financial sector performance review report (december 2016) publication/fsp/fsp dec2016.pdf · as of...

Financial Sector Performance Review Report for December 2016

Financial Regulation and Supervision Department

Financial Regulation & Supervision Department

FINANCIAL SECTOR PERFORMANCE REVIEW REPORT (DECEMBER 2016)

This report presents the performance of the Bhutanese financial sector on peer group basis (excluding NPPF) for the period ended Q4FY’16 in comparison to the corresponding quarter of the previous year. This report has been prepared by the Financial Regulation & Supervision Department of the Royal Monetary Authority of Bhutan (RMA) and the information contained in this report is based on the returns submitted by the financial institutions to the RMA. Further, RMA issued revised Prudential Regulations 2016 for compliance by all the financial institutions with effect from September 2016. The FRSD has also revised the new reporting formats( monthly returns) of the financial institutions in line with PR 2016.



Overview

During the year 2016, the financial sector continued to grow at a substantial rate with an

expansion of asset and liability by 17.39% as compared to 7.13% growth in 2015. Total

asset of the financial sector has increased by Nu. 20.44 billion, from Nu.117.55billion in

December 2015 to Nu. 137.99 billion in December 2016. In terms of the asset composition,

85.55% of the total assets are held by banks and the remaining 14.45% by the non-banks.

With regard to the profitibality, the net profit of the financial institution stood at

Nu.2.31billion with banking sector recording a profit of Nu.1.69billion and non banking

sector of Nu.619million in December 2016. However, the net profit of the financial sector

has decreased from Nu.2.83billion in 2015 to Nu.2.31billionin 2016 indicating decrease by

18% mainly due to increase in loan provisions.

Financial sectors’ total loans to the economy have increased by 18.23%, from Nu.

74.78billion in December 2015 to Nu. 88.41billion in December 2016. In terms of lending

by sectors, Housing Sector has the highest loan outstanding with Nu. 20.31billion (22.97)

followed by Service and Tourism Sector with Nu.16.68billion (18.86%) and Trade and

Commerce Sector with Nu.15.24billion (17.24%).

Loan provisions have rapidly increased due to deterioration in loan quality (NPL) by

Nu.1.2billion. Provision provided for NPLs has more than doubled with Nu. 362million in

December 2015 to Nu.1.42billion in December 2016. The loan provisioning requirement

for the period ended December 2016 is based on the new NPL classification system as

required under the Prudential Regulations 2016.

RMA also issued a new sectoral formatting template with effect from 1st November 2016

to capture information on the credit exposure to Micro, Cottage, Small, Medium and Large

(MCSML) enterprises. As of December 2016, loan to Medium enterprise accounted for

21.77% of total loans and loans to Large enterprise accounted for 14.95%. However, the

loans to Micro, Cottage and Small enterprises accounted for only 17.4% of the total loans.

Financial sector registered a gross NPL ratio of 6.48% in December 2016 as compared to

6.03% in December 2015. Gross NPL ratio of both banks and non-banks has increased

during the period under review. Capital Adequacy Ratio and Statutory Liquidity

Requirement were also maintained above the minimum regulatory requirements.



1. Business Size and Growth

1.1. Assets/Liabilities of financial sector

Financial sector continued to grow at the substantial rate with an expansion of asset and

liability by 17.39% in 2015-2016 as compared to 7.13% in 2014-2015. Total asset of the

financial sector has increased by Nu. 20.44 billion, from Nu.117.55billion in December

2015 to Nu. 137.99 billion in December 2016. Out of the total assets of Nu. 137.99billion,

Nu.118.05billion comprised of banks’ asset while Nu. 19.94billion comprised of non-

banks’ asset. In terms of asset composition, 85.55% of the total assets are held by banks

and the remaining 14.45% by the non-banks. The increase in loans and advances (net of

specific provision and interest in suspense) by Nu.12.28billion was the major component

for the increase in asset size.

Similarly, banks’ liability consists of Nu.118.05billion of the total liabilities in the financial

sector while the non-banks’ liability consists of Nu.19.94 billion. The increase in the

liability of the financial sector was mainly due to increase in bank deposits by

Nu.14.96billion followed by expansion of borrowings by Nu. 1.32 billion by the non-banks.

Table I : Consolidated balancesheet - December 2016 ( Figures in Million Nu.)

ASSETS % variation

%

variation

%

variation

%

Holding(Dec

2016)

Cash & Bank Balances 37,422.58 32,344.79 15.70% 2,363.00 1,968.33 20.05% 39,785.58 34,313.12 15.95% 28.83%

Marketable Securities 9,961.60 8,503.47 17.15% 60.00 60.00 0.00% 10,021.60 8,563.47 17.03% 7.26%

Loans & Advances (net of prov) 67,608.39 58,951.43 14.68% 16,009.50 12,387.92 29.23% 83,617.88 71,339.35 17.21% 60.60%

Equity Investments 326.80 307.80 6.17% 305.82 183.68 66.50% 632.63 491.48 28.72% 0.46%

Fixed Assets 1,432.10 1,146.65 24.89% 209.03 189.73 10.17% 1,641.13 1,336.38 22.80% 1.19%

Other Assets 1,301.96 819.03 58.96% 991.42 684.39 44.86% 2,293.38 1,503.43 52.54% 1.66%

Total Assets 118,053.43 102,073.17 15.66% 19,938.77 15,474.06 28.85% 137,992.20 117,547.23 17.39% 100.00%

LAIBILITIES

Paid-up Capital 7,549.25 6,305.39 19.73% 1,400.00 1,400.00 0.00% 8,949.25 7,705.39 16.14% 6.49%

Reserves 10,948.65 11,681.16 -6.27% 1,958.37 1,578.94 24.03% 12,907.02 13,260.09 -2.66% 9.35%

Deposit Liabilities 93,168.59 78,213.37 19.12% 0.00 0.00 93,168.59 78,213.37 19.12% 67.52%

