Thukten Zangpo
Facing the aftermath of the Covid-19 pandemic, the president of the Bhutan Chamber of Commerce and Industry, Tandy Wangchuk, called upon financial institutions (FIs) and the Royal Monetary Authority (RMA) to postpone the foreclosure of non-performing loans (NPL).
“We are very much aware that the post-pandemic economy is not doing well, making it difficult for businesses to keep up with loan repayments,” he said, adding that the Chamber has received several appeals from its members.
The private sector, Tandy Wangchuk, is particularly alarmed by instances of banks pursuing recovery suits and auctioning properties of NPL borrowers.
NPLs are loans with payments that are overdue by 90 days or more.
“Businesses appeal to give them some breathing room for about 5–6 months before taking serious action that will allow them to recover financially and eventually repay their loans,” Tandy Wangchuk said, adding that the private sector is also waiting for the incoming government to walk-in to unleash their economic stimulus plan to boost the economy.
Political parties in the upcoming general elections, the Bhutan Tendrel Party (BTP) have pledged an economic stimulus plan of Nu 50 billion and People’s Democratic Party (PDP) pledged Nu 15 billion with the establishment of the economic development board chaired by the prime minister.
Parties have also promised loan deferment support while PDP also promised to introduce special loan schemes tailored for businesses affected by the Covid-19 pandemic in consultation with the RMA.
The Chamber expects that the Gelephu Mindfulness City will bring in new and more jobs for the private sector.
Under monetary measures IV (MMIV) announced in June 2022, high-risk sectors such as hotels, restaurants, tourism, and airlines received a two-year loan deferment until 2024, while moderate and low-risk sectors got a deferral until June 2024 after the decision of the RMA’s 200th board meeting held in May this year.
However, the FIs can give full or partial deferments for the moderate and low-risk sector only for loans that are ‘performing’ upon request with submission of deferment form to the respective FIs.
Agriculture-related services, trade, education, and health services are classified as low-risk.
The moderate sectors include construction (contract-based), hospitality, entertainment, recreational services, mining and quarrying, manufacturing enterprises, handicrafts and textile production, retail trade, commercial housing, home loans, personal loans (consumer and mortgage), transportation (commercial and non-commercial), and education loans.
Along with MMIV, the RMA also came up with the Rules and Regulations on Foreclosure and Write-off of NPLs 2022, stating that extending relief measures to NPLs without careful consideration would only defer the problems temporarily without necessarily resolving the underlying issues.
According to the Rules and Regulations on Foreclosure and Write-off of NPLs 2022, when FIs do not foresee any viability to settle through negotiation with the borrower during the pre-litigation foreclosure, FIs shall initiate recovery proceedings in the court of law for foreclosure of collateral or mortgage within 180 days from the day of the loan account becoming NPL.
Pre-litigation foreclosure means when a loan account becomes or shows signs of account becoming NPL but limited to loans overdue by more than 31 days or behind the agreed schedule or payment or any events that will likely impair the borrower’s capacity, FIs can follow up with the borrower to upgrade or maintain the account as performing.
FIs should stipulate a timeline within which a recovery suit shall be filed against the NPL borrower.
However, a borrower can plead before the court for an out-of-court settlement through negotiation.