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Government cannot lift observation period for NPLs says Finance Minister

January 19, 2023
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The government cannot lift the observation period for Non-Performing Loans. The Finance Minister said this while meeting with the members of the Bhutan Chamber for Commerce and Industry yesterday. The BCCI members said the cooling period, which is six months is affecting the private sector mainly the construction sector. NPLs are loans with payments that are overdue by more than 90 days.

During the meeting, the members said even if they clear the NPL dues, they are deprived of the credit facilities for six months with the cooling period or the observation period in place.

This, they said has affected the businesses in getting additional funds to invest and recover from the COVID pandemic.

Bhutan Chamber for Commerce and Industry (BCCI) also wrote to the Royal Monetary Authority, earlier this month requesting to lift the observation period.

“As long as we clear the dues then, one month can be imposed if you enter into NPL. That can be imposed based on the progressive mode. Once the economy grows up then they can impose maybe two to one year also. We don’t mind as they are trying to discipline the borrowers,” said Tandin Wangchuk, President of BCCI.

“There were incidences where the contractors were terminated as they could not submit Bank Guarantee or BG even when they received time extension for their ongoing work.  Then during the cooling period, we cannot bid for any new works. Due to this, we cannot even pay our staff which leads to unemployment issues,” said Tshering Younten, Executive Director of the Construction Association of Bhutan.

“From our side, if the system could be eased by reducing the cooling period to a month from six months, it will benefit people from all walks of life,” said Tshering Wangchuk, President of the Horticulture Association of Bhutan.

To this, Finance Minister Namgay Tshering said the government will not lift the observation period. This is to maintain financial discipline among the borrowers and to make the banks resilient.

However, he added that the government is recommending the RMA to set the cooling period duration depending on the number of days by which a payment is overdue.

Kinzang Lhadon

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