Borrowings 681.58 824.80 -17.36% 3,657.42 2,338.86 56.38% 4,339.01 3,163.66 37.15% 3.14%

Bonds/ Debentures 2,500.00 2,500.00 0.00% 2,500.00 2,500.00 0.00% 1.81%

Provisions 2,987.80 2,225.98 34.22% 210.54 21.92 860.58% 3,198.34 2,247.90 42.28% 2.32%Funds ( *Applicable only for

Insurance Companies) 7,919.79 7,919.79 5.74%

Current & Other Liabilities 2,717.55 2,822.47 -3.72% 2,292.30 7,634.34 -69.97% 5,009.86 10,456.81 -52.09% 3.63%

Total Liabilities 118,053.43 102,073.17 15.66% 19,938.43 15,474.06 28.85% 137,991.85 117,547.23 17.39% 100.00%

Non Banks

Dec-16 Dec-15 Dec-16 Dec-15Dec-15Dec-16

TotalBanks



1.2. Banking sector

Total assets of banking sector stood at Nu.118.05billion in 2016 as compared to

Nu.102.02billion, a growth of 15.66% (Nu.15.98billion). Loans and advances of Nu.

67.61billion (57%) constituted the major component of assets, while the deposit liabilities

of Nu. 93. 17billion (79%) constituted major component of liabilities.

1.3. Non-Banking sector

Non-banks also continued to grow with an increase of its assets/liabilities by 28.85%

during the year 2015-16 as compared to 22.81% in 2014-15. The total assets increased by

Nu. 4.46billion, from Nu. 15.47 billion in 2015 to Nu.19.94billion in 2016. Similarly to the

banking sector, the loans and advances of Nu. 16billion (80%) constituted the major

component of assets. On the liability side, the increase in the liability by Nu.4.46billion was

contributed by the increase in the borrowing from both the commercial banks and non

banks by Nu.1.32billion. As of December 2016, the non-banking sector had an Insurance

Fund of Nu.7.92 billion which comprises of the Life Insurance Fund, General Insurance

Fund, Group Insurance Fund and other funds.

1.4.Off-balance sheet exposure of financial sector

During the year 2016, off-balance sheet (OBS) exposure of the financial sector accounted

for Nu.13.01billion. The share of financial guarantees against total off-balance sheet

exposure of the financial sector comprised the highest with 51.74% amounting to

Nu.6.73billion, followed by letters of credit with 24.28% (Nu.3.16billion) and other

guarantees with 33.98% (Nu.3.12million). For the year 2016, the OBS of banking sector

accounted for Nu.10.56 billion and the remaining Nu.2.46billion accounted for non-banks’

OBS.



2. Capital and Reserves

Capital serves as a reserve against unexpected losses and is the foundation of sound

financial system. Capital base of the financial institution/banks facilitates depositors in

forming their risk perception about the institution. Besides absorbing the unanticipated

shocks, it also signals that the institution will continue to honor its obligations. Qualifying

capital fund is composed of Tier I and Tier II capital. Tier I capital is the financial sector’s

core capital which comprises of paid-up capital and accumulated reserves. Tier II capital

is a supplementary capital to Tier 1 capital and it is impermanent in nature.

Capital fund1 of the financial sector for the period ended December 2016 amounted to

Nu.21.40 billion, as compared to Nu.20.95 billion in December 2015, indicating an

increase of Nu.449.24million. The capital fund of bank amounted to Nu. 18.24billion and

for non- banks, it accounted for Nu.3.16billion during the year 2016. In terms of the capital

composition, Tier 1 capital, which can absorb the unexpected losses without the financial

institution being required to cease operation, consisted of 81.81%(Nu.17.51billion) and

remaining 18.19% (Nu.3.89billion) consisted of Tier 2 capital.

2.1 Capital Adequacy

With effect from September 2016, RMA issued new Prudential Regulations (2016),

whereby the minimum requirement of Capital Adequacy Ratio (CAR) and Core capital was

increased. The CAR was increased from 10% to 12.5% including the capital conservation

buffer. Similarly, core capital

ratio was also increased from

5% to 7.5% including a capital

conservation buffer

requirement of 2.5%.

CAR of the financial sector for

December 2016 stood at

18.99% as compared to

17.81% in December 2015

showing an increase of 1.18%.

As shown in chart 1, the CAR

has been gradually increasing from third quarter (17.85%) to fourth quarter 2016

1In this case, the capital fund is the total capital fund without deducting the NPL of related party. The total capital

fund and the capital fund for calculating the CAR ratio will not tally since the NPL of related party has been

deducted from the capital fund while assessing the RWCAR as required by the section 2.4.7 of PR 2016.

17.81%16.42% 16.93%

17.85% 18.99%

14.35%13.09% 13.27%

13.76%15.58%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

16.00%

18.00%

20.00%

Dec-15 Mar-16 Jun-16 Sep-16 Dec-16

in P

erc

en

tage

Chat 1.Quarterly Financial Institutions' Capital Adequacy

RWCAR(12.5%) Core CAR( 7.5%)



arriving at 18.99%. The reason for an increase in the CAR was mainly due to the decrease

in total risk weighted assets2 which was brought about by the change in the regulatory

norms (risk-weights) for loans and advances. Under the new risk-weight system, financial

institutions are required to assign 100% risk weight for performing loans and 150% for

non-performing loans (risk weight for loans prior to the new regulatory norms ranges

from 100% to 300% based on the sector exposure).

Core capital ratio3 of the financial sector, which measures the minimum value of personal

risk undertaken by shareholders, has also increased gradually from 13.27% in June to

13.76% in September and further increasing to 15.58% in December 2016.

2.2 Banking sector

Total Risk Weighted Capital Adequacy Ratio (RWCAR)4 of the Banking Sector has

improved from 18.74% in December 2015 to 20.16% in December 2016. This increase

was mainly due to the decrease in total risk weighted assets5 by Nu.5.24billion.

