‘Deposits increased by more than 30% as compared to earlier years’

The Chief Executive Officer of the Bank of Bhutan (BoB), Dorji Kadin talks to Business Bhutan’s reporter Dechen Dolkar about how the Covid-19 pandemic has affected the bank and the present status of BoB.

Q. We are into the second year of the Covid-19. How has the bank been impacted by the pandemic?

A. Overall, the bank has had a major impact from this pandemic. Its profit dropped from as high as Nu 1.25bn in 2019 to Nu 87mn in 2020.

 Positively, the bank could leverage on promoting its digital services like mBoB, BoB Connect Agents, QR payments, and facilitate almost all banking services. Due to this, the clients got more used to digital payments, thereby reducing branch footfalls and physical cash usage in the economy. The benefits are manifold from this drastic transition and transformation – namely – convenience to the clients, less crowd in branches, fewer cash transactions, etc. 

 Negatively, the bank got impacted in the following areas:

Loan growth stagnated thereby impacting revenue growth (could not do much in terms of lending which impacted the revenue);

Deposits increased exponentially thereby increasing interest cost;

Non-Performing Loans increased thereby impacting profitability; and

More cyber-security risks.

Q.  While the banking sector is negatively affected by the pandemic, it is also critical for economic recovery. But the crisis will strengthen competitive pressures on banks by accelerating trends towards digitalization and new financial service providers. What is the banking sector doing to recover the economy?

A. The bank in collaboration with the Ministry of Finance and the Central Bank have launched the NCGS (National Credit Guarantee Scheme) to assist the economic activities.

Implemented all monetary measures as advised by RMA.

To encourage inward remittance, RMA has generously extended to provide 1% incentive.

Overall, the bank is focusing more on supporting productive sectors and green financing so that these industries grow in the future to support more employment and domestic products.

Q. What is some specific policy response to address/reduce/mitigate the impacts of COVID-19 on the bank? 

A. Planning to introduce new services such as online loan application to reduce customer visiting banks and also design products to align with the economic recovery plans such as business-related to import substitution, employment generation, etc.

Q.  What is the current liquidity status of the bank in the country?

A. Banks have excess liquidity or cash with them right now. The situation is similar across FIs. 

Q.  What is the saving and lending status of the bank amid the pandemic?

A. While the savings of the bank has seen dramatic increase, the lending of the bank has seen dramatic reduction which impacted the profitability of the bank through a decline in revenue and an increase in costs.

Q. How has the bank prioritized lending during the pandemic?

A. We have changed some of the lending norms to fit the new normal economic conditions due to the COVID-19 such as implementation of the monetary relief measures, providing interest waiver, soft working capital loan, stock financing, etc. In addition, the bank has also started strict monitoring of all lending activities.

Q. What are some of the measures taken to curb Non-Performing Loans (NPLs)?

A. We have formed a Task Force team comprising representatives from all FIs under the initiative of RMA to manage NPLs by transferring the old NPL into Asset Pending Foreclosure which would help in decongesting the balance sheet and also developed strategies to recover those NPL within the agreed timeframe.

We have also started to monitor those NPLs closely.

Q. Last year, according to the bank’s annual report, BoB’s profit decreased drastically from Nu 1.2bn in 2019 to Nu 87.52mn in 2020 and it is one of the lowest profits over the years. What could be the reason for the drastic decrease? How is the bank planning to overcome this next year?

A. As mentioned earlier, the bank got impacted from three major areas:

• The bank’s loan portfolio growth was very minimal in 2020 (less than 10%) while in the earlier years, loan growth used to be more than 20%. This was due to declined economic activities due to the pandemic.

• Deposits increased dramatically thereby increasing interest costs to the bank. It increased by more than 30% as compared to earlier years.

• NPL increased from the past performance of 3.61% to almost double at 7.15%. Interest waiver support provided by the bank amounted to more than Nu 500mn in 2020.