Study of bhutan national bank

Research done by:

BBA FOURTH SEMESTER

TSHERING NIDU

BACHELOR IN BUSINESS ADMINISTRATION

(UNIVERSITY SCHOOL OF BUSINESS)

CHANDIGARN UNIVERSITY

SUBMITTED BY: SUBMITTED TO:

TSHERING NIDU DR.SIMRAN

15BBA1081 BBA DEPARTMENT

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 Table of Contents

ACRONYMS……………………………………………………………4

BHUTAN NATIONAL BANK LIMITED……………………………..5-7

VISION AND MISSION……………………………………………….8

ACKNOWLEDGEMENT……………………………………………...9

INTRODUCTION……………………………………………………...10

CREDIT OFFICER…………………………………………………….11

TYPES OF LOAN……………………………………………………..12

BANK GURANTEE…………………………………………………..13-15

BUSINESS LOAN…………………………………………………….15-16

CONSUMER LOAN………………………………………………….16-17

GOVERNMENT EMPLOYEE LOAN……………………………….17-19

HOUSING LOAN…………………………………………………….19-20

INDUSTRIAL LOAN………………………………………………...21-22

SERVICE AND TOURISM LOAN………………………………….22

LOAN AGAINST FIXED DEPOSIT………………………………..22-23

LOAN AGAIN SHARES……………………………………………23

PERSONAL LOAN…………………………………………………23-24

TRANSPORT LOAN……………………………………………….25

RESEARCH METHODOLOGY…………………………………...26

TYPE OF RESEARCH……………………………………………..26

RESEARCH DESIGN……………………………………………...26

DATA COLLECTION……………………………………………..26

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LOCATION OF STUDY…………………………………………26

SAMPLING DESIGN……………………………………………27

QUESTION ON BNBL………………………………………….28-32

CONCLUSION AND RECOMMENDATION………………….32-34

REFERENCES…………………………………………………..35

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 ACRONYMS
BNBL:BHUTAN NATIONAL BANK LIMITED

BOI:BRANCH OPERATION INCHARGE

EMD:EARNEST MANY DEPOSIT

RICBL:ROYAL INSURANCE CORPORATION OF BHUTAN

NPPFB:NATIONAL PENSION AND PROVIDEND FUND

BOBL:BANK OF BHUTAN LIMITED

DPNB:DRUK PUNJAB NATIONAL BANK LIMITED

BDBL:BHUTAN DEVELOPMENT BANK LIMITED

BHUTAN INSURANCE LIMITED

EMI:EQUATED MONTHLY INSTALLMENT

RBA:ROYAL BHUTAN ARMY

RBP:ROYAL BHUTAN POLICE

RBG:ROYAL BODY GUARD

ECB:ELECTION COMMISSION OF BHUTAN

DTA:DEPARTMENT OF TRANSPORT AUTHORITY

ACC:ANTI-CORRUPTION CORPORATION

FCB:FOOD CORPORATION OF BHUTAN

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 BHUTAN NATIONAL BANK LIMITED

Bhutan National Bank is a commercial bank founded in 1997 and located in Thimphu, capital
of the Kingdom of Bhutan

25th July 1980:

Unit Trust of Bhutan (UTB), an undertaking of the Royal Government was incorporated on
its Memorandum and Articles of Association under the Rules and regulations of Bhutan
with an initial capital of Nu.2.5 million, contributed by the Royal Government and the
Royal Insurance Corporation of Bhutan (RICB). The Trust functioned as a subsidiary of the
RICB.

The Basic purpose for the formation of the Trust was to:

1. Inculcate saving habits among the general public

2. Channel resources into productive sectors.

1st January 1992:

The Royal Government conferred the Trust independent Financial Institution status.

31st December 1992:

In its first year the Trust declared a profit of Nu. 9,618.86.

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 1995:
With the growing economy and the presence of only one bank in the kingdom The Royal
Government commanded that the Trust be converted into a commercial bank. For the
conversion the Asian Development Bank offered technical assistance.

July 1996:
Bhutan National Bank's equity was offered to the public. This made the Bank the only
financial institution that was widely owned by the public in the country with an ownership of
28.58 %

December 1996:
BNB computerized. Launched the banking software; Micro Banker.

1997:
The Royal Government divested 40 % of its equity to the Asian Development Bank and
Citibank making it the only institution in the country with foreign interests.

6th January 1997:

BNB officially opened for business.

March 2001:
The Royal Government reduces its nominees to the Board, to encourage private sector
participation to the optimum and to cultivate a sense of competition, dynamism, and
professionalism.
.
2004:
Launched first ever ATM services in Bhutan at Thimphu & Phuntsholing for convenient
banking.

2007:
Introduced debit Point of Sale terminals in Bhutan.

March 2009:
Launched SMS Services.

14th November 2009:

Launched Internet Banking.

12th April 2011:

Launched Recurring Deposit and Rupee Denominated Prepaid card

2nd December 2011:

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Launched the Bhutan Financial Switch (BFS) which was inaugurated by the Hon’ble Prime
Minister of Bhutan.

