Thukten Zangpo

The Royal Monetary Authority (RMA) directed the financial institutions (FIs) to suspend loans for commercial housing and hotel construction yesterday.

The moratorium, in effect from June 8 until December 31 of this year, was approved by the authority during its 202nd Board of Directors meeting held on June 6.

“The moratorium was imposed in view of broader concerns from the RMA as well as the government on the associated outflow of foreign currency, high credit concentration and the risk of non-performing loans (NPL) in these two sectors,” the RMA stated.

The moratorium applies to all pending loan applications that are at various appraisal stages by the FIs, as well as new loans for expansion purposes.

However, loans that have already been sanctioned or approved before the close of business on June 8, irrespective of the loan disbursement status, and home loans are exempt from the moratorium.

The Authority has instructed the FIs that a list of approved loans as of the close of business on June 8 must be submitted to them by 5 pm on the same day.

Failure to comply with the directive will result in penalties as per the Penalty Rules and Regulations 2022, the RMA stated.

Recently, the Authority had written to the finance ministry, warning that foreign currency reserves are touching the threshold for the normal period.

The RMA must notify the government three months in advance if the projected reserve position is expected to meet the Constitutional requirement.

Earlier this year, the government revised the essential import value from USD 668 to 603 million for the normal period and USD 464 million for the critical period.

The foreign currency reserve was USD 766.8 million, which is equivalent to 13.8 months of essential imports as of December last year. Most recent figures were not available.

As of September, last year, service or tourism and housing loans constituted the majority of the total credit portfolio, reaching Nu 55.59 billion and Nu 51.83 billion respectively.

At the same time, service or tourism loans accounted for the highest NPL share, totalling Nu 4.88 billion, while Nu 1.59 billion constituted the NPL share in housing loans.

In retracting the RMA’s directive issued on June 8, the Authority sent a letter to the Chief Executive Officers of FIs on June 9, stating that the suspension will apply to all housing loans, including home and hotel construction loans, effective from June 9 until December 31. However, FIs will still offer new loans for repairs and maintenance, but not for expansion purposes. The FIs must submit the list of approved loans, which were pending disbursement as of the close of business on June 8 this year, to the Authority before 1pm today.