The RWCAR of the banking sector (20.16%) is 7.66% above the minimum regulatory

requirement of 12.5%. Similarly, the Core capital ratio of the banking sector, which

measures the minimum value of personal risk undertaken by shareholders, has slightly

increased from 15.02% in December 2015 to 16.52% in December 2016. The ratio is

observed to be maintained well above the minimum regulatory requirement of 7.5%.

(With effect from September 2016, minimum requirement on core capital ratio was also

increased from 5% to 7.5% including a capital conservation buffer requirement of 2.5%).

2 From September 2016, the Risk weighted asset is computed as per Section 1.8 of the Prudential Regulation 2016

.i.e., a risk weight of 100% for performing loans and 150% for non-performing loans 3 With effect from September 2016, financial institutions are required to maintain a minimum core capital of 7.5%.,

including a capital conservation buffer of 2.5% from Tier 1 capital. 4 The RWCAR signifies the availability of capitalto support the business of the financial institutions. The NPL of

related parties has been deducted from the capital fund when assessing RWCAR as required by the section 2.4.7 of

PR 2016. 5 From September 2016, the Risk weighted asset is computed as per Section 1.8 of the Prudential Regulation 2016

.i.e., a risk weight of 100% for performing loans and 150% for non-performing loans



2.3 Non-Banking sector

RWCAR of non-banking sector has increased from 13.70% in December 2015 to 14.21% in

December 2016. The capital fund has increased from Nu.2.98billion in December 2015 to

Nu.3.15billion in December 2016(growth of 5.78%). Similarly, the risk weighted asset of

non banks has also increased from Nu.21.74billion in December 2015 to Nu.22.17billion in

December 2016 (growth of 1.97%). The increase in risk weighted asset of one of the non-

banks by Nu 427million was mainly due to increase in NPL by Nu.135million which has

resulted in assigning higher risk weight of 150%.

2.4 Leverage Ratio

Leverage ratio6, one of the several measurement looks at how much the capital comes in

the form of debts (loans), or assesses the ability of the institution to meet the financial

obligations. The Leverage ratio for the financial sector for period ended December 2016

stood at 11.60%, maintaining 6.60% higher than the regulatory requirement of 5%. The

Leverage ratio of Banking and non banking sector stood at 11.59% and 11.65%

respectively during the year 2016.

3. Asset Quality

Quality of asset is one of the most important factor and determinants of the performance

and profitability of the financial sector. Since deterioration in the quality of assets has

negative impact on the profit, liquidity and capital of the financial sector, assessing asset

quality is essential to ensure that assets are stated at reasonable values in relation to the

associated risk.

Review on the loan classification of the financial sector indicated that both loans and NPL

have increased by Nu. 13.63billion and Nu. 1.21billion respectively during the period

ended December 2016. Financial sectors’ total loans7 to the economy have increased by

18.23%, from Nu. 74.78billion in December 2015 to Nu. 88.41billion in December 2016.

The NPL of the financial sector has also increased to Nu.5.73billion in December 2016 as

compared to Nu.4.51 billion in December 2015 showing an increase of 26.91%.

6 From September 2016, the minimum Leverage ratio is raised from 3% to 5%

7 With effect from 3

rd quarter 2016, Financial institutions are required to submit the monthly returns based on the

new PR 2016, i.e., the age days/ bucket has been reduced for doubtful and loss category. The loans and

advances whose principal and interest payment has been overdue by 181days to 365days has been included under

doubtful category and principal and interest overdue above 365 days has been categorized into loss category.



Table 3 Consolidated Loan Classification of the FIS - December 2016 (Nu. in million)

Non-performing loans 5,171.08 4,092.28 555.53 419.79 5,726.61 4,512.07 26.92% 1,214.54

Total loan 71,950.51 62,058.76 16,458.30 12,718.86 88,408.81 74,777.63 18.23% 13,631.19

Gross NPL Ratio 7.19% 6.59% 3.38% 3.30% 6.48% 6.03%

Dec-15 Dec-16 Dec-15Dec-16 Dec-15

Absolute

growth

NBFIs TOTAL %

ChangeDec-16

Banks

Gross NPL ratio (NPL to total loans) of the financial sector slightly increased to 6.48% in

December 2016 as compared to 6.03% in the previous year. During the year ended

December 2015, specific provisions (Nu.2.86billion) grew at a much lower rate than NPL (

Nu.4.51billion) resulting in a provision coverage ratio of 63.32%. However, for the period

ended December 2016, proportionate growth in provisions (Nu.4.05billion) ensured that

the coverage ratio remained stable at 70.79%. The provision to NPL increased by 7.74%.

The increase in the provisions was mainly due to the change in the classification category

for loans and advances under the new Prudential Regulations 2016, as a result the

provision requirements have also been changed.

As shown in the chart 2, the

NPL depicts an undulating

pattern: highest NPL ratio

was observed in the month

of September 2016 at

13.22% while the lowest was

observed in the month of

December 2016 at 6.48%.

The NPL of the financial

sector increased by 26.91%.

However, over the past four

quarters for the period

under review, the NPL ratio

has improved drastically from 11.38% in March 2016 to 6.48% in December 2016.

Single Largest borrower’s (SLB) exposure at 15.42% and Ten Largest Borrower (TLB)

exposure at 16.64% were maintained within the limit of 25% (of capital fund) and 30%

(of the total loans) respectively. Further, the net NPL to net loan for December 2016 has

improved to 1.12% as compared to 1.50% in 2015 (Annexure I).

3.1. Asset Quality: banking and non-banking sector

Gross NPL ratio of both banks and non-banks has increased during the period under

review. The gross NPL ratio of banks stood at 7.19% in December 2016 as compared to

6.59% in

December 2015,

an increase by

0.6%. Of the

total loan

outstanding of

4,512.078,996.62 7,878.34

11,230.075,726.61

74

,77

7.6

3

79

,02

4.4

7

86

,60

4.3

2

84

,97

1.8

3

88

,40

8.8

1

6.03%

11.38%

9.10%

13.22%

6.48%

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

14.00%

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

100,000


in p

erc

en

tag

e(%

)

Fig

ure

s in

Mil

lio

n N

u.