10th November 2012:

Launched Piggy Bank Accounts for children aged 6 - 18.

14th December 2012:

Launched B-Wallet Service by Hon’ble Lyonpo Nandalal at Taj Tashi.

8th November 2016:

Launched BNB mPAY

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 Vision & Mission

Our Purpose:
“To provide financial choice through innovation”

Our Values:
Integrity: through fair and honest actions;
Innovation: by being a learning organization that puts good ideas to practice;
Leadership: by example, humility, recognition and empowerment;
Teamwork: through individual respect, underpinned by a united purpose; and
Discipline: through people, thought and action.

Vision:
“To gain regional recognition by being #1 in all our services and work culture”

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 ACKNOWLEDGEMENT
The outcome of my major project is not at all the sole effort of me but there are many
important persons that have been the part of my major project, therefore every effort is liable
to get credit point; so I would like to extend my profound gratitude to those who have
contributed to make my project successfully without fail. The persons who have made their
hands available at the time when I am in need are:

Firstly I would like to extend our heartfelt gratitude to the Management BBA department

Secondly owes a special expression of appreciation and gratitude to our research project
guide, Mrs.Dawa Lhamo and Mr.Dilli Ram Dhungyel for giving precious time and
tremendous effort which has added great insights in doing our research project, without
which I would not have attain the success of our research project. Guidance from our
Module guide has let us to go in right direction and the journey of our research has been
incredibly exciting and smooth.

Thirdly my heartfelt thanks goes to the management of Bhutan National Bank Limited
(BNBL), Specially for Branch Operation Incharge(BOI) of BNBL for supporting us and
providing us relevant documents like annual reports and detail information of deposits and
loans of commercial banks for the five consecutive years that’s from 2012-2016 .

So I sincerely appreciate the inspiration, encouragement guidance and valuable suggestion

provided to me by all the above mentioned persons for making our major project successful.

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 Introduction

In finance, a loan is the lending of money from, organization or entity to another individual,
organization or entity. A loan is a debt provided by an entity (organization or individual) to
another entity at an interest rate, and evidenced by a promissory note which specifies, among
other things, the principal amount of money borrowed, the interest rate the lender is charging,
and date of repayment. A loan entails the reallocation of the subject asset(s) for a period of
time, between the lender and the borrower.
In a loan, the borrower initially receives or borrows an amount of money, called
the principal, from the lender, and is obligated to pay back or repay an equal amount of
money to the lender at a later time.
The loan is generally provided at a cost, referred to as interest on the debt, which provides an
incentive for the lender to engage in the loan. In a legal loan, each of these obligations and
restrictions is enforced by contract, which can also place the borrower under additional
restrictions known as loan covenants. Although this article focuses on monetary loans, in
practice any material object might be lent.
Acting as a provider of loans is one of the principal tasks for financial institutions such as
banks and credit card companies. For other institutions, issuing of debt contracts such
as bonds is a typical source of funding

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 CREDIT OFFICER

Credit officers, also referred to as loan officer, facilitate lending from financial institutions to
individuals and businesses. People use credit to buy houses, cars and expensive consumer
items. In addition, individuals use credit to pay for higher education. Companies use credit to
start small businesses, buy inventory and invest in equipment and other large purchases. In
addition to facilitating lending, credit officers may help problematic borrowers find
unconventional loans

Credit officers typically help clients complete the loan application process. A client first
contacts the lending institution through a phone call, branch visit or online application. Then,
the credit officer gathers the client’s financial information and assesses the client’s ability to
repay the loan. Credit officers will explain the different options the client has based on the
client’s assets, creditworthiness and potential collateral. Credit officers are responsible for
assessing and verifying the client’s financial information and helping the client get through
the often complex loan process.

Credit officers who deal with commercial transactions often spend much of their time outside
the office, often visiting client’s homes and offices. They often rely on information
technology with laptop computers and smart phones to keep them connected to the office. It
is common for a credit officer to work out of her car or home. However, credit officers who
deal with individual consumers usually work from an office. Overall, credit officers mostly
work a typical 40-hour week.

Most credit officer positions require only a high school diploma. Banks and other lending
institutions provide training or sponsor their employees' training in the first couple of months
after employment. Bank tellers and customer service representatives frequently work their
way up the banking industry to work as credit officers. Credit officers who work in
commercial transactions, however, usually have a bachelor’s degree in accounting, finance or
economics.

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 Types of loans

1) Bank Guarantees
2) Business Loan
3) Consumer Loan
4) Government Employee Loan
5) Mortgage/Housing loan
6) Industrial Loan
7) Service and Tourism Loan
8) Loan against Fixed Deposit
9) Loan against Shares
10) Personal Loans
11) Transport Loans

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1/Bank Guarantees
What is a 'Bank Guarantee'?

A bank guarantee is a guarantee from a lending institution ensuring the liabilities of

a debtor will be met. In other words, if the debtor fails to settle a debt, the bank covers it. A
bank guarantee enables the customer, or debtor, to acquire goods, buy equipment or draw
down loans, and thereby expand business activity.

