FIs liquidity stood at Nu 13.4B in the FY 2022-2023

The liquidity positions of the financial institutions (FIs) stood at about Nu 13.4 billion (B) during the fiscal year (FY) 2022-2023, a decrease by almost Nu 9.20B as compared to the FY 2021-2022.

Similarly, the quick assets of the commercial banks also decreased by almost Nu 3.67B during the FY 2022-2023 as compared to the FY 2021-2022.

However, the Royal Monetary Authority (RMA) stated that despite the decreased quick assets of the FIs, the liquidity positions of the FIs remained comfortable during FY 2022-2023.

The decline in quick assets is mainly attributed with a result of rising loan and advance as well as accelerating increases in investments opportunities in fixed assets and equity post pandemic.

Similarly, according to the central bank, the Statutory Liquidity Ratio (SLR) position of the banks and non-banks were in a comfortable position with much higher than the prudential requirement of 20% and 10% respectively, which the banking sectors SLR stood at 25.8% as of June 2023.

For the non-banks, the total quick assets declined by Nu 140.9 million (M) on account of decrease in demand and time deposits maintained with the commercial banks.

However, the SLR of non-banks stood at 17.4% which is comfortably above the minimum prudential requirement of 10%.

“On the whole, the SLR of the FIs stood at 25.6% reflecting a strong liquidity position as of FY 2022-2023,” the central bank stated.

Meanwhile, on the credit services front, the FIs total domestic credit outstanding grew significantly by 12.8% in the FY 2022-2023 amounting to about Nu 23.79B from 8% in the previous FY. The increase in domestic credit was attributed mainly by higher credit growth in housing and construction.

Similarly on the sectoral credit concentration, the housing sector accounts for 27.9% of the total domestic credit by the FIs during FY 2022-2023. The pickup in construction industries, mainly in commercial purposes and softening of labor mobility increased the loans to housing sector by 20.1% taking its exposure to about Nu 58.45B.

However, according to the central bank, the credit to housing sector is anticipated to slowdown in the upcoming FY as a result of the loan moratorium imposed on the construction sector against huge credit concentration and spillover effect to external vulnerabilities.

Similarly, the credit to transport sector saw a growth of 19.6% amounting to Nu 8.9B during the FY 2022-2023 compared to 11.3% in the previous year. Despite the extension of the moratorium on vehicle imports until February 2024, the provision for importing utility cars has resulted in a rise in loans to the transport sector.

Conversely, service and tourism sector accounting 21.5% of the total credit share declined by 5.9% during the FY 2022-2023. Of the total credit of Nu 45.07B in the service and tourism sector, 56.4% of the loan share is concentrated in the hotel and tourism sector while remaining is in the services.

While the credit to production and manufacturing, trade and commerce sector witnessed a negative growth in FY 2022-2023. The trade and commerce sector in particular experienced a significant dip of 28.9% during the FY period amounting to Nu 15.84B from a positive growth of 13.3% in FY 2021-2022.

The credit to agriculture sector continues to remain below 5% of the total credit portfolio. In FY 2022-2023, the credit to agriculture sector fell by 24.5%. The decline in credit to agriculture sector was largely driven by fall in credit to crop cultivation and livestock farming and the credit moratorium which was imposed to Bhutan Development Bank Limited (BDBL).

For instance, credit to deposits ratio grew by 5.5% to 79.2% as of June 2023. The increase in the credit to deposits ratio from previous FY was mainly due to higher demand for credit relative to deposit liabilities.

In terms of total loan portfolio by source of finance, 82.8% percent was sourced from the commercial banks and remaining 17.2% from the non-banks, according to the central bank.

The credit market is largely limited to the five commercial banks and three non-banks. Coming to the banking sector’s loan distribution, the Bank of Bhutan Limited (BoBL), holds the highest share of 36.6%, followed by Bhutan National Bank Limited (BNBL) with 23.3%.

In the non-banking sector, the National Pension and Provident Fund (NPPF) hold the highest share with 8.9%, followed by Royal Insurance Corporation of Bhutan Limited (RICBL) with 6.8%.

With increasing volume of domestic credit sourced from the financial sector, the central bank stated that maintaining a sound credit quality continues to be one of their key priorities.

Meanwhile, the central bank undertook several interventions to control the excessive growth of bad quality assets in the financial sector.

The RMA in collaboration with relevant stakeholders is actively involved in formulating policy measures to improve the asset quality and enhancing credit appraisal procedures for financial stability.

Sherab Dorji from Thimphu