Financial institutions welcome World Bank’s recommendation to spread out government deposits through competitive bids


Pema Seldon
from Thimphu

The World Bank’s draft Financial Sector Development Action Plan for Bhutan recommended that government deposits should be spread out to other state owned enterprises through competitive bids, primarily to create a fair play of competition among financial institutions.
Currently, the Bank of Bhutan (BOB) has the largest public sector deposit base with 44% of market share in terms of total deposits, which allows BOB a great amount of advantage.
Both state owned banks and commercial banking institutions in the country welcomed this recommendation.
The draft action plan states that it will particularly help banking institutions like Bhutan Development Bank (BDB), which incurs losses as a result of priority lending in the agriculture sector. However, the Deputy Managing Director, Operations of BDB, Sonam Rigyel, said instead of opting for competitive bids, the government should place the fund with BDB.
Owned by government with 96%, BDB claims to be the only bank that provides seasonal, small and medium term loan and credit facility to the country’s small farmers.
“I think the government should distribute the fund and place the fund with us because we are a development bank and the sole bank that provides loan for agricultural development,” he said. “If we look at the agriculture portfolio, no other banks have given loans for agricultural development. From that point of view, the government should place some of the funds with BDB which will enable BDB to carry on the mandate.”
The Deputy Managing Director further said that for many years, the government has deposited their funds with BOB and it has reaped the benefits. “Now the government needs to relook at it and place the funds with BDB,” he said, “and then maybe after few years, there can be competitive bids.”
Private commercial banks also want a share of the pie.
The CEO of the T-Bank, Pema Tshering, said the World Bank recommendation will create a uniform and equal ground for fair competition. “Right now government money is parked with BOB since it’s the oldest bank in the country and has an advantage of being a first state owned bank. If all the state owned enterprises put their money in BOB irrespective of the competitive advantage, it will be loaded with excess liquidity while other banks will not have money,” he said.
The CEO of Bhutan National Bank, Kipchu Tshering, said while BOB has surplus money to lend others don’t because the entire government fund is deposited at BOB. “I think this (World Bank) recommendation is fair enough for all the banks so that they can compete for government deposits,” he said.
The CEO of Druk PNB Ltd. (DPNBL) Mukhesh Dave said, “The idea of the World Bank behind this recommendation was to create a level playing field for all the players. It’s unfair if only one bank is given an advantage without testing the competitive advantage or without testing the quality of services.”
He said if every bank is offering the same interest rates, the quality of services will matter at the end. “Definitely private banks would always like to have a healthy competition. It’s a welcome move,” said Mukhesh Dave.
DPNBL was incorporated in Bhutan as a joint venture bank with 51% shareholding by Punjab National Bank, a leading public sector Bank in India.
The World Bank draft also recommends other state owned enterprises including the Druk Holding and Investments (DHI) to adopt competitive bidding from more than one bank to compete for deposits. The report suggests the DHI and the government to float more shares and bonds to pick up slack in the capital market.
The draft report also states that the government and DHI should initiate partial privatization by floating Initial Public Offers of at least two state owned enterprises.
The World Bank has proposed 183 recommendations to bring about fundamental changes in the country’s financial sector through the Financial Sector Development Action Plan. The Royal Monetary Authority will be responsible for implementing 100 of the 183 total recommendations proposed by the World Bank.
Meanwhile, the CEO of Bank of Bhutan refused to comment stating that he has not seen the draft report. Officials of Royal Monetary Authority also declined to comment.