Performance Assessment of Bank Development and Banking (BDB) in Bhutan
Introduction
This report provides an assessment of the performance of Bank Development and Banking (BDB) in Bhutan, focusing on key areas such as corporate credit unit, risk management practices, institutional ability to undertake rural enterprise financing, financial burden from community center management, and deposit mix.
Performance of Corporate Credit Unit
The current credit appraisal practices for corporate portfolio are not effective due to limited expertise among credit officers. To improve this, BDB should:
Recommendations
- Adopt evidence-based credit appraisal practices based on established benchmarks.
- Develop and train credit officers in certain industries and assign related files to respective credit officers to ensure quality appraisal.
Risk Management Practices in Credit Portfolio
Although BDB has a dedicated Risk Management Division with a well-defined risk management manual, the credit application process is not integrated with risk management inputs. To address this:
Recommendations
- Train the risk officer on prudential risk management practices and procedures.
- Increase the number of risk officers proportionally to business growth.
Institutional Ability to Undertake Rural Enterprise Financing
BDB has prior experience, infrastructure, and outreach to undertake rural enterprise financing. However, it should improve critical aspects such as:
Key Areas for Improvement
- Credit appraisal practices
- Monitoring and supervision capacity
- Capacity enhancement of clients on financial literacy and technical guidance for rural enterprise management
To address these areas, BDB can adopt evidence-based credit appraisal practices, establish a monitoring and supervision division with adequate staff, and provide customized financial literacy and enterprise management trainings for rural clientele.
Financial Burden from Community Center (CC) Management
BDB is continuously losing money on managing CCs. To mitigate this:
Recommendations
- Revise the pricing structure of CC to be at least self-sustainable.
- Seek subsidy from central government or other agencies to fill the shortfall.
Deposit Mix
The current deposit mix has a relatively low contribution from current and saving accounts. To improve this, BDB can consider strategies such as offering competitive interest rates, increasing branch network, and improving customer service.
Recommendations
- Offer competitive interest rates
- Increase branch network
- Improve customer service