Chart 2.Quarterly trend on Asset Quality of FIs

Non Performing Loan Total Loan Gross NPL Ratio(%)



Nu. 71.95billion in the banking sector, 92.81% (Nu.66.78billion) was regular loans and

7.19% (Nu.5.17billion) was non-performing loans. The increase in non-performing loans

of banks by 26.36% as against the growth of loan of 15.94% has led to the increase in

gross NPL ratio of the banking sector.

Similarly, the gross NPL ratio of non-banks has also slightly increased to 3.38% in

December 2016 as compared to 3.30% in December 2015, an increase by 0.8%. Of the

total loan outstanding of Nu. 16.46 billion of non-banks, only 3.38% (Nu.555.53million)

was non-performing loans and remaining 96.62% (Nu. 15.90billion) were regular loans.

4. Consolidated Loan Classification of the Financial Sector

In terms of loan classification by number of overdue days (loan classification category),

the highest NPL in the financial sector for the period ended December 2016 was classified

under the Loss category followed by NPL under the Substandard category. Out of the total

NPL of Nu.5.73billion, NPL classified under Loss category (which also includes the term

expired loans and loans under litigation cases) comprised of 70.76% (4.05billion)

followed by Substandard category8 comprised with 17.58% (Nu.1.01billion) and Doubtful

category 9 with 11.65% (amounting to Nu.667.30illion). For both banks and non-banks,

the highest NPL categorization was seen under the Loss category with Nu.3.68billion and

Nu.369.19million respectively during the year 2016.

In terms of absolute increase in NPL of financial sector based on the classification

category, NPL classified under the Substandard and Doubtful category has decreased by

Nu.87.64million and Nu.210.14million respectively. However, the NPL classified under

8 Loans in default by 91 to 180 days

9 Loans in default from 181 to 365days

Table 4: Consolidated Loan Classification of the FIS - December 2016

Performing loans 66,779.61 57,966.49 15,902.77 12,299.07 82,682.38 70,265.56 17.67% 12,416.82

Standard 62,132.56 52,909.72 14,025.75 11,319.14 76,158.31 64,228.86 18.57% 11,929.45

Watch (up to 90 days) 4,647.05 5,056.76 1,877.02 979.93 6,524.07 6,036.69 8.07% 487.37

Non-performing loans 5,170.90 4,092.28 555.53 419.79 5,726.43 4,512.07 26.91% 1,214.36

Substandard (91 to 180 days) 879.10 1,018.62 127.84 75.95 1,006.94 1,094.57 -8.01% -87.64

Doubtful (181 to 365 days) 608.80 792.90 58.50 84.53 667.30 877.44 -23.95% -210.14

Loss (366 days & above) 3,683.00 2,280.75 369.19 259.31 4,052.19 2,540.06 59.53% 1,512.14

Total Loan 71,950.51 62,058.76 16,458.30 12,718.86 88,408.81 74,777.63 18.23% 13,631.19

GROSS NPL 7.19% 6.59% 3.38% 3.30% 6.48% 6.03%

Dec-15 Dec-16 Dec-15

(Nu. in million)

Dec-16 Dec-15

Absolute

growth

NBFIs TOTAL% Change

Dec-16

Banks



Agriculture/Animal Husbandry

9.47%

Production and Manufacturing

9.31%

Service/ Tourism20.19%

Trade/ Commerce

25.06%Housing16.10%

Transport5.60%

Personal Loan13.58%

Staff Loan0.44%Education Loan

0.15%LAFD

0.06%

Loans to Government

0.00%

Others0.04%

Sectoral NPL Holding (%) Dec 2016

Loss category has increased by Nu.1.51billion. The more strict definition of loan

classification category under the Prudential Regulations 2016, has led to most of the NPL

being classified under the Loss category.

5.Credit Quality/ Sectoral NPL of Financial sector

Asset quality- a key measure to gauge credit risk has deteriorated with the increase in

NPL10 from Nu.4.51billion in December 2015 to Nu. 5.73 billion in December 2016,

indicating an increase of 26.91%.

The diagram represents the

sectorwise NPL holding for the period

ended December 2016. The analysis

on the sectoral NPL to total NPL of Nu.

5.73billion in the financial sector are

as follows:

Trade and Commerce sector has

the highest NPL with

Nu.1.43billion (25.06%)

Service and Tourism sector with

Nu. 1.16billion (20.19%).

Housing sector with Nu.921.70

million (16.10%).

In terms of increase in NPL by sector, Trade and Commerce sector represented the highest

increase of Nu.424 million followed by Service and Tourism sector with Nu.355 million

and Agriculture sector with Nu.159million.

10

From December 2016, all the FIs has submitted a sectoral loan and NPL as per new reporting format



5.1 Sectoral NPL of banking and non-banking Sector

NPL of Banking Sector has increased from Nu.4.09billion in December 2015 to

Nu.5.17billion in December 2016 indicating an increase of 26.36%. The analysis on the

sectoral NPL of Banking sector in December 2016 reveals that the highest NPL was seen in

Trade and Commerce sector with 24.04% followed by Service and Tourism sector and

Housing sector with 19.53% and 17.44% respectively. Similar trend was also noticed in

the previous year, the highest NPL was seen in Trade & Commerce sector with19.53%

followed by Housing sector with 19.47% and Service and Tourism sector with 19.33%.

For the non-banking sector, out of total NPL of Nu.555.53million, the highest NPL during

the period under review was seen in Trade & Commerce sector with 34.55%

(Nu.191.99million) followed by Service and Tourism sector with 26.31%

(Nu.146.17million) and Personal Sector11 with 22.50% (Nu.124.97million).

