Thukten Zangpo 

With the current loan deferment period ending on June 30 of this year, businesses facing financial stress are awaiting the government’s economic stimulus programme (ESP) relief package.

Prime Minister Tshering Tobgay during the launch of the ESP announced that the ESP will inject capital in the economy through low interest loans and liquidity in banks. 

He added that the subsidised loans would be available for businesses under distress, farmers, agricultural enterprises, cottage and small industries, start-ups, and youths. 

A businessman based in Thimphu said that the government’s plans to provide additional loans to banks could save businesses from going under non-performing loans (NPL) and help their business to recover. 

Another businessman said that the government could reinstate the banks like National Credit Guarantee Scheme and National Cottage and Small Industry Development Bank Limited to provide collateral-free loans.

An official from the Financial Institutions Association of Bhutan (FIAB) said that they have not received any instructions from the government on ESP measure whether it would come as part of liquidity injection to FIs, with low interest loan or as relief measures for loans under NPL. “FIs cannot decide unless there is a clear directive from the central bank.”

Many businesses are worried about their eligibility for the loan deferment and on the interest accrued to be paid at the end of loan deferment period.

FIAB official said that the borrowers under the previous deferment option are eligible to apply for the deferment, however, it will depend on the FI’s standard assessment criteria for deferment of a maximum period up to one year until June 2025. 

The financial institutions (FIs) have notified that the FIs will assess the eligibility of the request for deferment and will inform the borrowers accordingly. However, the loans against shares and housing or home loans will not be eligible for deferment. 

The borrowers who want deferment were asked to fill up the loan deferment forms and submit them to the latest by 5pm on June 30. 

A banker said that availing additional loans by the loan under deferment is not logical. The deferment is provided to businesses that are not doing well and not able to service. However, the borrowers should give cash flow confidence to the banks for additional loans. 

The capital injection from the government to businesses would be helpful for business expansion like a machine breakdown in a company can be fixed, improving the cash flow, she added.

The FIAB also announced that borrowers will no longer have the Fixed Equated Installment Facility account. Instead, have to pay off all accrued interest after post June 30 this year or add the accrued interest to the principal amount before starting regular monthly repayments upon completion of the deferment period.

Failure to meet these repayment conditions will result in the loan being classified as a NPL. In such cases, FIs will initiate standard procedures to recover the outstanding amount.

A banker said that loan deferment options are not eligible for housing loans because of a introduction of support mechanism with housing loans tenure extension upto a maximum of 40 years.

She added that loans on fixed salary are also not eligible for the deferment but banks will assess the deferment for the variable salary by computing loan to income ratio. 

Those loans availed based on salary and has lost jobs because of the Covid-19 pandemic leading to reduced income will also be looked into case-by-case assessment for deferment, a banker said. 

A banker added that the banks will assess the deferment eligibility by going through the business’ cash flow and income statement, including the last year’s audited income.

A banker explained that businesses with sufficient cash flow to cover loan interest payments will be eligible for partial deferment. However, businesses unable to service both interest and EMIs (equated monthly installments) will be considered for full deferment.

For the transport loans, the borrowers will require additional collateral for further deferment. 

A banker also said that loan deferment for hotels will consider both occupancy rate and cash flow. Hotels often sell their rooms at low rates to improve occupancy. 

She further clarified that for construction loans, borrowers with only a few months of pending bills would be considered for an extension, not a deferment.

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