RMA has received 10 applications – eight for banks and two for insurance. But only three banks – two joint ventures and one domestic – and one insurance, also joint venture, have met most of RMA’s application conditions. The selected firms will start early next year.

Bhutanese, who are unhappy with local financial companies and crave for newer products and higher interest, and lower insurance premiums, welcome the competition. With good reasons.

The two dominant financial companies – the Bank of Bhutan (BoB) and Bhutan National Bank (BNB) – have shown, for a long time, a seemingly immutable and rather Confucian degree of financial conservatism and thrift in their business, experts point out.

There are also people, who say the banks have cared little for the consumer, other than as a cheap source of funds to be shovelled into the maws of the big businesses that are their chief customers.

Their products are few and homogenous, say RMA. There is no competition. They lend at high interest and borrow from people at low interest. Because it’s a duopoly, customers are at the receiving end. Current inflation is surging at 8.85 percent but their deposit rates hover around 6 percent, inflicting loss (-2.85 percent) to savers. Things are no better with the Royal Insurance Corporation of Bhutan (RICB), which have enjoyed monopoly in the market for the longest time.

Foreign banks are good news for customers. Experts say they bring with them new products that drive down margins, giving customers more choice for less money. Bill payment facility, where banks pay customer’s bills, is one. They give dissatisfied depositors somewhere else to take their money, forcing local banks to raise their game.

Because they have ready access to foreign sources of liquidity, they bring with them much needed capital, say experts. Foreign ownership also plugs the financial sector into higher standards of governance, better technology, and better access to capital.

But DHI’s chief executive officer, Karma Yonten, said that these benefits might come only if Bhutan had the right policies in place, which he suggested the country lacked.

“This is a good opportunity to streamline a lot of issues in the financial sector,” said Karma Yonten.

He said opening financial sector to foreign ownership was a big deal and that “it should be well thought of”.

He said local banks needed to know if foreign banks would operate in remote regions where BoB (26 branches) and BNB (six branches) operated as part of their social responsibility. What would the foreign banks’ rural obligation be?

“The level playing field has to be there,” said Karma Yonten. “They cannot just concentrate on profitable regions.”

The deal could indeed go wrong, say experts. Foreign banks have made most progress in emerging markets with stable and efficient banking system backed by strong political conditions such as in Hong Kong. But in countries like Zambia, where the deal was badly structured and included political involvement, it killed local banks. The point is that a country’s macroeconomic policies should be disciplined to be ready for international competition, say experts.

RMA’s Eden Dema said the central bank had enough good policies to supervise and monitor foreign banks.“They have to at least set up five branches in different districts within three years of operation.”

After which she said the expansion depended on the firm. The promoters also had to issue Initial public offering worth 30 percent of the firm’s paid up capital.

“As long as a banking proposal meets our licensing requirements, there is no reason why it should be denied a license,” said Eden Dema.

BoB and BNB has a total deposits of Nu 25 billion, representing about 34 percent of the country’s (roughly) Nu 45 billion GDP. The rest has not been seriously tapped, experts say.

“It is a virgin territory out there,” said Eden Dema.

Source: http://www.kuenselonline.com