11

For this report, the Sectoral loan and NPl is based on the new reporting format, The personal includes the

personal loan ,GE loan and credit card loan.. Prior to the new reporting Format, The credit card loan was reflected

as different sector. The LAFD loan is now reflected as a separate sector instead of personal loan. In line with the

new reporting Format, the adjustment are made for both Dec 2015 and Dec 2016. Further, LAS has been added

under other sectors instead of reflecting it as a different sector.These adjustments are made for Dec 2015 as well

Table 5.Sectoral Non Performing Loan

NPL Holding

Exposure(Dec

2016)

Dec-15NPL Holding

Exposure(Dec

2015)

Dec-16

NPL Holding

Exposure(Dec

2016)

Dec-15

NPL Holding

Exposure(Dec

2015)

Agriculture/Animal 541.98 10.48% 382.80 9.35% 0.37 0.07% 0.00 0.00%

Production and 522.05 10.10% 424.18 10.37% 11.33 2.04% 4.27 1.02%

Service/Tourism 1,009.89 19.53% 791.20 19.33% 146.17 26.31% 9.38 2.23%

Trade/Commerce 1,242.88 24.04% 799.19 19.53% 191.91 34.55% 210.81 50.22%

Loan to FI(s) - 0.00% - 0.00% 0.00 0.00% 0.00 0.00%

Housing 901.93 17.44% 796.76 19.47% 19.76 3.56% 25.24 6.01%

Transport 271.27 5.25% 207.39 5.07% 49.33 8.88% 59.89 14.27%

Personal Loan 652.86 12.63% 674.54 16.48% 124.97 22.50% 100.29 23.89%

Staff Loan 13.84 0.27% (0.00) 0.00% 11.58 2.08% 0.00 0.00%

Education Loan 8.32 0.16% 1.68 0.04% 0.00 0.00% 0.00 0.00%

LAFD 3.67 0.07% 0.19 0.00% 0.00 0.00% 0.00 0.00%

Loans to Government (0.00) 0.00% - 0.00% 0.00 0.00% 0.00 0.00%

Others 2.20 0.04% 14.34 0.35% 0.11 0.02% 9.89 2.36%

Totals 5,170.90 100.00% 4,092.28 100.00% 555.53 100.00% 419.79 100.00%

SectorDec-16

figures in Million Nu.

Banks Non Banks



6. Loans and Advances of the Financial Sector (MCSML and Non

enterprise loan)

Financial sectors’ total loans12 to the economy have increased by 18.23% for the period

ended December 2016. With effect from November 2016, all financial institutions were

required to submit the information to the RMA based on the new reporting format, of

which one of information required is the loans to Micro, Cottage, small, Medium and Large

(MCSML)13 as well as loans to non-enterprise sector14. As depicted in the above table, the

share of loan to non-enterprise sector against the total loans was observed to be the

highest with 45.89% (Nu40.57billion), followed by the Medium enterprise with 21.77%

(Nu.19.25billion) and large enterprise with 14.95%(Nu.13.23billion). The loan to Micro,

Cottage and Small enterprise comprised of 17.4% of the total loans.

Out of the total loan of Nu. 71.59billion of the banking sector for the period ended

December 2016, the Non-enterprise loan comprised the highest with 46.77% amounting

to Nu.33.65billion followed by Medium enterprise with 18.44% (Nu.13.27billion) and

Large enterprise with 17.14% (Nu.12.33billion). Loans to Micro, Cottage and Small

enterprises consisted only 17.66% amounting to Nu.6.79billion.

Similarly, the non-enterprise loan of non-banking sector was also the highest with 42.04%

(Nu.6.92billion) followed by Medium enterprise loan with 36.34% (Nu.5.98billion). Small

12

With effect from 3rd

quarter 2016, Financial institutions are required to submit the monthly returns based on the

new PR 2016, i.e., the age days/ bucket has been reduced for doubtful and loss category. The loans and

advances whose principal and interest payment has been overdue by 181days to 365days has been included under

doubtful category and principal and interest overdue above 365 days has been categorized into loss category.

13

MCSML comprise of Agriculture. Production & Manufacturing, Trade & commerce, Service and Loans to FIs

sector.

14

Non Enterprise sector comprise of Housing, Personal, Transport, staff loan, Education loan, Loan against fixed

deposits, Loans to Government and others.

Table 6.Summary of Loan and Advances based on MCSML and Non MCSML as of Dec 2016 ( Nu. In million)

Dec-16

% share of

Banks RICBL Dec-16

% share of

non banks Dec-16 % share of FIs

MIRCO 2,957.82 4.11% 9.14 0.06% 2,966.97 3.36%

COTTAGE 2,621.02 3.64% 67.94 0.41% 2,688.95 3.04%

SMALL 7,128.66 9.91% 2,593.67 15.76% 9,722.34 11.00%

MEDIUM 13,265.03 18.44% 5,980.74 36.34% 19,245.77 21.77%

LARGE 12,329.46 17.14% 887.85 5.39% 13,217.31 14.95%

NON-enterp 33,648.34 46.77% 6,918.96 42.04% 40,567.30 45.89%

Total 71,950.34 100.00% 16,458.30 100.00% 88,408.64 100.00%

Banks Non Banks Total FIs

Loan



enterprise loan comprised of 15.76% (Nu.2.59billion) and Large enterprise loan

comprised of only 5.39% (Nu.887million). The loan to Micro and Cottage enterprise by the

non-banking sector has the minimum share with 0.06% (Nu.9.14million) and 0.41%

(Nu.67 million) respectively.

7. Sectoral Loans and Advances of Financial Sector

The loans and advances of the financial sector increased by Nu.13.63billion during the

period under review. The growth in the loans was attributable towards a strong demand

for the Housing sector, Service and Tourism sector and Trade &Commerce sector.

The above diagram shows the analysis on sectoral15 exposure to total loans and advances

of the financial sector and indicates that out of the total loans of Nu.88.41billion, Housing

sector has the highest loan outstanding with Nu. 20.31billion (22.97%) followed by

Service and Tourism sector with Nu.16.68billion (18.86%) and Trade and Commerce

sector with Nu.15.24billion (17.24%).

