no to them as this will affect their business adversely.”
He said, “As of now we don’t entertain new housing loans but this too shall depend on few factors. For instance, in Debsi, there are so many buildings and we shall not give loan to clients who want to construct new building in Debsi. There are other areas where we might not have given too much loan and to those areas the bank can entertain.”
Passang said that the living standards of people particularly in urban centers like Thimphu and Phuentsholing has improved and with huge potential most people want to invest in the housing sector.
He said, “If we invest money in one particular sector and if this sector fails, the bank will fail too as the function of the bank is to lend and burrow. Now with loans highly exposed to housing sector, we want to now invest in other sectors. Investing in housing sector alone is very risky because there is a risk of housing bubble.”
Regarding service and tourism sector, Passang said that there are so many Tourists Standard Hotels coming up in Thimphu and Paro but the whole hotel industry is dependent on the arrival of tourists and if the number of tourist arrivals drops suddenly, not only hotels but even the bank will be affected severely and in order to avoid any risk, they are looking at the possibility of investing in other sectors.
“We don’t want to invest solely on housing because we have given enough housing and now we don’t have enough funds for it,” he added.
He said, “Though so many hotels are coming up which is also a risk, we don’t have much defaulters in service loan but there will be one to two defaulters in every sector but it’s not alarming. We have funded a good number of service loans because it was a success as we have seen a large number of tourists especially Indian tourists who stays in star rated hotels. We don’t have any issue with tourism loan which we can fund as much as we want.”
According to Bhutan National Bank Limited (BNBL), the bank has no plan to stop both housing and service and tourism sector loan and will do business as before. Comparing 2018 and 2019 figures, Deputy CEO of BNB Sonam Tobgay said individual banks will have their own strategies to give loan and even if overall exposure of loan towards these sectors are high, it doesn’t mean BNB loan exposure is high because this may be caused by other banks.
He said that they are giving loans and they will continue to give it. He said no institution will give loans just like that and there are internal norms, rules and regulation which need to be followed and the regulations are regulated by central banks.
He said, “It seems like there is high exposure in service and tourism loans and that depends on banks strategies. It maybe be risky for bank A but it may not be risky for other bank. In our case, we are okay because we have a provision and we have a space to give loan and we don’t have immediate plans to stop the loans.”
“If we give loans in one particular sector and if that sector fails it is risky for the institutions. If the loan is fairly spread or distributed, the risk is also distributed which would mean there is less risk,” he added.
The Deputy CEO said, “We can’t say that our loan is fairly distributed but we have distribution across major sectors as those are products giving us more yield. There are around 14 sectors and no bank can distribute equally to this 14 sectors as this is not possible. But we are doing okay.”
Royal Insurance Corporation of Bhutan Limited (RICBL) haven’t stopped the loan but their scrutiny has improved and this is done to stop people who cannot repay from taking loan.
RICBL CEO Karma said RICBL is trying to do is that they are trying to build business rather than giving loan. The institution will give loan where they think it will be useful for the person.
He said that the purpose of giving loan is building a business and building a life around it. “As a CEO of RICBL I want to ensure that every loan that we give helps build businesses. I want to ensure that the money that person takes from us is useful.”
He said, “All this is done because RICBL will only do well if business does well. Now we are changing our approach to good business.”
He further said that they have placed a huge responsibility on the credit officer who will go to the site, sit with the client and understand them. The credit officer is responsible for the whole portfolio.
“Our loan will create wealth and income. I had had a meeting with the credit officers of all three branches on how to serve the people,” he added.
He said, “RMA carried out a study and analysis on the performance of financial sector where they provided a macro view of financial sector but they didn’t stop us from giving loans. Even TCB and thromde was called because this is a common problem.”
CEO said that as there are so many new hotels coming in, he would suggest investors to be careful instead of getting alarmed. He said an entrepreneur should have a dream but bank should give him the right direction.
“I as a banker is concerned about the huge increase in the number of hotels and that’s why we have our scrutiny improved,” he added.
T-Bank and Druk-PNB
CEO of T-Bank Pema Tshering said that not every bank has loans that are highly exposed to housing and service and tourism sector. It also depends on the strategy of each bank and every bank might have risk assessment committee who would instruct them whether they should stop the loan or invest in a particular sector.
Similarly the Druk-PNB Bank has also not indicated any stoppage to housing and service loans.