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Private Banks’ woe

July 3, 2013
in Uncategorized
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Private Bank WoeFollowing the revision of the risk percentage on major loans by the Royal Monetary Authority (RMA), the liquidity situation for some of the banks has further worsened. The only alternative for the banks is to either recapitalise or issue shares to improve their liquidity situation.

According to the president of the Financial Institutions Association of Bhutan, pumping in more money by the existing shareholders to raise capital will question the sustainability of the banks.

Some of the banks still continue to suspend their loans after increasing the risk percentage on loans by the RMA. It was increased by 200-300 percent. And it applies to loans given for services and tourism, housing and transportation, and personal loan. This means, higher the risk percentage higher will be the capital required by the banks, affecting the capital adequacy ratio.

The only means to raise capital based for the banks is to get more money by issuing additional shares or by pumping in more money by the shareholders. However, according to the president of the Financial Institutions Association of Bhutan, Kipchu Tshering it’s a difficult task for the banks to raise their capital given the economic situation now.

“All the income has to come from credit but growth can be limited only because of the deposit front there is very little growth… The deposit growth is only in the individual deposit which is all of us are fighting for that share and it is not going to help the economy,” said Kipchu Tshering.

Besides Bhutan National Bank and Bhutan Development Bank, other banks are having problem to maintain the minimum requirement of Capital adequacy ratio which is ten percent.

The president said the increasing number of banks for current rupee and the liquidity crunch is partly to be blamed.The president added it doesn’t really make sense to have too many banks. Further he added going by the international standard for a population of seven hundred thousand even one bank is sufficient.

The President said it is crucial for both the monetary and fiscal policy to move in the same direction. Kipchu Tshering added tightening the financial institutions alone will not help curtail rupee outflow and help in liquidity situation. The central bank issued the directive last month to mainly curb and regulate credit growth.

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