Govt. has no authority to regulate interest rates – Finance Minister

Finance Minister Namgay Tshering maintained that the government has no control over regulating interest rates on loans given by the banks during the Question Hour session at the National Assembly yesterday.

The finance minister was responding to the query from Member of Parliament from Athang-Thedtsho Constituency Kinley Wangchuk, who asked the finance minister whether the government has any plan in the pipeline to consult with the Royal Monetary Authority (RMA) to regulate interest rates.

According to MP Kinley Wangchuk, surprisingly, unlike any other businesses, banks in Bhutan endure no risk of failing. The reason being that they are well fortified by high interest rates ranging between 9% to 12%.

“Our banks’ interest rates are one of the highest in the world,” he said.

Adding that the interest rate on housing loan is very high, MP Kinley Wangchuk said the current pay revision won’t benefit much to the people given that it ultimately trickles down to the tenants when the banks charge high interest rate on housing loan.

“If the interest rates are not lower, there will be high inflation in the country. While we appreciate the stability of our banks, their interest rates have burdened hundreds and thousands of Bhutanese clients and as such there is a growing trend of assets being seized from defaulters,” the MP said. 

Responding to the query, the finance minister said the finance ministry is responsible for fiscal policies and RMA accordingly for monetary policies.

“As per the RMA Act 2010, since it is an autonomous agency, anything with regards to loans, financial institutions management, external reserves and interest rates are under the control of the RMA,” the Lyonpo added.

Since the government regulates fiscal policies, the government has the right to increase and decrease taxes, expenses and debt as per the rules.

“The fiscal policies and monetary policies should work in parallel,” he added.

According to Lyonpo Namgay Tshering, RMA liberalized the interest rates to the financial institutions as per the demand and supply in 1999. However, it was noticed that this was making interest rates higher for people. In 2012, RMA initiated the base rate system and the interest rate was decreased to 10.5%.  In 2016, the authority initiated the minimum lending rate policy.

“BoB charges 12.9% for personal loan and 7.7% for agriculture and livestock loan. Similarly, other financial institutions have also decreased interest by 2% as compared to before,” the finance minister said.

In 2017, the RMA initiated priority sector lending policy with interest rate of 8.5% at the maximum.

“The government doesn’t have authority to regulate or reduce the interest rates on loans. We can offer people with policies and upgrade Rural Enterprise Development Corporation Limited to Cottage and Small Industry bank,” the Lyonpo said.

Dechen Dolkar from Thimphu