4 August, 2008 - Bhutan could see more commercial banks by the first quarter of 2009 with the royal monetary authority (RMA), the country’s central bank, having received nine applications to start banking.
These include four joint ventures with partners from India, Nepal and Kazakhstan and stand-alone proposals. The first applicants were the Tashi group and Singye group way back in July 2006. The others are from the Samden group, the Bhutan development financial corporation limited (BDFCL), and a joint venture promoted by Hotel Riverview.
The process to allow new commercial banks, which had been shelved for more than eight months, according to a government directive, picked up pace this week with a special committee formed to study the proposals.
The independent six-member technical advisory committee, comprising representatives from RMA, the royal securities exchange, the company registrar, the private sector and a financial specialist, had its first meeting on July 28.
A central bank official said that the committee would thoroughly review the proposals to see if they were in line with the financial regulations and are willing to meet existing requirements.
A committee member said that it would take at least six months, after all the proposal papers have been received, to complete the review process. The findings would then be submitted to the RMA board, which will decide whether to issue a license or not. FDI ventures will have to go through a scrutiny by an independent FDI committee.
Although nine have submitted applications not all have submitted complete papers, a central bank official said.
The possibility of new banks in Bhutan comes at a time when mergers and acquisitions are happening the world over in the banking sector to bring down costs and become sustainable.
How many commercial banks would be allowed is not clear yet but there is no rule as of yet that says only a certain number should be allowed.
Existing bankers, however, feel that there may be room for only one more. “Anything more than that is going to be a crowd,” said the managing director of the Bhutan National Bank (BNB), Kipchu Tshering. “As it is, most Bhutanese don’t have money to put in as deposits. Apart from being limited by the population size, a major constraint is the poor saving culture.” He said that, of the total deposits with the two banks, only 30 percent belonged to the public. The rest were mainly government corporate sector deposits, which the Druk Holding and Investments (DHI) plans to invest in major projects.
It is also a known fact that the branches offices of the Bank of Bhutan (BoB) in the 20 dzongkhags provide banking services but do not make any money.
“We’re ready for the competition as long as they abide by the regulations that we are following now,” said Kipchu Tshering. “Newcomers should know that it’s not easy to run a commercial bank, get good people and put in place a real set up.”
But people in the private sector feel that service delivery will improve with competition. “At present, there’s no real competition between BNB and the BoB. The interest rates are the same, the procedures are the same and they function more or less the same way,” said a businessman. “The only thing is that BNB has a good IT system in place, which has made services a little faster. In India, banks send people to your home to get loan papers signed. Now that’s service.”
One of the biggest problems for big borrowers, according to some businessmen, is that the equity capital of banks was too small. This hindered the amount a bank can lend to a group or an individual. Only recently RMA raised equity capital of the banks to Nu 300 million.
Businesses are also hoping that entry of new banks would lead to a more realistic valuation of property, which would allow them to take more credit on their collateral.
Although RMA liberalised interest rates several years ago, observers feel that in the end the competition would boil down to delivery of services.
The economic affairs minister, Lyonpo Khandu Wangchuk, said the government considered improving the services sector as essential along with IT and tourism. “We see good scope to enhance financial services and we would be happy to give any viable business a chance.”
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