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Foreign exchange movement, not performance, led to a slump in Bhutan National bank’s profits, the first time in eight years, say bank officials.
“If you exclude the foreign exchange (forex) component for 2008 and 2009, we’ve actually grown by more than 23 percent,” said BNB’s chief executive officer, Kipchu Tshering.
In 2008, the bank had a windfall of Nu 84 mn through forex and last year it suffered a loss of Nu 19 mn. BNB, like most banks, is required to maintain at least USD 10 mn in foreign exchange to facilitate third country transactions.
According to the bank’s profit and loss account, which was not obtained from bank officials, BNB’s profits fell by about Nu 44 mn in 2009, with profit after tax slipping to Nu 266.2 mn from Nu 310.3 mn in 2008.
While income from interest on loans grew to Nu 1.14 bn from Nu 917 mn, interest paid on fixed deposits shot up to Nu 588.9 mn from Nu 329 mn in 2008.
The bank’s management said that the raise in corporate fixed deposit rates last year to attract more funds had increased the cost of funds. “Our lending was growing but not our deposits, so we raised the fixed deposit rates to avoid a cash crunch,” said Kipchu Tshering.
While this increased deposits to Nu 21.65 bn from Nu 14.60 bn and loans also grew to Nu 11 bn, shareholders pointed out, during the bank’s annual general meeting in Thimphu on March 23, that the huge interest payments on fixed deposits had significantly eaten into the profits.
“The bank has made money, but it could have made much more had it not taken so much deposits,” said a shareholder. “It’s a lapse on the management for not being able to track investment as well as fund flow.”
The bank did the same in 2002 and its profits fell for the first time after it was formed in 1997, said another shareholder. “It’s a repeat of 2002, they took in just too much money.” He also said that the bank could be stuck with paying high interest rates for some time, particularly for long term fixed deposits.
For the Bank of Bhutan, the cost of funds were much cheaper, because most government agencies, for whatever reasons, had their current accounts with them, on which the bank incurred no cost but charged for services rendered.
BNB today has an excess liquidity of about Nu 4 bn, but its officials expect large borrowers only after some hydropower projects are completed. “Domestic power consumption has reached its peak and no new industries can come up without power,” said Kipchu Tshering. There was no land either to set up new industries, although the government has made announcements to develop several industrial estates.
Kipchu Tshering said that there were no investment avenues within the country to utilise the surplus money. “Elsewhere, you have mutual funds, the stock market and government bonds. Here even the issue of government bonds isn’t consistent.”
The bank is waiting to invest several hundred million ngultrums as consortium financing to the Dungsam cement project, which announced earlier this year that it would borrow about Nu 2 bn domestically.
Despite the drip in profits, the bank declared a dividend of Nu 28.50 a share, the same as the previous year. It will paying Nu 101 mn as dividend, Nu 79 mn will go into reserves. As in 2008, Nu 50 mn has been set aside as reserve to build an office complex.
Source: Kuenselonline
“If you exclude the foreign exchange (forex) component for 2008 and 2009, we’ve actually grown by more than 23 percent,” said BNB’s chief executive officer, Kipchu Tshering.
In 2008, the bank had a windfall of Nu 84 mn through forex and last year it suffered a loss of Nu 19 mn. BNB, like most banks, is required to maintain at least USD 10 mn in foreign exchange to facilitate third country transactions.
According to the bank’s profit and loss account, which was not obtained from bank officials, BNB’s profits fell by about Nu 44 mn in 2009, with profit after tax slipping to Nu 266.2 mn from Nu 310.3 mn in 2008.
While income from interest on loans grew to Nu 1.14 bn from Nu 917 mn, interest paid on fixed deposits shot up to Nu 588.9 mn from Nu 329 mn in 2008.
The bank’s management said that the raise in corporate fixed deposit rates last year to attract more funds had increased the cost of funds. “Our lending was growing but not our deposits, so we raised the fixed deposit rates to avoid a cash crunch,” said Kipchu Tshering.
While this increased deposits to Nu 21.65 bn from Nu 14.60 bn and loans also grew to Nu 11 bn, shareholders pointed out, during the bank’s annual general meeting in Thimphu on March 23, that the huge interest payments on fixed deposits had significantly eaten into the profits.
“The bank has made money, but it could have made much more had it not taken so much deposits,” said a shareholder. “It’s a lapse on the management for not being able to track investment as well as fund flow.”
The bank did the same in 2002 and its profits fell for the first time after it was formed in 1997, said another shareholder. “It’s a repeat of 2002, they took in just too much money.” He also said that the bank could be stuck with paying high interest rates for some time, particularly for long term fixed deposits.
For the Bank of Bhutan, the cost of funds were much cheaper, because most government agencies, for whatever reasons, had their current accounts with them, on which the bank incurred no cost but charged for services rendered.
BNB today has an excess liquidity of about Nu 4 bn, but its officials expect large borrowers only after some hydropower projects are completed. “Domestic power consumption has reached its peak and no new industries can come up without power,” said Kipchu Tshering. There was no land either to set up new industries, although the government has made announcements to develop several industrial estates.
Kipchu Tshering said that there were no investment avenues within the country to utilise the surplus money. “Elsewhere, you have mutual funds, the stock market and government bonds. Here even the issue of government bonds isn’t consistent.”
The bank is waiting to invest several hundred million ngultrums as consortium financing to the Dungsam cement project, which announced earlier this year that it would borrow about Nu 2 bn domestically.
Despite the drip in profits, the bank declared a dividend of Nu 28.50 a share, the same as the previous year. It will paying Nu 101 mn as dividend, Nu 79 mn will go into reserves. As in 2008, Nu 50 mn has been set aside as reserve to build an office complex.
Source: Kuenselonline
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