Thukten Zangpo

To recover the economy disrupted by the pandemic, the Bhutan Chamber of Commerce and Industry (BCCI) on behalf of the businesses submitted the private sectors’ economic recovery plans to the government and the Royal Monetary Authority (RMA) on April 13.

President of BCCI, Tandy Wangchuk said with the expiring of phase III monetary measures on June 30 this year, it is anticipated that many businesses will continue to face problems related to servicing their loan, access to finance, entering into non-performing loan (NPL) category, as many restrictions are still in place.

“If the recommendations are addressed, the economy would bounce back to normal in six months to a year and there would not be any legal issues between the banks and the clients on loan repayment,” he said.

The Chamber recommended the issues under monetary measures to be addressed immediately as it requires policy intervention before the expiry of phase III monetary measures in June 2022. Other issues, they said, could be considered on a priority basis in order to supplement the monetary measures.

Servicing loan

To support businesses, the chamber recommended relaxing the existing banking prudential norms such as enhancing loan gestation period, loan tenure, long-tenured loans, and reducing the minimum lending rate (MLR).

Business representatives are asking for a loan gestation period to be extended by three to five years for projects during construction prior to the capitalisation of the loan.

One of the recommendations is to reduce the equated monthly installments (EMI) by reducing the interest rate and ballooning EMI for long-tenured loans (service, construction, tourism, and industry loans have a maximum tenure of 20-25 years).

In a ballooning system, the initial EMI will be lower to help businesses during the lower-income period and increase subsequently as the business environment improves.

The Chamber also recommended that long-tenured loans (over 15 years) for construction and hotels be extended to 30 years in addition to a reduction in interest rates.

This would benefit the construction and hotels as a five-year loan extension would result in lower (only 10 percent) reductions in EMI.

The Chamber also asked to reduce the MLR where banks could look into reducing the saving rates and fixed deposit rates.

Meanwhile, for deferred interest amount on all loans from the start of the pandemic to the end of the moratorium period, the Chamber recommended maintaining it in a separate fixed term interest-free account and not capitalise, as this would have a compounding effect and the principal will keep ballooning, making it more challenging for borrowers to repay.

“Once the principal amount is repaid or 10 years after the end of the moratorium (whichever comes first), this fixed term interest-free account can be negotiated to be liquidated in 2 to 5 years,” it stated, adding that a clear policy is needed on the treatment of the accumulated and deferred interest.

The chamber also recommended that banks could collect the data on the deferred interest to assess and quantify the quantum of accumulated interest on account of the deferred 50 percent interest.

It is expected that there would be a significant increase in the principal outstanding and the EMI once the Phase III measures end.


Access to finance

The Chamber recommended banks to start issuing loans based on the creditworthiness of individuals or businesses to stimulate business growth and development.

Currently, all financial institutions require an individual or business to provide collateral to avail loan besides having to inject equity in the investment.

Representatives also recommended external borrowings. With external commercial borrowings restricted, businesses cannot secure funds from abroad. Relaxing the criteria for qualification of lenders, instituting a mechanism for mortgaging assets for external lenders, and repayment of convertible currencies could facilitate access to finance from abroad, it recommended.

The chamber also asked for bridging soft loans at a 5 percent interest rate or below to all qualifying private entities and working capital at the low-interest rate for businesses in the southern border towns.

It also recommended that the assessment of land value be used as collateral closer to market value so that the businesses can avail better loans.

Despite the banks in principle agreeing on the highest valuation for different categories of land, it was not uniformly implemented by all the banks.   Additionally, it recommended prioritising the use of rural land as collateral without any threshold limits that would be beneficial for smaller business entities.

BCCI also recommended that micro-finance scheme be extended to individuals or businesses in the informal sector, like vegetable vendors, street hawkers, roadside shops along the highway, and daily wage workers since they do not have the option to avail of any financing.

Enhancing liquidity in the banking sector

With financial institutions seeing a surge in liquidity, the private sector suggested letting the excess liquidity in banks go to the private sector. They want banks to not participate in subscriptions of bonds floated by the government because it would soak up liquidity within the banks.

Businesses recommended that banks to be empowered to explore low-cost funds available internationally if the authorities supported them.

Allowing and relaxing norms for banks to seek funds from international sources could enable private sector to avail funds at commercial rates available in the international market to fund commercially viable projects are to be explored.

Resolving non-performing loan

The Chamber recommended establishing a committee to address NPL post-April 2020 with an authority to allow restructuring of loans.

The committee created by the government with RMA addresses the issues arising from projects under NPL while there is no focus or initiative to address the NPL post-April 2020, according to the Chamber.

They also recommended writing – off partially or fully NPL up to Nu 7.5 million, granting flexibility, and empowering the banks to renegotiate the NPL account with the borrowers.

The Chamber also recommended creating an opportunity to avail new loans and restructure loans for those businesses with NPL during the pandemic, post-April 2020.

This means allowing loans to be restructured more than thrice without a minimum of two years gap from the last restructuring. As per the existing prudential norms, loans can be restructured up to three times with a minimum of a two-year gap between each restructuring.

Additionally, it recommended that the sister concerns (two or more separate enterprises owned by the same owner) to be allowed for additional financing which is currently denied.

They want banks to lend to borrowers who were under NPL due to the start of the pandemic but have a good credit history.

Tourism  Industry

Concerned that the tourism sector would not rebound quickly with global and regional restrictions, hoteliers suggested a three-year moratorium on loan repayment after June this year on loans extended to hotels before the Covid-19 pandemic hit.

Tour operators, airlines, construction firms, retail, and manufacturing businesses, on the other hand, requested for a one-year moratorium on pre-pandemic loans as these sectors are expected to recover quickly.

“On completion of the moratorium period, the loans could be restructured and calculated as per the principal outstanding balances on June 30, 2022,” the proposal stated.

The tourism sector recommended marketing subsidy, airfare subsidy and tax holidays. It stated that tax holidays have become obsolete with the closure of the tourism sector for two years.

The hospitality sector is requesting allowing “tests and go” if RT-PCR test result is negative with one-night quarantine upon arrival, from June 1.

The tourism sector also asked for the continuation of discounts for the duration of tourist visits – discounts for groups, students, and children which the Tourism Council of Bhutan had informed to discontinue.

CSI sector

Representatives of the Cottage and Small Industry (CSIs) asked the Bhutan Agriculture and Food Regulatory Authority (BAFRA) to set up an international standard lab to certify agro-products for the export markets or to partner with their counterparts.

Presently, CSIs face challenges in certification of agro-based products as BAFRA’s certification has not been recognised in many target countries due to its lack of affiliation with their counterparts and lack of international standard laboratory.

They also asked for subsidised air freight charges to export perishable agro-based products.

Entertainment and event management sector

Representatives of the sector submitted allowing operation of movie theatres and entertainment sectors, including events under suitable standard operating protocols. Drayangs have remained closed since the pandemic.