BREAKING DOWN 'Bank Guarantee'

A bank guarantee is a lending institution’s promise to cover a loss if a borrower defaults on a

loan. The guarantee lets a company buy what it otherwise could not, helping business growth
and promoting entrepreneurial activity. For example, Company A is a new restaurant wanting
to buy $3 million in kitchen equipment. The equipment vendor requires Company A to
provide a bank guarantee to cover payments before shipping the equipment. Company A
requests a guarantee from the lending institution keeping its cash accounts. The bank
essentially cosigns the purchase contract with the vendor.

Types of Bank Guarantees

A direct guarantee is typically used in foreign or domestic business and issued directly to
the beneficiary. The guarantee applies when the bank’s providing security is not reliant on the
existence, validity and enforceability of the main obligation. Guarantees are often chosen for
cross-border transactions since the beneficiary asserts claims rapidly due to the general nature
of the guarantee. A direct guarantee is easier to adapt to foreign legal systems and practices
due to not having form requirements.

An indirect guarantee is often issued for export business, especially when government
agencies or public entities are beneficiaries. Many countries do not accept foreign banks
and guarantors because of legal issues or other form requirements. With an indirect
guarantee, a second bank, typically a foreign bank with a head office in the beneficiary’s
country of domicile is utilized.

Examples of Bank Guarantees

*A bid bond prevents companies from tendering bids and not accepting or executing the
awarded contract.

*A performance bond serves as collateral for the buyer’s costs incurred if services or goods
are not provided as agreed in the contract.

*An advance payment guarantees acts as collateral for reimbursing advance payment from
the buyer if the seller does not supply the specified goods per the contract.

*A warranty bond serves as collateral ensuring ordered goods are delivered as agreed.

*A payment guarantee assures a seller the purchase price is paid on a set date.

*A credit security bond serves as collateral for repaying a loan.

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*A rental guarantee serves as collateral for rental agreement payments.

A confirmed payment order is an irrevocable obligation where the bank pays the beneficiary
a set amount on a given date on the client behalf.

Types of Bank Guarantees:-

i. Bank Guarantee for Bid Security/Earnest Money Deposit (EMD)

ii. Bank Guarantee for Mobilization Advance
iii. Bank Guarantee for Advance Payment
iv. Bank guarantee for Retention of Money
v. Bank Guarantee for Security Deposit
vi. Bank guarantee for Defect Liability
vii. Performance Guarantee Inland
viii. Bank Guarantee Foreign
ix. Performance Guarantee Foreign

Policy:
Commission Rate
Bank Guarantee for EMD & Bid Security
upto 250,000 - Nu. 500
above 2,50,001 to 500,000 - Nu. 1000
above 500,001 to 1,000,000 - Nu. 2000
above 1,000,001 - Nu 3000
Bank Guarantee for Mobilization Advance • 2% on the guarantee amount
Bank Guarantee for Advance Payment • 2% on the guarantee amount
Bank Guarantee for Retention of Money • 2% on the guarantee amount
Bank Guarantee for Security Deposit • 2% on the guarantee amount
Bank Guarantee for Defect Liability • 2% on the guarantee amount
Bank Guarantee Foreign • 3% on the guarantee amount
Performance Guarantee Inland •
1. Upto Nu.100 million = 2% p.a, Min Nu.500
2. Above Nu.100 million= Negotiation between the bank and the client.
3. Against Cash margin money = 1% p.a
4. Against Fixed Deposit = 2%
Performance Guarantee Foreign •
1. Upto Nu.100 million = 2% p.a, Min Nu.500
2. Above Nu.100 million= Negotiation between the bank and the client.
3. Against Cash margin money = 1% p.a
4. Against Fixed Deposit = 2%
1% for Margin Money Deposits for both Bank and Performance Guarantees; domestic.

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Eligibility Criteria:
Security

 Security Coverage 1:1

 Immovable properties; House/Building must be commercially viable
 Movable properties; Equipment/Vehicles (not older than five years)
 Gold jewelleries and Fixed Deposit Certificates
 Should be a Bhutanese citizen
 Should have a sound source of repayment
 Guarantees issued must be covered at the ratio of 1:1

Documents
 Authenticated ownership of properties
 2 Nos of Passport size photograph
 Trade License
 CDB Certificate (if it is Construction Company)
 Citizenship Identity Card Copy
 FIS clearance

2. Business loan

A business loan is a loan specifically intended for business purposes. As with all loans, it
involves the creation of a debt, which will be repaid with added interest. There are a number
of different types of business loans, including bank loans, mezzanine financing, asset-based
financing, invoice financing, microloans, business cash advances and cash flow loans
Types
Bank loan.
A bank loan may be obtained from a bank and may be either secured or unsecured. For
secured loans, banks will require collateral, which may be lost if repayments are not made.
The bank will probably wish to see the business’s accounts, balance sheet and business plan,
as well as studying the principals' credit histories. Many smaller businesses are now however
turning towards Alternative Finance Providers, especially in the case of smaller firms

Loans from credit unions may be referred to as bank loans as well. Business loans from credit
unions received the second highest level of satisfaction from borrowers after loans from small
banks.

