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Revision of risk percentage affects lending

Jun 24, 2013

risk-percentage-on-major-loans-RMAFollowing the revision of the risk percentage on major loans by the Royal Monetary Authority (RMA), some financial institutions in the country have suspended their loans. The risk percentage has increased by 200-300 percent making it very difficult for banks to provide loans.

Earlier this month, the Royal Monetary Authority, had declared a revision of risk percentage on major loans of financial institutions in the country. This was done in order to curb and regulate credit growth. The risk percentage on loans, such as services and tourism, housing and transport, were increased to 200 percent, while personal loan was increased to 300 percent.

This means, higher the risk percentage, higher will be the capital required by the banks, affecting the capital adequacy ratio (CAR). This tool measures how much loans a bank can dish out based on their capital base. It also serves to protect depositors, and promote the stability and efficiency of the financial system.

However, most of the financial institutions were not happy with the revision. One of the worst hit by the new regulation is T-bank.T-bank’s Capital adequacy ratio has declined and the bank could just meet the minimum requirement.

“This directive came in 1st of June and whatever calculation we have done so far is based on month of April and May figure. We are yet to see our position by end of June. If we are not able to meet the requirement, RMA will penalize 5000 per day till we meet that,” said T-Bank’s CEO, Tshering Dorji.

Similarly, the Bank of Bhutan and the Druk PNB has suspended their loans. The Chief Cxecutive Officer of the Druk PNB, N.K Arora, said, even if the bank continues to lend out to productive sectors, it means they will breach the minimum requirement of ten percent.

“Our capital fund as of today is more 700 million. And with our loan book which is 3.60 billion-which is above the requirement. If we compare the size of our bank with any international standard our CAR is much comfortable.”

However, some banks have not been affected by the new initiative. The Deputy CEO of the Bhutan National Bank said, Sonam Tobgay, they are in a comfortable position. He added, the bank can still continue to lend out.




1 Comment for “Revision of risk percentage affects lending”

  1. SonamT

    Banks sould give loans for income generating- such as business,housing,and also education. But on buying cars and other personal loans – must be controlled.

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