NPL accounts eligible for interest waiver

Younten Tshedup 

All loans, including non-performing loan (NPL) would now benefit from the interest waiver facility under the monetary measures in response to Covid-19 pandemic.

The interest waiver facility was extended to 19,126 NPL accounts for three months starting April.

Initially, the monetary measure amounting to around Nu 3.37 billion (B) did not include the NPL accounts.

According to a press release from the Royal Monetary Authority (RMA), on the command of His Majesty The King, RMA was directed to discuss with the government and financial institutions (FIs) to explore the feasibility of extending monetary measures to those who fall under NPL category.

Subsequently, His Majesty commanded that the interest waiver facility also be extended to NPL accounts from April until June.

The interest waiver would be subjected to the same terms and conditions specified under Part A of the monetary measures issued last month. The government and banks will share the cost of the interest waiver.

The interest waiver shall be based on the loan outstanding (for term loan overdrafts/working capital/bullet loans) as of April 10, 2020.

Making the announcement yesterday, Prime Minister Dr Lotay Tshering said that the kidu would provide immense relief to not just business people, but also to many others who struggle to pay loans they sought for agriculture, education, and other personal reasons.

Lyonchhen said that people who had defaulted on their loans would not have done so intentionally, and so this measure should bring them some ease in troubled times.

He said that the monetary measures would hit the FIs hard as majority of them depended on interest to make profits. For three months, there will be no profits for the banks and, consequently, the shareholders would also have to take the financial brunt, he added.

“The government would like to thank people working in the banks and all its shareholders for shouldering this responsibility together,” Lyonchhen said.

On April 10, in the address to the nation, His Majesty The King stated that one of the biggest concerns for people and businesses was the difficulty in meeting their loan repayment obligations due to economic uncertainties resulting from the effects of the Covid-19 pandemic.

In response to the challenges, His Majesty The King commended the RMA and FIs to consider deferment of loan repayments and to waive off interest payments for three months starting April.

 

Non-performing loans 

As of January 2020, the country’s total NPL stood at Nu 21.5B.

As per RMA figures, hotel and construction sector together account for 30 percent NPL of its portfolios.

Finance minister had earlier said that as of June 2019 the eight financial institutions had lent about Nu 143B of which major share was in the housing, tourism and hospitality, and trade and commerce sectors, which also has the highest NPL currently.

With the increased loan applicants over the years, defaulters have also increased, thereby increasing the NPL.

The government, in collaboration with RMA and FIs, has devised several strategies to address the NPL issues. One of them is to promote loan specialisation by different financial institutions.

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