Regional: Supporting Financial Stability in Bhutan and the Maldives

Sovereign Project | 46114-001 Status: Closed

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 Closed
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 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

Macroprudential rules and regulations have been institutionalized by the RMA and notified in its website for adoption. The MMA has yet to deliberate on the timing for the implementation of these regulations.

RMA and MMA are considering to formally institutionalize the Financial Stability Unit within their organizational structures. Nevertheless, both the RMA and MMA have assigned dedicated staff to 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)

" Drafted 8 macroprudential rules and regulations i.e. (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. The RMA has institutionalized and published 7 of the regulations in its website for adoption. The MMA has yet to deliberate on the timing for adoption and implementation of these regulations.

" Prepared a stress testing template for Bhutan and Maldives, adapting it closely to the structure of each country's financial system. This includes a guidance document with details on how to conduct the stress-testing operations.

" Developed a list of financial soundness and macroeconomic indicators and template for macroprudential monitoring and surveillance.

" Constructed an aggregate financial stability index (AFSI) using sub-indices measuring health of financial sector, risks emanating from other economies and other macro-economic risks to the financial sector.

" Prepared financial stability report for Bhutan and Maldives

" Developed a framework for monitoring and forecasting the macro influences on banking system liquidity. Spreadsheets and processes that need to be followed have been prepared and documented.

" Developed a framework for monitoring the prudential liquidity positions and management of each individual bank. This is based on the new international standards promulgated by the Basel Committee on Banking Supervision (the liquidity coverage ratio, and a net stable funding

ratio).

" In-country training workshops on macro-prudential regulations, stress testing, financial soundness indicators early warning signals and liquidity management were conducted in Bhutan and the Maldives.

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 Various in-country trainings and stakeholder consultations on macro-prudential regulations, liquidity management, stress testing, financial soundness indicators and early warning signals were conducted in Bhutan and the Maldives during the course of project implementation. A Final Stakeholder Dissemination and Training Workshop was held on 23-24 March 2015 to: (i) present the overall outputs of the RETA and the draft financial stability reports (FSRs) prepared for Bhutan and the Maldives by the project consultants from PWC (India), and (ii) conduct a one-day training seminar on financial stability and macroprudential surveillance.

Responsible Staff

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 Bank
6 ADB Avenue,
Mandaluyong City 1550, 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 15 Sep 2015

TA 8284-REG

Milestones
Approval Signing Date Effectivity Date Closing
Original Revised Actual
10 Dec 2012 - 10 Dec 2012 28 Feb 2015 30 Nov 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 437,551.70
Title Document Type Document Date
Supporting Financial Stability in Bhutan and the Maldives Technical Assistance Reports Dec 2012

Safeguard Documents See also: Safeguards

Safeguard documents provided at the time of project/facility approval may also be found in the list of linked documents provided with the Report and Recommendation of the President.

None currently available.

Evaluation Documents See also: Independent Evaluation

None currently available.

Related Publications

None currently available.


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