Commercial banks in the country today are flooded with excess money, meaning total deposits have increased and lending slowed down by a huge margin. This phenomenon is often termed as excess liquidity in financial term.
Bankers in the country today agree that a significant chunk of their money is lying idle adding to their cost and impacting their profit.
In other words, banks are not able to make optimum use of their deposit money by lending.
The Chief Executive of T Bank, Tshering Dorji said economic activity in the country has decreased, so there were not many takers for loans.
One way of finding out whether a bank has excess liquidity or not is by looking at its Statutory Liquidity Ratio.
Statutory Liquidity Ratio (SLR) is the minimum reserve requirement that a bank must maintain against its total deposit.
SLR measures the liquidity position of the bank, a higher SLR ratio means banks have excess cash that is lying idle and available for lending. This excess cash adds up to the banks cost as they consists of deposits for which they have to pay interest.
This is done to ensure safety of their deposit base.
According Royal Monetary Authority, each bank must set aside 20 percent of their total deposits in the form of SLR.
All the banks recorded their SLR ratio higher above the minimum requirement of 20 percent. Bhutan national bank’s SLR as of December 2014 has reached 42 percent; it was 46 percent for Druk Punjab National Bank and 35 percent for T-bank around the same time.
In absolute terms, Bhutan National Bank has cash in excess of Nu 3.4B that is lying idle and available for lending. Druk Punjab National Bank has Nu 2.5B in excess.
PNB’s Deputy Chief Executive Officer, Sonam Tobgay said the main reasons that contributed to an increase in excess cash was because deposit kept increasing while lending slowed down.
Officials from Bhutan Development Bank said lending, especially in the construction sector, had slowed down because building a house has become increasingly costly with increase in the price of construction materials and the amount of loan repayment exceeding rental income.
