Service and tourism sector is the highest defaulter

Non-performing loans (NPL) has increased from Nu 5.73B in 2016 to Nu 8.25B last year, according to the Royal Monetary Authority (RMA).

When a borrower is not making interest payments or repaying any principal for a certain period of time prescribed by the regulatory authorities, the loan is called NPL. For Bhutan, any pending repayments beyond 90 days become a bad debt and get classified as NPL.

According to the RMA’s financial sector review, asset quality, which is a key measure to gauge credit risk has deteriorated with increase in NPL by Nu 2.52B between 2016 and 2017. However, it also stated that when compared with September 2017, the NPL has decreased by Nu 4.53B.

Statistics showed that the service and tourism sector is the highest defaulter with Nu 2B NPL covering almost a quarter of the total bad debts. This is followed by trading and housing sector with an NPL of Nu 1.47B and Nu 1.25B respectively.

This, a former banker said is happening despite the fact that service and tourism sector is one of the largest contributors to GDP. “When tourism sector is demonstrating huge potential, everyone is obtaining a tour operator license or constructing a hotel,” he said adding this has resulted in competition, where few will thrive and rest will suffer. “There is also a possibility of deflection, which is hard to trace,” he said.

Further analysis of the figures show that NPL in service and tourism and agriculture sectors have increased significantly by Nu 848.28M and Nu 630.06M respectively during the same period. NPL in education loan indicated a declining trend.

With the intensive financial inclusion programme the RMA initiated, loans from the recently approved micro-finance institutions (MFI) has increased by Nu 68M touching almost Nu 150M in total between 2016 and 2017.

However, the NPL of MFIs also increased by Nu 4.43M last year from Nu 26M in 2016. In total, the loan account of the MFI increased from 2,912 accounts in 2016 to 3,630 last year. The gross NPL ratio of MFIs stood at 14.08 percent in December 2017.

Sources said that loans availed from Rural Enterprise Development Corporation Limited (REDCL) account for the highest NPL in the MFI.

With the implementation of regulations for microfinance institutions and agent banking, the RMA as of 2017 issued registration certificates to three microfinance institutions – RENEW, REDCL and BAOWE. The MFIs, excluding BAOWE have sanctioned loans worth Nu 297.49M.

Tshering Dorji


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