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48 percent of loans availed for housing and service sectors 

The amount of loan financial institutions together lent increased by 15 percent from Nu 112.8B to Nu 130.4B last year, whereas deposits increased only by five percent from Nu 109.6B to Nu 116.17B.

Total loan outstanding stands at Nu130B as of December 2018 and Gross domestic product (GDP) growth increased by 13 percent according to the Royal Monitory Authority (RMA). This was shared at a presentation on credit exposure in the financial sector on June 19.

Loans to housing and service constitute 48 percent of the total loan portfolio. Service and tourism sector constitutes the highest at 25 percent, which amount to Nu 32.4B. RMA official explained that 49 percent of service or tourism loans are for constructions of hotels and restaurants.

Housing follows next with a loan of Nu 29.7B, which constitutes 23 percent of the loan portfolio. This is followed by trade and commerce (Nu 16.54B), manufacturing industry (16B), personal loan (12.4B) and agriculture or animal husbandry (Nu 5.8B).

Loan against fixed deposits constitutes the least at Nu 599M.

Non-performing loans (NPL) has increased from Nu 8.25B to 12B last year. Service and tourism sector, recorded the highest NPL of Nu 4B, followed by trade and commerce at Nu 3.5B.

When a borrower is not making interest payments or repaying any principal for a certain period prescribed by the regulatory authorities, the loan is called NPL. For Bhutan, any pending repayments beyond 90 days become bad debt and get classified as NPL.

Housing and Service loan growth  

Prior to 2013, housing loan saw an aggressive growth. RMA officials claim that the central bank took stringent potential requirements following which, the growth in housing sector remained consistent. The loan increased by 14 percent from Nu 10.4B in 2010 to about Nu 30B last year.

Loan towards service/tourism sector loan grew significantly by 29 percent. The loan percentage grew by 22 percent between 2013 and 2014 and drastically increased to 51 percent in 2016 (Nu 17.5B). Between 2010 and last year, loan for the service/tourism sector increased by eight times from Nu 4.2B in 2010 to Nu 32.4B.

Loan-to-deposit ratio (LDR) is 112.2 percent. The ratio is used to assess a bank’s liquidity, comparing a bank’s total loans to its total deposits for the same period. If the ratio is too high, it means that the bank may not have enough liquidity to cover any unforeseen fund requirements. If the ratio is too low, the bank may not be earning as much as it could be.

However, a RMA official said that the central bank was not able to correlate the deposit growth with credit growth because insurance companies in pension provide loans but do not accept deposits. “We couldn’t draw a specific link between the credit and deposits.”

Loans to Micro, Cottage, Small, Medium and Large (MCSML) industries 

Of the Nu 130B loan outstanding, micro industries received Nu 2.8B (two percent), cottage industry Nu 3.5B (three percent), small industries Nu 12.5B (Ten percent), medium Nu 27.4B (23 percent) and large industries Nu 20.1B (17 percent).  Large industries comprise agriculture, trade, manufacturing, and service.

A total of 45 percent of the total loan portfolio were for non- enterprise loans, which received a total of about Nu 58B.Non-enterprises loan includes housing, transport, personal loan and others such as education and staff loans.

Phub Dem

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