Financial institutions record Nu 1.74bn profit in first quarter

The profit was mainly brought about by the decrease in Non-Performing Loans

The country’s five banks and non-banking lenders recorded a net profit (after tax) of Nu 3.37bn at the end of the first quarter of this year, according to the financial sector performance report of the Royal Monetary Authority (RMA).

This is an increase of Nu 1.74bn from a net profit of Nu 1.63bn at the end of the first quarter of last year, meaning that the performance of financial institutions is improving.

The quarterly review report highlights the performance of the Bhutanese financial sector based on the reports submitted by the financial institutions.

However, the profit was mainly brought about by the decrease in Non-Performing Loans (NPL) that subsequently resulted in a write-back of loan provision by Nu 800mn.

The NPLs in the financial sector have decreased from Nu 24.75bn in March 2021 to Nu 17.56bn in March 2022.

The production and manufacturing, trade and commerce, service, and tourism sectors saw a huge decrease in NPL by Nu 2bn, 1.42bn, and Nu 1.44bn respectively.

According to the RMA quarterly review report, the formulation and application of robust monetary measures from Phases I to III have enabled the availability of relief measures in the form of interest payment support, loan restructuring and rescheduling, and deferment, which have helped in the improvement of the quality of loan portfolio.

However, the impact of the pandemic on the financial sector’s Asset Quality (NPL) is expected to be a key challenge going forward.

The report shows that the income from interest alone increased by Nu 111mn which is from Nu 6.045bn to Nu 6.157bn, while the financial institutions’ interest expenses saw an increase from Nu 2.5bn to Nu 2.7bn.

The financial sector performance report also depicted a similar trend in the capital fund which stood at Nu 27.66bn in March this year, compared to Nu 22.97bn last year.

The increase is Nu 4.69bn this year.

The Cash Reserve Ratio (CRR) stood at 15.55% in March this year compared to 13.31% last year.

Meanwhile, the total loan availed by people at the end of the first quarter increased to Nu 179.5bn, way up from last year’s Nu 169.8bn. NPLs also decreased from Nu 24.75bn to Nu 17.56bn, while the gross NPL ratio decreased from 14.85% to 9.78%. 

The profitability (before tax) as of December 2021 stood at Nu 3.99bn, compared to a loss of Nu 0.62bn in March this year.

Figures show that the service and tourism sector owes Nu 35.5bn, constituting 28% of the total loans sanctioned by the financial institutions, followed by the housing sector with Nu 40.7bn at 26%, and the production and manufacturing sector with Nu 16.7bn at 12%.

The study of the loan portfolio shows that the financial sector has been made vulnerable by the service industry, which has an overwhelming NPL ratio of 33%, mostly attributed to the collapse of the tourism and hotel industry. It is followed by the trade and commerce sector with 19% and the production and manufacturing sector with an NPL ratio of 15%.

Further, the cash flow in the financial institutions is expected to remain relatively stable with the implementation of the Domestic Liquidity Management Framework to help the financial institutions with liquidity support.

So far, the domestic financial system has already played a significant role in supporting the liquidity needs of businesses in this pandemic. The deposit’s structure has remained stable and largely unaffected since June 2021.

The Cash Reserve Ratio (CRR) was reduced from 10% to 9% in March 2020 and further to 7% in April 2020, releasing total liquidity of over Nu 4bn to enable lending.

Financial institutions’ Statutory Liquidity Ratio (SLR) as of September this year is also above the minimum regulatory requirement of 20% for banks and 10% for non-banking institutions.

Kinley Yonten from Thimphu