Non-performing loans (NPL) increased by 26.64 percent (from Nu 8.99B to Nu 11.39B) between March 2016 and March this year.

According to figures from the Royal Monetary Authority (RMA), total loans from the financial sector has also increased from Nu 79B to about Nu 92B in the same period.

NPL is the sum of borrowed money upon which the debtor has not made his scheduled payments for at least 90 days.

NPL has significantly increased between December 2016 and March this year, during which period, total loans from the financial sector also increased by 3.6B.

Gross NPL ratio (the ratio of NPL to total loans) of the entire financial sector has increased to 12.38 percent in March 2017 as compared to 11.38 percent in March 2016. This means of the Nu 92B loan disbursed in the economy, Nu 11.39B are bad debts.

Of the total NPL of Nu 11.39B, more than half or Nu 6.03B was classified as substandard loan defaulting by 91 to 180 days. Another 39.35 percent consists of expired loans and loans under litigation cases. NPL amounting to Nu 883M defaulted from 181 to 365 days.

Trade and commerce has the highest NPL to loan ratio of 25.11 percent, followed by agriculture sector with 19.16 percent, and transport sector with 13.95 percent. This means a quarter of loan made towards trade and commerce are non-performing.

Once the value of non-performing loans exceeds a certain level, the bank’s profitability suffers because it earns less money from its credit business. Banks need to put aside some funds in case they need to write down or write off the loan at some point in time.

A financial expert said NPL also reveals the economic performance of the country. For example, trade and commerce sector is not doing well because people are defaulting on loan repayment.

Likewise, the agriculture sector defaulting Nu 937M, which is almost 20 percent of the total loan disbursed for agricultural activities, is not a good indication in the agrarian society where more than half of the workforce is concentrated, he said.

However, a banker said the NPL figures not alarming and that it is well below the threshold.

Of the Nu 20.85B in the housing sector, Nu 1.78B is identified as NPL with a ratio of 8.5 percent. In production and manufacturing, the NPL ratio is 11.6 percent, meaning Nu 1.44B of the total Nu 12.5B are bad debts.

The RMA’s financial sector review report attributed the growth in loan to strong demand in the housing, service and tourism, and trade and commerce sectors.

It was revealed that housing sector has the highest loan with Nu 20.86B (22.67 percent), followed by service and tourism sector with Nu 18.24B (19.83 percent), and trade and commerce sector with Nu 13.09B (14.23 percent).

These sectors together constitute 56.74 percent of the total loans for March 2017.

Tshering Dorji


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