…15 percent NPL not a major concern

Younten Tshedup

While the rate of non-performing loans (NPL) has been rising in the country, Finance Minister Namgay Tshering said that it is not a major economic crisis.

Responding to Nganglam MP Choida Jamtsho’s question on the deteriorating economic situation from the growing NPL yesterday, finance minister said that the current NPL stood at Nu 21.5 billion (B), which is about 15 percent.

The 15 percent NPL, Lyonpo said, should not worry the public. “Globally, NPL more than 20 percent is only considered worrisome.”

But the Royal Monetary Authority (RMA) figures reveal that hotel and construction sector alone caters to 30 percent NPL of its portfolios.

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

“Our NPL is just 15 percent and there is no reason for us to worry at this time,” he said.

Lyonpo explained that in 2016 when the RMA replaced the base rate policy with minimum lending rate (MLR) policy, the number of loan applicants increased by about 17 percent.

“With the increased loan applicants, the number of defaulters also increased as a corresponding effect thereby increasing the NPL,” he said, adding that the competition among the FIs to attract more clients through different schemes could have also let to the increased NPL.

He, however, said that the government in collaboration with RMA and FIs has devised several strategies and plans to address the current NPL issues.

One of the main strategies was to promote loan specialisation by different financial institutions. Lyonpo explained that the new strategy would allow respective FIs to loan money to a particular sector.

Another strategy was to provide securitisation of loan by the two insurance companies. “Under this strategy, even if the person is not able to repay the loan, the insurance would cover for it.”

Meanwhile, responding to the Panbang MP Dorji Wangdi’s question on the fiscal and trade deficits, finance minister said that total budget deficit in the 12th Plan is Nu 29B and not Nu 40B as mentioned by the MP.

However, Lyonchhen Dr Lotay Tshering had earlier said that although the 12th Plan had a projected fiscal deficit of Nu 29B, it could touch Nu 40B should the government consider its various pledges.

MP Dorji Wangdi said the health ministry as informed by the health minister alone has a fiscal deficit of about Nu 12B in the 12th Plan. “If we add that to Nu 29B, the total deficit comes to about Nu 41B. Of the several pledges the government has made, the free WiFi alone would account for more than Nu 21B taking the total fiscal deficit to over Nu 62B.”

The increased budget outlay from the enlarged developmental activities combined with the decrease in the grant and aid from donors as a result of change in the economic status of the country by 2023, Dorji Wangdi said that the country’s economy would be in a major crisis.

The MP added that the country’s increasing trade deficit also posed a major threat to the country economy.

The minister said that in the past 15 months since the present government took over, the fiscal deficit has decreased to Nu 22B from Nu 29B. “The government’s tax reform initiative was a major step in addressing the current fiscal deficit.”

He said that with the introduction of innovative financing strategies and launching of the Bhutan Climate Fund including the promotion of public-private partnership schemes, it would further help address the fiscal deficit.

On the trade deficit, Lyonpo said that the government plans to decrease the trade deficit of Nu 30B as of 2018, which is around 16 percent of GDP to 13 percent in the current financial year. “Economic diversification and substituting imports by promoting cottage and small industries would also address the trade deficit.”