However, in terms of absolute figure for the period ended December 2016, the loans to

Service and Tourism sector experienced the highest sectoral increase by Nu.5.79billion

followed by loans to Housing sector by Nu.2.02billion and Transport sector

byNu.1.01billion.

15

For the purpose of this report, Govt. Employee loan (GE),Credit Card are included in the Personal sector and

loan against fixed deposits (LAFD) is reflected as a separate sector. LAS have been included under other sectors.

Further, Minimum Lending Rate(MLR) was implemented by all FIs in the month of December 2016.

5.24%

12.49%

18.86%17.24%

1.58%

22.97%

4.79%

11.97%

1.82%

0.44%1.03% 0.58%

1.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

0

5,000

10,000

15,000

20,000

25,000

in P

erc

en

tage

In m

illio

n (

Nu

.)

Sectoral Loan December 2016

Loan % Share



The loan exposures under the Housing, Trade & Commerce and Service/Tourism sectors

constituted 59.07% of the total loans for the period ended December 2016. Similarly, the

highest NPL exposure was also observed in Trade & Commerce, Service/Tourism and

Manufacturing Industry sectors constituting 58.35% of total NPL of the financial sector.

7.1.Sectoral loan and advances: banking and non-banking sector

From the total loan outstanding of Nu. 88.41 billion for the period ended December 2016,

81.38% (Nu.71.95billion) comprises of loans provided by the banking sector and

remaining 18.62% (Nu. 16.46 billion) comprises of loans provided by non-banking sector.

The total loans and advances provided by banks and non-banks have increased by Nu.

9.89 billion and Nu.3.74billion respectively.

Table 7.Sectoral Loan and Advances ( Nu.in million) Figures in Nu.million

Sector

% Share (Dec

2016) Dec-15

% share(Dec

2015) Dec-16

% Share (Dec

2016) Dec-15

% share(Dec

2015)

Agriculture/Animal

Husbandry4,624.36 6.43% 3,828.19 6.17% 5.70 0.03% 1.45 0.01%

Production and

Manufacturing

9,204.73 12.79% 8,676.81 13.98% 1,838.87 11.17% 1,476.39 11.61%

Service/Tourism 12,513.66 17.39% 10,284.06 16.57% 4,163.72 25.30% 604.72 4.75%

Trade/Commerce 10,566.99 14.69% 9,392.60 15.14% 4,674.72 28.40% 4,891.00 38.45%

Loan to FI(s) 1,394.05 1.94% 0.00 0.00% 0.00 0.00% 0.00 0.00%

Housing 17,353.72 24.12% 15,607.79 25.15% 2,953.81 17.95% 2,680.63 21.08%

Transport 3,372.80 4.69% 2,274.24 3.66% 858.29 5.21% 942.20 7.41%

Personal Loan 9,275.61 12.89% 9,243.41 14.89% 1,310.02 7.96% 1,602.73 12.60%

Staff Loan 1,110.68 1.54% 22.31 0.04% 500.23 3.04% 0.00 0.00%

Education Loan 384.90 0.53% 72.36 0.12% 0.00 0.00% 0.00 0.00%

LAFD 907.48 1.26% 917.98 1.48% 0.00 0.00% 0.00 0.00%

Loans to Government 513.63 0.71% 0.00 0.00% 0.00 0.00% 0.00 0.00%

Others 727.91 1.01% 1,739.01 2.80% 152.94 0.93% 519.74 4.09%

Totals 71,950.51 100.00% 62,058.76 100.00% 16,458.30 100.00% 12,718.86 100.00%

Banks Non Banks

Dec-16

Loan and advances of Banking Sector has increased from Nu.62.06billion in December

2015 to Nu71.95billion in December 2016 indicating a growth of 15.94% (Nu.9.89billion).

The analysis on the sectoral loan of Banking sector in December 2016 reveals that the

highest loan was seen in Housing sector amounting to Nu.17.35billion(24.11%) followed

by Service and Tourism sector with Nu.12.59billion(17.50%) and Trade and Commerce

with Nu.10.48billion (14.57%).

For non-banking sector, the highest loan was observed to be in Trade and Commerce

sector with 28.40% amounting to Nu.4.67billion and followed by Service and Tourism

sector and Housing sector with 25.30%(Nu.4.16billion) and 17.95%(Nu.2.95billion)

respectively



2,833.91

-376.53

310.22

(254.62)

2,312.43

1,000

500

0

500

1,000

1,500

2,000

2,500

3,000

0

2,000

4,000

6,000

8,000

10,000

12,000


in N

u.M

illi

on

in M

illi

on

N

u.

Quarterly Financial Performance

Interest Income Provision Net Profit

8. Financial Performance

One of the important parameters to assess the performance of the financial sector is the

earning trend. The continued viability of the financial institutions depends on its ability to

earn an appropriate return on its assets, which enables the institutions to fund business

expansion and remain competitive.

During the period ended December 2016, both interest income and interest expenses

grew by 19.53% and 21.70% respectively. The loan provisioning expenses has also

increased due to deterioration in asset quality mainly the increase in NPL by Nu.1.2billion.

Therefore, significantly higher provisioning expenses of Nu.1.42billion in December 2016

compared to Nu. 362milllion in December 2015 has led to a more than 18% drop in net

profits in 2016. Consequently, the financial sector registered a net profit of Nu.2.31billion,

which has decreased from Nu. 2.83 billion in 2015.

Accordingly, Return on Assets (RoA) ratio has decreased from 2.58% in December 2015 to

1.82% in December 2016 and Return on Equity (RoE) decreasing from 14.48% in

December 2015 to 11.31% in December 2016.

As shown in the diagram,

the net profit depicts an

undulating movement.

