Phub Dem

Financial institutions in the country have lent Nu 143 billion (B) as of July this year, an increase in loan disbursement by 17 percent between 2015 and last year.

At the same time, Non-Performing Loan (NPL) stands at Nu 12.86B. This is an increase of 33 percent in NPL within four years.

While 50 percent of the total loan disbursement is concentrated in the housing and service sectors, with 25 percent each, NPL in the two sectors stands at Nu 71.8B.  This is according to the central bank’s review report on the credit exposure in the financial institutions

Trade and commerce and manufacturing sectors represent 12 percent each contributing Nu 40B in the loan portfolio. Similarly, the agriculture sector contributed only 4percent which amounts to Nu 6.2B. And the transport sector contributed Nu 6.7B.

Considering minimal disbursement in agriculture sector, bankers were of the view that government should make agriculture and CSI sector more business-like and improve the business condition so that banks can chip in more capital in these sectors.

The highest Non-Performing loan was recorded in service sector with Nu 6.7B. Trade and commerce sector stands the second highest with 4.6B. Housing sector registered a NPL worth Nu 2.4B and transport sector Nu 1.3B.

Both loan and NPL disbursal is recorded highest in the service sector. The total NPL ratio as of June this year was 15percent.

Loan and NPL disbursal trend over the last four years shows that the total loan outstanding has grown by 17percent.  The loan disbursement in the service sector increased from Nu 12B in 2015 to Nu 32B last year. And NPL increased significantly by 64percent from Nu .8B to Nu 3.5B.

RMA governor, Dasho Penjore said, although the review report records high exposure in the service sector, the figures did not show in which industry the credit was highly exposed. “Realising the importance of classification of certain industry under the sectors, the review report shows the loan and NPL of the particular sub-sector.”

He said that many hoteliers were constructing hotels and the figures showing high credit exposure in construction may cause uproar and the hoteliers would be doubtful about their new venture.

The Governor clarified that there are huge extensional loans in the housing sector but he said that most loans under the tourism sector (construction of hotels) were under gestation period.

Gestation is the time period taken for a project to generate income and become commercially viable. According to central bank’s prudential regulation, financial institutions may give the project gestation period in line with the Institution’s credit policies approved by the Board.

For the housing sector, the gestation period is limited to a maximum duration of three years, five years for hotel construction and the manufacturing sector.

Construction sector weighs the highest NPL under service sector with Nu 4B with a loan disbursal of Nu 6.5B, whereas, the tourism sector contributed Nu 16B to the total loan with NPL around Nu 1B.

Dasho Penjore said that construction sector was in trouble because there were no economic activities in hydropower and building infrastructures. “Besides, mining came to a standstill and heavy vehicles lay idle.”

Meanwhile, the loan outstanding of the housing sector stands at Nu 35.4B with NPL worth Nu 2.5B.

Although the housing sector is marked highly exposed, the governor said that the problem was with commercial housing loans and not private homes. “Those defaulting on housing loans are not from Thimphu but elsewhere. This indicates weak commercial viability in those areas.”

Furthermore, transportation loan increased by 28percent between 2015 and 2018, accordingly NPL increased drastically by 46 percent.

As of June this year, the commercial transport loan disbursement measured Nu 4.8B with NPL worth Nu 1B. The non-commercial transport loan (personal cars) amounted to almost Nu 2B with NPL worth Nu 306M.

The financial institutions as per the review report have high NPL in different sectors. For instance Bank of Bhutan has high NPL in housing and service sector, Bhutan National Bank in trade and commerce and Bhutan Development Bank in agriculture.