Microloans
Smaller loans, usually for loan amounts of $100,000 USD or less, are referred to as
“microloans.” Banks are less likely to make these loans than alternative lenders. When they
do, the decision is usually based on the personal credit score of the business and/or the
business credit score

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i. Lending Policy:

 Loan Processing Fee: Nu 500/- for every application.

 Valuation Fee: As per the Engineer's inspection (Maximum Nu.5000/-)
 Interest rate and term: 12.5% for 5 years
 Repayment: Lump sum for overdrafts
 Penalty Rate: 5%

Eligibility Criteria:
 Security
 Should be a Bhutanese citizen
 Immovable properties; house/Building must be commercially viable
 Movable properties; Equipment/ Vehicles (not older than five years)
 Gold Jewelleries and fixed Deposit Certificates
 Ownership Certificate (3 months validity)
 Trade License or CDB certificate for contractors
 Should have a sound source of repayment
 Loan will be sanctioned at 60% to 75 % of the collateral Value

3/ Consumer Loan
An amount of money lent to an individual (usually on a no secured basis) for
personal, family, or household purposes. Consumer loans are monitored
by government regulatory agencies for their compliance with consumer protection regulations
such as the Truth in Lending Act.

 You should be careful any time you are giving out any consumer loan or it may just
end up being a sunk cost.
 If you need to borrow money to make some improvements around your home, you
might consider a consumer loan which would be like a personalized loan to you.
They finally got their consumer loan and I could see how excited it made them, because they
all started to smile at each other
This loan is provided to employees of RGoB, corporate and private firms with post retirement
benefits for the purpose of purchasing items such as computers and two wheelers.

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  Repayment: Monthly
 Repayment Source: Salary
 Exposure (maximum): Nu. 100,000
 Rate of interest and term:11% for 5 years

4/ Government Employee Loan

One of our most successful ventures, we initiated the government Employee Loan scheme in
1997.

1. Features:
i. Target market
ii. Employees of the Royal Government
 Civil servant
 Students
iii. Employees of the Armed forces
 RBA
 RBP
 RBG
iv. Employees of the autonomous bodies
 ECB
 DTA
v. Employees of the government corporations
 ACC
 FCB
vi. Employees of the financial institutions
 BNBL
 BOBL
 BDBL
 DPNB
 RICBL
 BIL
vii. Employees of the international bodies in Bhutan
viii. Employees of the UN organizations in Bhutan
ix. Employees of the Non-Government Organizations.

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1.2. Eligibility:
 For loan upto Nu 1,50,000.00 only
The armed personnel should have three years of service
For the regular employees:

a. Grade 10 and above:- after completing the probation period and should provide a
Guarantor with 3 years of service. The Guarantor should provide their Citizenship
Identity card and proof of their service.
b. For Grade 11 and below: should have 3 years of confirmed service.
Should have PF contribution maintained with RICBL, NPPFB & BNBL
Should not have already availed education loan from NPPFB & Consumer Loan from
BOBL.

For loan Nu 1,50,001.00 to Nu 3,00,000.00 only

 Should have PF contribution maintained with RICBL, NPPFB & BNBL
 Should not have already availed education loan from NPPFB & Consumer Loan from
BOBL.
 Should have 5 years of confirm services including probationary period for both the
client and the guarantor.
 G.E Loan guarantor should be of same or above greate than that of the client.

1.3. Documents required:

i. The Citizenship identity card copy of the applicant as well as a copy of the personal
book for the armed forces. The clients are required to be present with the original
copies at the time of processing the loan.
ii. An Undertaking form duly filled and signed by the Head of the Administration and
Finance Division and recommended by the Head/Deputy Head of the
agency/department/organization.
The Head of the agency/department/organization for the purposes of this loan shall
mean the Director of the department, Dzongdag for the Dzongkhag, Managing
Director of the autonomous bodies and corporations.
iii. An Application Form duly filled and signed by the applicant with the
recommendation of Head or Deputy Head of the Agency.
iv. Initial appointment order and the latest promotion order of the applicant.
v. Two recent photographs of the applicant.
vi. Latest pay slip signed by the Finance Officer and or Head of Finance Department /
Division / Organization of the agency / department / organization.

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 1.4. Terms and conditions:

i. The maximum loan amount shall be Nu.300,000.00 (Ngultrum three hundred

and fifty thousand and the minimum of Nu.10,000.00 (Ngultrum ten
thousand).
ii. The Equal Monthly Installment (EMI) of the loan amount shall not exceed 40
percent of the Take Home Pay. Take Home Pay shall mean the gross salary
less all the deductions including house rent, loan repayments, advances etc.
iii. The maximum repayment period shall be five years.
iv. The rate of interest shall be 14 percent p.a. and late fee of 5 percent p.a.

5. Mortgage / Housing Loan

A mortgage loan, also referred to as simply a mortgage, is used either by purchasers of real
property to raise funds to buy real estate; or alternatively by existing property owners to raise
funds for any purpose, while putting a lien on the property being mortgaged. The loan is
"secured" on the borrower's property through a process known as mortgage origination.

