Phub Dem

Bankers raised numerous concerns including defaulting on loans, credit exposure, and lack of investment in the economy, when they met the ministers of economic affairs and finance, and the Royal Monetary Authority (RMA) yesterday.

President of Financial Institutions Association of Bhutan (FIAB) Karma said that there was no moratorium on additional housing loan policy but that the banks took prudential and precautionary measures. “Those clients who deserve the loan will get it.”

T-Bank Managing Director Pema Tshering said that the bank stops certain loans when there was a high exposure in a certain branch but the overall loan was never stopped. He said that people often mistook this internal decision for the moratorium. “The enforcement will come with due diligence. The lending will be stopped for those places with high exposure.”

This was the second meeting between FIAB with RMA and finance ministry.

According to the RMA, the total loan composition of the various sectors as of June this year amounts to Nu 143 billion (B). The non-performing loan (NPL) stands at Nu 21.5B.

Between 2015 and 2018, the loan composition grew by 17 percent from Nu 83.52B to Nu 132.56B,  whereas NPLs increased significantly by 33percent, which is from Nu 4.7B in 2015 to Nu 12.86B last year.

Economic affairs minister Loknath Sharma said that the boom in the economy was a natural growth, and the reflection of NPL was a timely reminder for the banks to be cautious. “Although the increase in loan disbursement is encouraging, the rise in NPL is a concern.”

Karma said that the financial institutions should arrest it.

The major player of NPL according to Karma who is also the CEO of Royal Insurance Corporation of Bhutan was due to weak credit lines.

“For a small country with a total budget of Nu 143billion (B) it’s a huge amount but the capital budget was mostly spent in non-productive sector.”

He said that the financial institutions lack professional bankers and to build a vibrant economy the bankers should be professional about credit management.

He also said that the government should issue directive to certain government agencies such as RSTA, National Land Commission, thromde to be accountable because loan applications and procedures have to route through these agencies while availing of loans.

For instance, he said that a woman has sold her building six times which indicates the lapses in the government agencies.

Another concern bankers raised was the judicial system taking business decision that causes havoc in the credit system. Karma said that the financial institutions would have already given a few months to repay or recover the property however the courts give defaulters additional time.

“The dearth of the commercial court has made judicial cases complicated. We need commercial expertise in the judicial system.”

Meanwhile, the value of seized property often was not able to cover the loan amount and the banks had to bear the tax when transferring the ownership of the seized property. “If finance ministry can write off the tax percentage, it would be of great help to the banks.”

RMA governor, Dasho Penjore said that there was a lack of professionals in the financial sector.  He said that RMA and Financial Institutions Training Institute (FITI) would focus on building professionalism in the banking sector, and the government should coordinate the stakeholders and make them accountable.

With regard to judicial business decision, the governor said that RMA proposed a meeting with the judiciary and Anti-Corruption Commission.

Of the total budget, only 33 percent of the government’s spending was capital expenditure, which according to the bankers was the reason for low economic activities and defaulting on loans by those in certain sectors.

For instance, trucks and heavy construction machinery remain idle with no economic activities. When such cases come, the FIs are of the view that moratorium on transportation loan becomes mandatory considering the weak wavelength of the business.

Finance Minister Namgay Tshering said that the ministry in collaboration with FIAB, RMA and MoEA should work together to resolve such mounting issues. “The ministry will support the banks with technical backstopping as and when required.”  


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