Pay Revision Primarily to Address Inflation

Addressing liquidity needs joint effort

FM said that the private sector should understand the issues faced by the FIs and that banks could become bankrupt

The state of the country’s financial institutions (FIs) and the issue of liquidity looming over was underlined by the Finance Minister (FM), Lyonpo Namgay Tshering, during the introduction of the annual budget appropriation bill for the financial year (FY) 2023-2024 and supplementary budget appropriation bill for the FY 2022-2023 in the National Council (NC). Lyonpo also said the same in a meeting with representatives of the private sector in Thimphu, last week. 

According to the minister, FIs are in the recovery stage and it is important that the people also know that liquidity in the FIs looms high and that the government and the Central Bank are taking measures to address it. The current daily liquidity transaction in the FIs is only about Nu 8 billion (bn) while it used to be about Nu 32bn earlier.

“Before the banks used to have a daily liquidity transaction at the max of about Nu 32bn and now it is only about Nu 8bn,” the finance minister said, adding that, it is a concern which the people should understand.

The minister also said that if it is not studied properly and appropriate measures not put in place, there may be a time where the banks will have to shut down as the banks will not be able to function with very less liquidity.

The liquidity risk arises if the banks are unable to raise the funds to meet its financial and operational commitments. To do this, the banks need to maintain core liquidity to safeguard against a liquidity shortfall in case its access to the capital markets is temporarily denied.

The finance minister said the same during the 5th Monthly Last Friday Meet (MLFM) with representatives from the private sector in Thimphu, held last week and shared that members of the private sector should take into positive note measures taken by the FIs and the Central Bank, the Royal Monetary Authority (RMA).

“If the private sector is concerned that the FIs and the Central bank are not working with the private sector, then the private sector should understand that the banks will take not much time to go bankrupt,” the minister said. 

“If the banks do not have enough liquidity fund then how will the banks give loans,” the minister questioned during the meet. He reiterated that the private sector should understand the situation accordingly.

In addition, the minister said that with the current deferment of the loan, the bank receives less credit and repayments and that the banks depend upon the deposits made by the clients for lending the loans. 

“If we look at the paid up capital in all the eight FIs, it is hardly about 11% and the authorized capital is very less that even if the government wanted to create capital based fund, almost 90% of the loan is used for import which is useless even if the country has billions of foreign currency reserves,” the minister said.

The minister shared with an example that almost 90% of the loans are used for import even in the renovations of hotels. With such situations, the minister said that it is important for the private sector to study the current situation of the country and work hand to hand in solving and developing solutions for such issues and challenges.

The finance minister said it is not that the government doesn’t want to disburse the loan. But with the FIs currently in a recovery stage and other issues, it had become very difficult.

Sherab Dorji from Thimphu