This means that a legal mechanism is put in place which allows the lender to take possession
and sell the secured property ("foreclosure" or "repossession") to pay off the loan in the event
that the borrower defaults on the loan or otherwise fails to abide by its terms. The
word mortgage is derived from a "Law French" term used by English lawyers in the Middle
Agesmeaning "death pledge", and refers to the pledge ending (dying) when either the
obligation is fulfilled or the property is taken through foreclosure.[1] Mortgage can also be
described as "a borrower giving consideration in the form of a collateral for a benefit (loan)."

Mortgage borrowers can be individuals mortgaging their home or they can be

businesses mortgaging commercial property(for example, their own business premises,
residential property let to tenants or an investment portfolio). The lender will typically be a
financial institution, such as a bank, credit union or building society, depending on the
country concerned, and the loan arrangements can be made either directly or indirectly
through intermediaries.

Features of mortgage loans such as the size of the loan, maturity of the loan, interest rate,
method of paying off the loan, and other characteristics can vary considerably. The lender's
rights over the secured property take priority over the borrower's other creditors which means
that if the borrower becomes bankrupt or insolvent, the other creditors will only be repaid the
debts owed to them from a sale of the secured property if the mortgage lender is repaid in full
first

In many jurisdictions, it is normal for home purchases to be funded by a mortgage loan. Few
individuals have enough savings or liquid funds to enable them to purchase property outright.
In countries where the demand for home ownership is highest, strong domestic markets for
mortgages have developed.

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Mortgage insurance is an insurance policy designed to protect the mortgagee (lender) from
any default by the mortgagor (borrower). It is used commonly in loans with a loan-to-value
ratio over 80%, and employed in the event of foreclosure and repossession.

This policy is typically paid for by the borrower as a component to final nominal (note) rate,
or in one lump sum up front, or as a separate and itemized component of monthly mortgage
payment. In the last case, mortgage insurance can be dropped when the lender informs the
borrower, or its subsequent assigns, that the property has appreciated, the loan has been paid
down, or any combination of both to relegate the loan-to-value under 80%.

We have been financing the construction of residential houses and commercial buildings
since 1992.

Lending Policy:

 Loan Processing Fee: Nu 500/- for every application.

 Valuation Fee: As Per Engineer’s inspection report (Maximum Nu. 5000)
 Interest Rate and Term:
i. Commercial-13% for 20 years
ii. Non-commercial-9% for 20 years
 Repayment Mode: Monthly
 Penalty Rate: 5% is levied on the defaulted amount.

Eligibility Criteria:

 Should be a Bhutanese citizen

 House/Building must be commercially viable
 Proof of ownership of the Land/building ( 3 months validity)

 Building plan duly approved by municipal authority and or concerned authority

 Equity contribution must be 25% to 40% of total construction cost
 Monthly installment must match monthly rental income from the building
Posses good credit worthiness
Ownership Certificate

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6/ Industrial Loan

 Financing Pattern: The bank lends equipment loan up to 60% to 75% of the cost of
the equipment (CIF, P/ling).
 Interest Rate and Term
 Fee: A sum of Nu. 100 is charged as application fee
 Eligibility: The customer should be a Bhutanese national
 Repayment: Particular date for commencement of repayment date is fixed in the loan
agreement repayable either in monthly or quarterly installment.
 Documentations: Pre-sanctioning: Annual Audited report, trade license, CDB
license, ID card copy, 2 past port size photographs, import license and invoice of the
equipment, FIS clearances.
 Post-sanctioning: Loan Agreement & Hypothecation deed. The customer on the
immediate arrival of the equipments is required to submit a copy of blue book and
insurance policy certificate.
 Application Process: The customer is required to contact the appraisal officer
under industrial loan division.

INDUSTRIAL LOAN FINANCING

 Financing Pattern: The bank lends industrial loan up to 60% to 75% of the cost of
the project and it does not include working capital margin money and working capital
loan up to 75% of the total working capital gap. The financing may be in the form of
consortium and it is only for the manufacturing concern.
 Interest Rate and Term
 Fee: A sum of Nu. 100 is charged as application fee and valuation fee of Nu. 500/- in
the minimum and Nu. 5,000/- at the maximum is also charged as per the engineers’
valuation.
 Eligibility: The customer should be a Bhutanese national
 Repayment: Particular date for commencement of repayment date is fixed in the loan
agreement repayable either in monthly or quarterly installment.
 Documentations: Pre-sanctioning: Project Report, Project Approval letter by MTI,
Trade license, NEC clearance, Land allotment letter along with lease agreement(if it is
on the lease land), certificate of incorporation & article of in corporation (if it is a
registered company under the Companies Act of Kingdom of Bhutan), FIS clearances
 Post-sanctioning: Loan Agreement & Hypothecation deed. A copy of insurance
policy certificate has to be submitted. The company is required to submit stock
statement report every quarter if not monthly and annual audited report every year.

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  Application Process: The customer is required to contact the appraisal officer
under industrial loan division.