For the period ended

March and September

2016, the financial sector

incurred loss of Nu.376

million and

Nu.245million

respectively. The reason

for incurring loss was

mainly due to increase in

NPL, which resulted in

higher provisioning

expenses.

Looking at the trend of net profit on a quarterly basis, it was observed that that the net

profit of financial sector has increased in December 2016 amounting to Nu.2.31billion.

Nevertheless, the net profit has decreased when compared to year on year growth by



in Million Nu.

Dec-15 Dec-16 Dec-15 Dec-16 Dec-15 Dec-16

Interest Income 7,361.78 8,607.22 1,472.33 1,951.79 8,834.11 10,559.02

Interest Expense 3,283.96 3,941.85 952.35 1,213.95 4,236.31 5,155.80

Provisions 302.11 1,169.27 60.13 248.59 362.23 1,417.85

Profit after Tax 2,283.18 1,692.53 550.74 619.90 2,833.91 2,312.43

Banks Non Banks Total FIs

Year on Year Growth on the Financial Performance

Nu.521million (18.40%) from Nu.2.83billion in December 2015 to Nu.2.31billion in

December 2016. The reason for decrease in the profit was mainly due to increase NPL by

Nu.1.2billion with majority of it being classified under Loss category (Nu.4.05billion),

which resulted in higher Provisioning requirement of 100%.

8.1. Financial Performance: banking and non-banking sector The net profit of the banking sector has decreased by Nu.590 million, from Nu.2.28billion

in December 2015 to Nu.1.69billion in December 2016. The decrease in the net profit was

mainly due to an increase in NPL by Nu.1.08billion which resulted in higher provisioning

expenses of Nu.1.17billion

in December 2016. The

interest income and

interest expense of

banking sector amounted

to Nu.8.61billion and

Nu.3.94billion

respectively. For

December 2016, the

banking sector paid a

corporate tax of Nu.812.68million.

The net profit of the non-banking sector has increased by Nu.69.17million. The increase in

interest income by Nu.479million was more compared to the increase in interest expense

of Nu. 261million. The interest income from loans and advances amounted to

Nu.1.82billion and fixed and other deposits accounted to Nu.129million during the period

under review.

RoA and RoE of the banking sector stood at 1.54%and 9.59% respectively, both the ratios

have decreased by 0.84% and 4.07% as compared to the previous year. However, the RoE

has improved slightly for non-banking sector with 22.22% as compared to 19.29%. The

RoA has declined slightly by 0.44%, from 3.99% in December 2015 to 3.55% in December

2016.




Demand Deposits 40,500.28 53,323.03 42196.84 43841.23 47,395.20

Current Deposits 21,450.82 34,332.69 20934.19 21871.22 23,332.05

Savings Deposits 19,049.46 18,990.34 21262.65 21970.01 24,063.15

Time Deposits 37,713.09 37,669.88 40277.55 42522.86 45,773.38

Fixed Deposits 36,472.45 36,424.65 39026.45 41246.21 44,417.16

Recurring Deposits 1,240.65 1,245.23 1251.10 1276.64 1,356.22

Total 78,213.37 90,992.91 82,474.39 86,364.09 93,168.59

Deposit by Type ( Nu in million)

9. Deposit (Banking Sector)

Deposits are the main source of fund for the banks. The total deposit base of banking

sector has increased by 19.12% (Nu.14.96billion), from Nu.78.21billion in December 2015

to Nu.93.17 billion in December 2016.

For the period ended December 2016, current and saving account (CASA) deposits has

increased marginally as compared to the previous year end. The CASA increased by

17.02% in December 2016, from Nu.40.50billion in 2015 to Nu.47.39billion in 2016. The

Individual and Private companies constituted the highest CASA accounts of

Nu.34.02billion (72% of the total CASA Deposit) and Nu.3.05billion (6.44% of the total

CASA deposit) respectively for December 2016.

The table below shows the comparison of quarterly deposits trend. The Demand Deposit

has increased gradually from June 2016 with Nu 42.19billion to Nu.47.39 billion in

December 2016. Similarly, the Time Deposit also increased from Nu.37 billion in

December 2015, to Nu.40.28billion in June 2016 and to Nu.45.77 billion in December

2016.

Year-on-year growth in the overall deposit base showed that the increase in deposit base

was due to the increase in both the Demand Deposits and Time Deposits by 17.02% and

21.37% respectively. As a share of total deposits, Demand Deposits (Current and Saving)

accounted for 50.87% and Time Deposits (Fixed and Recurring) accounted for 49.13%. Of

the total deposit of Nu.93.17billion in December 2016, the Current Deposit accounted for

25.04% while the Saving Deposit accounted for 25.83%. The share of fixed deposit

accounted for 47.67% and Recurring Deposit account 1.46%.

In terms of deposits by customer, out of the total deposits of Nu.93.17 billion in December

2016, Retail Deposits accounted for 56.32% (Nu.52.47billion) and remaining 43.68% (Nu.



40.70billion) comprises of Corporate Deposits. Out of the total Retail Deposits of

Nu.52.57billion, individual deposits consists of 95.42% and remaining 4.58% is in the form

of foreign currency deposits. Similarly, out of the total Corporate Deposits of

Nu.40.70billion, deposits by Government Corporation constituted the highest with 28.90%

amounting to Nu. 11.76billion followed by the deposits of Non-bank financial institutions

with 22.17% (Nu.9.02billion) and commercial banks with 19.18% (Nu.7.81billion)

(Annexure I).

Credit to Deposit ratio of the banking sector slightly decreased by 2.12%, from 79.35% in

December 2015 to 77.23% during the period under review.(Annexure I)

10. Liquidity

It is very important for all financial institutions to have adequate liquidity in order to meet

its obligation as and when they fall due. Financial institutions with access to reliable

funding sources are likely to expose to low liquidity risk than those having to depend on

volatile sources of fund. Further, the Prudential Regulations 2016 requires all banks and

non-banks to maintain a minimum statutory liquidity ratio in the form of quick assets of

20% and 10% respectively.

