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Financial institutions fuel Nu 103B domestic loan

Financial institutions in the country lent Nu 103B in the domestic market as of December last year.

The economy saw domestic credit swell by Nu 13B in a span of 12 months. In January last year, the cumulative figure of domestic credit stood at Nu 90B.

This is according to the figures from the Royal Monetary Authority (RMA), excluding credit from the National Pension and Provident Fund.

With more than 23 percent of domestic credit injected into building and construction, the economy continues to pump air into the housing bubble. Loan for building and construction has reached Nu 23B in December last year from Nu 20.6B in January.

It was a lending spree that ignited the rupee crisis a few years ago because most of the credit translated into imports, shedding the country’s rupee reserve as well as hurting the current account balance. This was followed by loan and import restriction on housing and vehicles.

However, the story could change if major chunk of credit is directed to productive sectors, which have the potential to create jobs and boost country’s export.

In fact, both the government and the central bank have initiated programmes to boost country’s export, substitute import and to create jobs. The economic stimulus plan, priority sector lending, micro financing and other entrepreneurships programmes are some examples.

However, going by the figures, housing has the highest loan portfolio, followed by service and tourism, which increased from Nu 17B in January to Nu 22.9B in December. Lending for manufacturing sector increased Nu 12.5B to Nu 13B during the same period. Likewise, loan in the trading sector also increased by Nu 1B.

Some bankers and economists Kuensel talked to said that a combination of low interest rates and incentives could create a credit demand. This means if credit meant for productive sector is misused or diverted to import related activities, the economy will be hurt.

As a result, the current account deficit could deteriorate given the slow progress, time and cost overrun of the hydropower projects as the electricity is largest contributor to the country’s GDP.

While the cumulative figures of transport loan as of December last year stood at Nu 5.5 B, a banker said that a major portion of personal and employee loans was going into vehicle import.

At the same time, loan for agriculture, the sector which employs more than half the work force, is just Nu 5.6B, which is an increase from Nu 4.7B in January last year.

Tshering Dorji

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