 7/SERVICE & TOURISM LOAN

The bank lends industrial loan up to 60% to 75% of the cost of the project and it does
not include working capital margin money and working capital loan up to 75% of the
total working capital gap. The financing purpose should be for the establishment of
schools, hotels, resorts, for purchasing passenger buses and equipment for tour
operating companies.
 Interest Rate and Term
 Fee: A sum of Nu. 100 is charged as application fee and valuation fee of Nu. 500/- in
the minimum and Nu. 5,000/- at the maximum is also charged as per the engineers’
valuation.
 Eligibility: The customer should be a Bhutanese national
 Repayment: Particular date for commencement of repayment date is fixed in the loan
agreement repayable either in monthly or quarterly installment.
 Documentations: Pre-sanctioning: Project Report, Trade license, ownership
Certificate, approval drawings from the city corporation, (if it is for the establishment
of hotels, resorts & schools), invoice from the STCL & RSTA’s route approval (if it is
for the purchase of passenger buses) FIS clearances, ID card of the promoter.
 Post-sanctioning: Loan Agreement & Hypothecation deed. A copy of insurance
policy certificate has to be submitted. On the immediate arrival of the buses, the
customer is required to submit a copy of blue book and insurance policy certificate of
the bus.
 Application Process: The customer is required to contact the appraisal officer
under industrial loan division.

8/ Loan against Fixed Deposit

Lending Policy:

 Loan Processing Fee: Nu 500/- for every application.

 Interest Rate and Term : 11% for 5 years
 Repayment : Monthly/Yearly
 Penalty : 5%

Eligibility Criteria:

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  The Fixed Deposit must be in the name of the applicant
 A Loan of 75% of the initial deposit of the FD maybe applied for

9/ Loans against Shares

The Share market in Bhutan is still in its infancy stage. However, the capacity of these
securities to generate higher returns than Bank deposit rates attract investors. We in the
BNBL encourage and guide such investors.

Lending Policy:

 Loan Processing Fee: Nu 500/- for every application.

 Interest Rate and Term :12% for 5 years
 Repayment : Monthly/Yearly
 Penalty : 5%

Eligibility Criteria:

 Should be a Bhutanese citizen

 Company must be listed under the Royal Securities Exchange of Bhutan
 Should have a sound source of income besides the dividends
 A Loan of 60% to 75% of the face value or the Book value of the share maybe applied
for.
 Purchase of Share(s) only

10/ Personal Loan

Personal loans are also known as unsecured debt

Unsecured debt
In finance, unsecured debt refers to any type of debt or general obligation that is not protected
by a guarantor, or collateralized by a lien on specific assets of the borrower in the case of
a bankruptcy or liquidation or failure to meet the terms for repayment.

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In the event of the bankruptcy of the borrower, the unsecured creditors will have a general
claim on the assets of the borrower after the specific pledged assets have been assigned to
the secured creditors. The unsecured creditors will usually realize a smaller proportion of
their claims than the secured creditors.
In some legal systems, unsecured creditors who are also indebted to the insolvent debtor are
able (and in some jurisdictions, required) to set off the debts, which actually puts the
unsecured creditor with a matured liability to the debtor in a pre-preferential position.

Under risk-based pricing, creditors tend to demand extremely high interest rates as a
condition of extending unsecured debt. The maximum loss on a properly collateralized loan is
the difference between the fair market value of the collateral and the outstanding debt. Thus,
in the context of secured lending, the use of collateral reduces the size of the "bet" taken by
the creditor on the debtor's creditworthiness. Without collateral, the creditor stands to lose
the entire sum outstanding at the point of default, and must boost the interest rate to price in
that risk. Where high interest rates are considered usurious, unsecured loans are either not
made at all, or are made by loan sharks unafraid of the law.

Unsecured loans are often sought out in cases where additional capital is required although
existing (but not necessarily all) assets have been pledged to secure prior debt. Secured
lenders will more often than not include language in the loan agreement that prevents debtor
from assuming additional secured loans or pledging any assets to a creditor.

We have been providing finance for the purchase of large and small consumer products.

Lending Policy:

 Loan Processing Fee: Nu 500/- for every application.

 Valuation Fee: As per Engineer's inspection report (Maximum Nu.5000/-)
 Interest rate and Term
 Repayment: Monthly
 Penalty rate: 5%

Eligibility Criteria;

 A Bhutanese citizen
 Own immovable assets such as land and building
 Own movable assets such as vehicle and equipments (acceptable model within 5
years)
 Against gold and jewellery
 Ownership certificate (3 months validity)
 Insurance of Assets
 Sound source of repayment
 Trade license where necessary
 Loan will be sanctioned at 60% to 75% on collateral value

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11/ Transport Loan

We have been financing the purchase of Commercial and Personal Vehicles since 1992.

Light Vehicles

Lending Policy:

A) For purchase of Light Vehicle for Commercial use(Taxi):

 Loan Processing Fee: Nu 500/- for every application.