During the period ended December 2016, financial sector has maintained Statutory

Liquidity Requirement

(SLR) at 29.30%.

However as compared

to the previous year,

SLR of financial sector

has slightly decreased

by 1.19%.

Quick asset has

increased by

Nu.4.71billion while the

total liabilities have

increased by

Nu.20.44billion which

was mostly attributed

by increase in deposit liabilities in banking sector by Nu.14.96 billion. This increase in

liabilities has off-set the increase in quick asset, that has resulted in the overall decrease in

SLR position of the financial sector. However, the overall liquidity position of the financial

sector remained comfortable by maintaining liquidity in the form of quick assets in excess

32.68%31.99%

15.75%

13.28%

30.49%

29.30%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

-

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

Dec-15 Dec-16 Dec-15 Dec-16 Dec-15 Dec-16

Banks Non banks Total FIs

in p

erc

en

tage

in m

illio

n n

u

Liquidity

Quick asset Liquidity Position(in Nu) SLR position (%)



of the actual requirement of quick asset16 (which can be easily converted into cash and use

during the liquidity shortage), amounting to Nu.29.46 billion against the minimum

requirement of Nu.21.64bbillion.

SLR position of the banking sector stood at 31.99% in 2016 as compared to 32.68% in

2015. The decrease in the ratio is mainly due to increase in liabilities by Nu.15.98billion

which was mostly contributed by increase in deposit liabilities by Nu.14.96billion during

the period under review.

Similarly, the non-banking sector’s SLR position as of December 2016 decreased to

13.28% as compared to 15.75%in December 2015, mainly due to increase in liabilities

(specifically attributed by the increase in borrowings from both commercial banks and

non-banks by Nu.1.32billion). Although the SLR of banks and non-banks has decreased by

0.69% and 2.47% respectively, it is still maintained within the minimum SLR requirement

of 20% and 10% respectively.

16

With effect from 2016, as a transitional stipulation, financial institutions can include time deposits with the

remaining period to maturity not exceeding 180 days as a part of quick asset for period of one year



Annexure I

Financial Soundness Indicators of Financial institutions (December 2015-2016)



Annexure II Year on Year Growth (December 2015-2016) of total Financial sector

Consolidated Deposit by customer for Dec 2015 - 2016(figures in Million Nu.)

Corporate deposits 40,696.97 42,062.07 -3.25% 43.68%

Government 4,954.06 10,363.90 -52.20% 5.32%

Government Corp. 11,762.40 12,985.09 -9.42% 12.62%

Public Companies 2,228.55 483.21 361.20% 2.39%

Private Co. 4,923.23 4,215.87 16.78% 5.28%

Commercial Banks 7,806.81 8,651.93 -9.77% 8.38%

NBFIs 9,021.92 5,362.07 68.25% 9.68%

Retail deposits 52,471.62 36,151.30 45.14% 56.32%

Individuals 50,066.78 34,887.89 43.51% 53.74%

Foreign Currency 2,404.84 1,263.41 90.35% 2.58%

Total 93,168.59 78,213.37 19.12% 100.00%

% ChangeDec-16 Dec-15Deposits by Customer

Total Deposits

% Holding




Agriculture/Animal Husbandry 250.30 382.80 542.35 9.47%

Production and Manufacturing 548.70 428.46 533.38 9.31%

Service/Tourism 446.04 800.58 1,156.07 20.19%

Trade/Commerce 937.13 1,010.00 1,434.79 25.06%

Loan to FI(s) 0.00 0.00 0.00%

Housing 768.31 822.01 921.70 16.10%

Transport 386.21 267.28 320.59 5.60%

Personal Loan 696.49 774.83 777.83 13.58%

Staff Loan 0.00 0.00 25.42 0.44%

Education Loan 0.00 1.68 8.32 0.15%

LAFD 0.53 0.19 3.67 0.06%

Loans to Government 0.00 0.00 0.00 0.00%

Others 16.72 24.24 2.31 0.04%

Total NPL 4,050.41 4,512.07 5,726.43 100%

Total Loan 63,989.85 74,777.63 88,408.81

Gross NPL Ratio 6.33% 6.03% 6.48%

Sectoral NPL trend from Dec 2014-2016

SectorTotal FIs

%

Holding(2016)

Sectoral Loan Trend Dec 2014- 2016 ( Figures in Million Nu )

Sectoral NPL Trend December 2014-2016 ( figures in Nu. Million)


Agriculture/Animal Husbandry 2652.93 3,829.64 4,630.06 5.24%

Production and Manufacturing 10230.03 10,153.21 11,043.60 12.49%

Service/Tourism 8859.81 10,888.78 16,677.38 18.86%

Trade/Commerce 9888.14 14,283.60 15,241.71 17.24%

Loan to FI(s) 0.00 1,394.05 1.58%

Housing 16414.67 18,288.42 20,307.53 22.97%

Transport 2391.02 3,216.45 4,231.09 4.79%

Personal Loan 10345.06 10,846.14 10,585.63 11.97%

Staff Loan 0.00 22.31 1,610.91 1.82%

Education Loan 0.00 72.36 384.90 0.44%

LAFD 1160.35 917.98 907.48 1.03%

Loans to Government 0 0.00 513.63 0.58%

Others 2,047.83 2,258.75 880.85 1.00%

Total 63989.85 74,777.63 88,408.81 100.00%

***For the purpose of this report, the sectoral loan classification is based on the new reporting format

submitted by Fis, where the LAFD is deducted from Personal and shown as a separate sector. LAS is

added under other Sectors. Education laon and staff loan is reflected as a new sector instead of

clubbing it under other sectors. The same adjustment has been made for 2014 and 2015, however,

staff and education loan could not be segregrate for 2014 and 2015 from the old reporting format

Sector % Holding(2016)

Sectoral Loan trend from Dec 2014-2016

financial sector performance review report (december 2016) publication/fsp/fsp dec2016.pdf · as of...

Documents