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Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 1
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.
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 2
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.
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 3
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 4
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.
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 5
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%)
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 6
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 7
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.
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 8
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
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
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(%)
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 9
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 10
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 11
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 12
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 13
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 14
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 15
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
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 16
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.
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 17
Dec-15 Mar-16 Jun-16 Sep-16 Dec-16
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.
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 18
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 (%)
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 19
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 20
Annexure I
Financial Soundness Indicators of Financial institutions (December 2015-2016)
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 21
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
Financial Sector Performance Review Report for December 2016
Financial Regulation and Supervision Department Page 22
Dec-14 Dec-15 Dec-16
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)
Dec-14 Dec-15 Dec-16
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