 Interest rate and Term:12% for 5 years
 Repayment mode : Monthly
 Penalty rate : 5 %

B) For purchase of Vehicle by Govt. Employees/Corporate employees/Military

Personnels for personal use:

Eligibility criteria:

 Should be a Bhutanese citizen.

 Generally, client must have 25% to 40% of cost of vehicle as equity contribution
 Departmental Undertaking must be submitted if repayment is to be made from salary.
 Cash flow/Profit & Loss statement & copy of Trade License must be submitted if
repayment is to be made from Business Income.
 Comprehensive Insurance is a MUST

Heavy Vehicles ending Policy:

A) For purchase of Heavy Vehicle:

 Loan Processing Fee: Nu 500/- for every application.

 Interest rate and Term
 Repayment mode: Monthly
 Penalty rate : 5 %

Eligibility criteria:

 Should be a Bhutanese citizen.

 Generally, client must have 25% to 40% of cost of vehicle as equity contribution
 Cash flow/Profit & Loss statement & copy of Trade License must be submitted if
repayment is to be made from Business Income.

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 RESEARCH METHODOLOGY

Introduction
Research methodology is considered as the nerve of any research project. A proper and well-
organized research plan always leads to complete the research in time with proper inferences.
It is the operational plan for the research project.

Type of Research
The type of my research is exploratory research, where my whole task is completed by
collecting and analyzing the secondary data: annual financial reports for the five years.
Initially as mentioned above, I conducted a literature survey and formulated two hypotheses:
a null hypothesis and alternate hypothesis. My research is exploratory based, where the main
purpose is to know the credit management(BNBL) in Bhutan

Research Design
Research design is plan and structure of investigation so conceived as to obtain answers to
research questions. It constitutes plan for the collection, measurement and analysis of data.
Generally the research design is broadly classified into Exploratory and Descriptive research.
Exploratory research is mainly done when research doesn’t have enough idea about research
project but in descriptive research, researcher studies the perception of individual and
determines the characteristics of relevant groups.

Data Collection
I have solely relied on the secondary data: annual financial reports of BNBL. These
consecutive financial reports of the very organization will be put under study to answer the
above questions of our problem statement: credit management in Bhutan. The secondary data
were collected through the internet, reports, newspapers and the published financial reports of
BNBL.

Location of Study
The location for this research project is at Paro. I have collected secondary data from the
BNBL Branch located in Paro.

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Sampling Design
The ways of selecting a sample is known as sample design or is a plan determined before any
data are actually collected for obtaining a sample from a given population.

1 Sampling method
Sampling technique for my sources is non random sampling.

2 Sampling units
Bhutan National Bank Limited located in Paro.

3 Time Period
The actual time period devoted for the study is (45 days) 1 months and 15 days duration.

4 Sample Size
A process of selecting a group of people, a small part of something that has been taken or
selected from the population as a sample is known as sample size. For this research paper,
sample size constitutes BNBL only.

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 QUESTION’S ON BNBL
(The question and answer are for the financial year 2012-2016 )
1. What are the main purposes for visiting BNBL?
a. For deposit of money.
b. For taking loan.
c. For repayment of loans.
d. For withdrawl of money

(Amount are in million)

90

80

70

60

50 For Deposit
For loan
40
For repayment of loan
30 For withdrawl

20

10

0
2012 2013 2014 2015 2016

Study reveals that more than 70 million of money were deposited in bank as it is safe, more
than 60 million of money were lended as loan as it is secure and more than 50 million is
deposited as repayment of loan and for withdrawl

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 2. What types of financial services are provided by the BNBL to the people?
a. Micro financial services.
b. Small financial services.
c. Medium financial services.
d. Large financial services.
Ans-medium financial services

The study reveals that as the population in the country is less the bank have to provide
medium financial service

3 What is the simple interest rate equation used by the BNBL in order to calculate

the loan interest of the people?

a. Simple interest = P X R X T/100.

b. Simple interest = P/100 X R X T.
c. Simple interest = P X R/100 X T.
d. Simple interest =P/100 X R/100 X T/100.

This study tells that the bank gives simple intrest rate as P X R X T/100.

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 4.BNBL is the bank in Bhutan that gives focus to the

a. Rural farmers.
b. Urban peoples.
c. Employees working in government sectors.

(Numbers are in %)

45

40

35

30

25 Rural Farmer
Urban People
20
employees
15

10

0
2012 2013 2014 2015 2016

The study reveals that most of the money are lended to the employees as they can easily
deposit the monthly installment,then to the urban people after that to the rural farmers

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 5.What are the different services provided by the BNBL?

a. M pay.
b. Gewog Banking Services (GBS).
c. SMS Banking services.
d. All of the above.
Ans-All of above but M pay has started only in 2016 nov 8

The study reveals that to make the work easily done by the clients and shareholders they uses
online app like mpay but it has started last year,to make the work easy for rural people the
bank has established gewog banking service in the gewog and finally to give information they
have started sending sms.

