MB Subba

A high level committee formed in August last year to resolve non-performing loans (NPLs) came up with a NPL resolution framework to provide relief to both financial institutions and borrowers.

A press release from the central bank stated that the NPLs, as per the framework, will be temporarily parked for three years and interests will be frozen for the said period.

This is expected to provide relief to borrowers and decongest the books of financial institutions.

As per the framework, NPLs that have been invested in viable businesses but the businesses are facing a temporary loss of income will be revived or rehabilited. The borrower and the financial institution will jointly explore and implement corrective actions to revive the business.

The measure is also aimed at ensuring that credit continues to flow in the economy.

Finance Minister Namgay Tshering, who is the chairman of the high level committee, said that the NPL borrowers would be able to avail loans.

“We have completed the first phase of meeting. We will continue to resolve the NPL issue,” he said on when the issue would be resolved.

The first phase of the committee meeting reviewed 838 NPL accounts amounting to Nu 1.8 billion (B). Besides the finance minister, the committee comprises the central bank governor and heads of financial institutions.

As per the RMA’s monthly statistical bulletin for February 2021, the NPL ratio to total credit as of September last year stood at 15.5 percent.

However, the NPL situation has further worsened due to the Covid-19 pandemic, according to a press release from the central bank.

“The Covid-19 pandemic has caused widespread disruptions resulting in hardships for businesses and individuals.”

The RMA states that disruptions of partial or complete loss of employment and incomes have posed difficulties in debt repayment and places added pressures on the financial health of individuals and businesses.

The NPLs increased from Nu 21.4B in June 2019 to Nu 26.5B in June 2020, according official figures. The NPLs are mainly concentrated in the services, trade and commerce, housing, and manufacturing sectors.