Regional: Supporting Financial Stability in Bhutan and the Maldives

Sovereign Project | 46114-001

Summary

ADB is supporting the Royal Monetary Authority (RMA) of Bhutan and the Maldives Monetary Authority (MMA) in building their capacity for regulation and supervision of the financial sector. The TA aims to deliver the following outputs for both central banks: (i) developed macroprudential policies, tools, and monitoring framework; (ii) improved liquidity management plan and strategy; and (iii) enhanced capacity and training of RMA and MMA staff in performing financial stability functions.

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Project Name Supporting Financial Stability in Bhutan and the Maldives
Project Number 46114-001
Country Regional
Project Status Approved
Project Type / Modality of Assistance Technical Assistance
Source of Funding / Amount
TA 8284-REG: Supporting Financial Stability in Bhutan and the Maldives
Financial Sector Development Partnership Fund US$ 500,000.00
Strategic Agendas Inclusive economic growth
Drivers of Change Governance and capacity development
Partnerships
Private sector development
Sector / Subsector Finance - Banking systems and nonbank financial institutions
Gender Equity and Mainstreaming
Description ADB is supporting the Royal Monetary Authority (RMA) of Bhutan and the Maldives Monetary Authority (MMA) in building their capacity for regulation and supervision of the financial sector. The TA aims to deliver the following outputs for both central banks: (i) developed macroprudential policies, tools, and monitoring framework; (ii) improved liquidity management plan and strategy; and (iii) enhanced capacity and training of RMA and MMA staff in performing financial stability functions.
Project Rationale and Linkage to Country/Regional Strategy Financial stability and its effects on the economy can be very costly due to its contagion or spillover effects in other parts of the economy and the region. Following the global financial crisis of 2009, financial stability has become the focus of reforms across the Group of Twenty (G20) and demonstrated the need for a new approach to financial regulation even for countries that are less globally integrated. In response, ADB held a series of policy dialogues known as the ADB Regional Forum on the Impact of the Global Economic and Financial Crisis, as a platform for developing member countries' (DMC) senior policy makers and the private sector to discuss the implications and measures taken to mitigate the impacts of the crisis and, equally as important, to take stock of the longer term implications for the Asia Pacific region. Through these dialogues, DMCs have sought support from ADB to develop a policy framework that would enable its member countries to rebuild their institutional capacities to effect necessary reform initiatives, and target interventions that would support sustained growth and financial stability. Smaller economies, including Bhutan and the Maldives, sought the assistance from ADB to develop the foundations for monitoring, examining, and addressing risks to financial stability. Such support is expected to translate into a more effective early warning system, including timely recognition of financial vulnerabilities across financial systems. In particular, with improved capacity to monitor external shocks, supervisory and regulatory authorities may adopt timely and appropriate measures to ensure that these shocks do not escalate into crises.
Impact Stronger financial stability for sustaining growth in Bhutan and the Maldives
Project Outcome
Description of Outcome Improved capacity of the RMA and MMA for regulation and supervision of the financial sector
Progress Toward Outcome

RMA has institutionalized seven regulations. Disclosure regulation was posted in RMA website in June,2014 for public comments. Policy paper on Macro-prudential regulation has been submitted to RMA and MMA. RMA has already published the policy paper in its website. MMA is internally reviewing it for its implementation and sequencing.

Concept note on financial stability unit has been prepared. RMA is pursuing it to institutionalize the Financial Stability Unit. In the case of Maldives, the organizational structure has three areas including, Financial Stability. Under this area, three division namely, banking supervision division, other financial institutions division and insurance division collaborate and perform tasks related to financial stability.

Implementation Progress
Description of Project Outputs

Developed macroprudential policies, tools, and monitoring framework

Improved liquidity management plan and strategy

Enhanced capacity and training of central bank staff performing financial stability functions

Status of Implementation Progress (Outputs, Activities, and Issues)

Project inception reports were completed on the as-is assessment of the macroeconomic profile of Bhutan and Maldives. This includes a preliminary study on the major growth drivers, growth profile, external sector, money and prices, government finance, external debt. A financial sector assessment has also been conducted examining both banking and non-banking sector and also regulatory provisions are dealt with in some detail.

Given sequencing of TA activities, the following activities were already undertaken for Bhutan and Maldives:

(a) Drafting of macro-prudential regulations on: (i) counter-cyclical capital buffer for banks (ii) sectoral capital requirements (iii) loan to value and loan to income restrictions (iv) time varying capital provisioning for banks (v) restriction on distribution of profits (vi) minimum ceiling on leverage ratio for banks in Bhutan (vii) disclosure requirements and (viii) debt to equity ratio. .

(b) Developing macroeconomic and financial soundness indicators for both Bhutan and the Maldives. An application template is prepared and shared with the country for regular monitoring and update. Stress testing framework for both Bhutan and the Maldives have been prepared and submitted to respective country authorities. The framework includes excel based tool and a guidance note. Early Warning System guidance document along with excel template is shared with both the countries. Training has been provided to relevant staffs at RMA and MMA on Stress Testing, Early Warning system, Financial Soundness indicators. Pilot Financial stability report has been drafted and shared with both the countries.

(c) Capacity building and training needs assessment. In-country training workshops on macro-prudential regulations stress testing, financial soundness indicators and early warning signals were conducted in Bhutan and the Maldives. Operations manual for Financial Soundness Indicators, Stress Test, Early Warning System and Macro-prudential regulations have been submitted to both countries. Training on stress testing, financial soundness indicators and early warning signals in Bhutan and the Maldives had been provided.

Geographical Location
Summary of Environmental and Social Aspects
Environmental Aspects
Involuntary Resettlement
Indigenous Peoples
Stakeholder Communication, Participation, and Consultation
During Project Design Consultations with the Maldives Monetary Authority (MMA) and the Royal Monetary Authority of Bhutan (RMA) and other stakeholders were conducted during project design.
During Project Implementation A stakeholder consultation workshop on macro-prudential rules and regulations for the RMA and MMA was held in Bhutan on 4th April 2014 and in Maldives on 20th May 2014. The workshop consisted of relevant officials from the commercial banks and the central banks as key participants. In Maldives, it is presented to Central Bank staffs.
Responsible ADB Officer Jennifer Romero-Torres
Responsible ADB Department South Asia Department
Responsible ADB Division Public Management, Financial Sector and Trade Division, SARD
Executing Agencies
Asian Development Bank6 ADB Avenue, Mandaluyong
Metro Manila, Philippines
P.O. Box 789, 1099 Manila,
Philippines
Timetable
Concept Clearance 12 Apr 2012
Fact Finding 13 Jun 2012 to 14 Jun 2012
MRM -
Approval 10 Dec 2012
Last Review Mission -
Last PDS Update 19 Mar 2015

TA 8284-REG

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
10 Dec 2012 - 10 Dec 2012 28 Feb 2015 30 Jun 2015 -
Financing Plan/TA Utilization Cumulative Disbursements
ADB Cofinancing Counterpart Total Date Amount
Gov Beneficiaries Project Sponsor Others
0.00 500,000.00 0.00 0.00 0.00 0.00 500,000.00 10 Dec 2012 217,722.00
Title Document Type Document Date
Supporting Financial Stability in Bhutan and the Maldives Technical Assistance Reports Dec 2012

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