6.How many percent of interest is charged on Educational Loans provided by BNBL?

a. 14%.
b. 12%
c. 13%
d. 11%
Ans-12%

This study reveals that, to give loan to student for the higher studies the bank give loan to the
student at the interest rate of 12% and they have to pay after 2 years of completion of higher
studies

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7.As BNBL provides various loans to the people. Through that people

a. Starts their own business.

b. Some they go for further studies.
c. Some they travel’s to other foreign countries.
(Numbers are in %)

80

70

60

50
Own Business
40
Further Studies

30 Travel to Foreign Countries

20

10

0
2012 2013 2014 2015 2016

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This study reveals that most of the people took loan from the bank mainly for their own
business, few for further studies and little for travel to foreign countries

FINDINGS

1. The main purpose for visiting BHUTAN NATIONAL BANK is to deposit the money
as the bank is secure and safe. Compared to other banks, this bank gives high saving
interest rate so the demand for this bank is high.
2. Medium financial service is provided to the people as there is less population in the
country. Daily 200-250 people use to visit the bank
3. The bank calculate simple interest rate as P X R X T/100.as it is easy to calculate and
common in the country
4. BNB mainly focuses on the employees as they always save their money in the bank as
the salary are given directly through bank. They can easily pay the monthly instalment
without any delay and due.
5. The different services provided by BNBL are gewog banking services as to make easy
and fast services to rural peoples, SMS banking services as to alert or give
information regarding bank and uses of account of the users and finally the bank has
started m pay to work easily through online without wasting time of shareholder and
clients.
6. 12percent of interest is charged on Educational Loans provided by BNBL as the
students have to pay after 2 years of completion of degree.
7. As BNBL provides various loans to the people. Through that most of the people start
their own business and expenses as they want to be self-sufficient without depending
on others.

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 CONCLUSION AND RECOMMENDATIONS

5.1 CONCLUSION

The present research, which was already stated, has been focused on the credit of BNBL: the
only Bank in Bhutan that focus on providing financial support towards the people and gives
full support towards the sustainable and development of the business. Besides, the research
on literature review is carried on as mentioned above, which is the ultimate source of drawing
the hypotheses.

The scope and main objectives of this research is to find the financial performance of Bhutan
National Bank Limited and also to study the sustainability of the company. In the case of
research result, as mentioned in the data analysis part, after the analysis and details
verification of the data that has been collected, the research approached to the conclusion
accepting alternative hypothesis: the credit management in Bhutan. The reason behind
accepting this hypothesis: after analyzing the detail information, it was clearly found there
was enough working capital, which is clearly indicated by the current ratios’ trend.

The operating self sufficiency ratio has also increased, which indicates there is enough
income to meet its operating expenses, and, also the financial self sufficiency ratio has
increased, where, the research has reached in a position to conclude: the BNBL is sustainable
in Bhutan. In other words, the company is in a position to meet its operating expenses as well
as financial expenses indicating credits in Bhutan. Apart from that, the stated research
focused to provide findings and recommendations to the management of the BNBL: how they
can take proper decision for its future operation.

RECOMMENDATIONS

i. Assets turnover ratio is found to be fluctuating over the years, which may not be a
good sign for uniform growth of the company. Therefore, it is recommended that the
ratio should be maintained on a constant basis.

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 ii. The turnover ratio is not satisfactory sign that, it is continuously fluctuating every year.
And, it will be sound to maintain it properly which will ultimately improve the
efficiency and effectiveness of the company.

iii. In the beginning the cost of the firm is very high. However in the later years the cost
decreased. But again in the year 2012 the cost has increased. The management should
take the cause into consideration and take the corrective measure.

iv. The loan outstanding has increased from the financial year 2012 to financial year
2016. Being a micro financial institution, its loan outstanding is increasing year by
year. And, it is recommended to take necessary measure of the case.

v. BNBL must establish a permanent branch office in each Gewog, in order to ensure
prompt service of microfinance.

vi. It is recommended that, BNBL should maintain all 38 branches to either make at break
even or at profit margin, so, as to strengthen the finance institution in the country.

vii. finance institution in the country may be recommended to amend its microfinance
service policy for lending to reduce the recovery of lending and facilitate farmers to
invest and encourage saving.

viii. Ministry of Agriculture and Forest may be recommended to work with Royal
Monitory Authority of Bhutan for the establishment of separate “Agriculture
Development Bank” in near future which shall be specialized, dedicated and
committed exclusively for the development of agriculture sector in the country.

ix. Finding of guanine groups of poor people through appropriate mechanism and
providing of finance service is recommended.

x. It is recommended that the financial exclusion to be reduced and increase the financial
inclusion by expanding the lending scope of BNBL.

xi. The efficiency of the staff should be increased in order to reduce the cost of its
operation in the country.

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 REFERENCES

Annual Report
Bhutan National Bank Limited, Annual Report 2012-2016
Book Source

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Sehgal, A. & Sehgal, D. (2008). Corporate Accounting, 6th edition. Taxman Allied Services
(P.) Ltd., Tan prints (India) Pvt. Ltd., New Delhi, India.

Kothari, C.R. (2004). Research Methodology, 2nd edition. New Age International (P) Ltd.
Ansari Road, Daryaganj, New Delhi, India.

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