Pilot cases thus far have included Benin, Ghana, Haiti, Senegal, and the West African Economic and Monetary Union, and Haiti.
This document reflects information available as of the September 2013 mission, except where noted.
Although Bhutan primarily needs Indian rupees for trade settlement and debt service, with de facto full convertibility for rupee (but not convertible currency) current and capital transactions, the Constitution of Bhutan stipulates that foreign currency reserves of at least one year’s “essential imports” must be maintained.
Data exclude lending by insurance companies and the state pension fund.
These characteristics are GDP per capita, population size and density, young and old age dependency ratios.
See “Bhutan: Selected Issues”, Chapter II on “Rapid Private Sector Credit Growth, Macroeconomic Risks, and Financial Sector Soundness”, IMF Country Report 07/349.
Two new banks were licensed, one a subsidiary of an Indian state-owned bank and the other owned by private Bhutanese investors. Both have been listed and issued shares on the Royal Securities Exchange of Bhutan (RSEB), meeting a legislative requirement that any new financial institution is at least 40 percent public. The established development finance company has also been licensed as a bank.
See World Bank, Connecting the Disconnected: Coping Strategies of the Financial Excluded in Bhutan, 2013.
Factoring is a financial transaction in which a business sells its accounts receivable to a third party (called a factor) at a discount.
The January 2010 follow on survey included interviews with banks which corroborated banks’ difficulty in evaluating creditworthiness of borrowers in the absence of financial statements and requiring the use of collateral.
Bhutan Enterprise Survey, World Bank Group, 2009.
Other acts that address financial consumer protections through increased competition and an enabling environment in the financial sector include the RMA Act 2010, Prudential Regulations 2002, Financial Services Act of Bhutan 2011, Corporate Governance Regulations 2011, and Moveable and Immovable Property Act of the Kingdom of Bhutan 1999, among others.
Also issued were Regulations for Fund Management Companies in 2011; Investment Advisors Regulations, 2011; Insurance Brokers Regulations, 2011; and Securities Brokers Regulations, 2011.
Draft regulations have been prepared by a consultant and a revised version was in preparation at the time of the EFSS mission, drawing on consultancy services funded by the Asian Development Bank.
The RMA is actively working with consultants funded by the Asian Development Bank on a reporting format for banks to use (only one bank has been able to make reports under the existing format) and on developing supervisory expertise in the area of asset and liability management.
The directive was lifted subsequent to the mission, and the authorities are now developing investment guidelines for non-banks to encourage them to gradually lend less.
The RMA has made clear that this new framework is an interim measure and will be reviewed after six months, taking into account how financial institutions respond.
Lending by banks grew at a rate of nearly 5 percent in the second quarter of 2013 compared with rates of less than 2 percent per quarter since the measures introduced in March 2012.
Regulations have been drafted but implementation has been delayed by conflicting technical assistance recommendations.
Subsequent to the mission, the authorities issued proposed regulations to introduce a range of new tools, including countercyclical capital buffers, loan-to-value and debt-to-income limits, sectoral capital requirements, restrictions on profit distributions, and dynamic provisioning. The MCM department has offered to provide a desk review of the proposed framework which is now being revised.
See RMA Annual Report 2011–2012.
TA is currently being provided to MoF by the IMF Fiscal Affairs Department on developing cash planning and cash management.
An MOU between MoF and RMA of November 2009 gives the RMA the authority to issue Treasury bills for monetary policy purposes; this arrangement replaces the earlier use of RMA bills.
Proceeds from issuances of government securities for monetary policy purposes would be placed in a blocked account where they would not be available for financing government expenditures.
The present arrangement specifies that meetings should take place as and when necessary but not less than once a quarter. In a dynamic market environment, with an active Treasury bill issuance program, the frequency of meetings should be considered.
The Royal Securities Exchange of Bhutan (RSEB) has a depository in place for debt instruments. While multi-year government bonds may be listed and traded at the RSEB, it is generally advisable to start the infrastructural development with a separate depository—most often in the central bank—for Treasury bills (and other money market instruments). In addition to fast and secure settlements, this will allow for Over the Counter (OTC) trading which has proven to be the most effective way for developing a secondary market for these instruments.
This is also the recommendation of a Fiscal Affairs Department mission.
The reserve ratio was reduced from 17 percent to 10 percent in March 2012 and further to 5 percent in June 2012.
To grant commercial banks an overdraft facility in the central bank, for any period, is unusual. Standing facilities should be available for covering unexpected short-term liquidity needs; 90 days are in the context of short-term liquidity management much too long.
Data on interest rates are limited and only ranges of interest rates in various categories of deposit and lending are available.