Non-Performing Loans (NPL) is increasing in the country. And so, the Member of Parliament (MP) from Nganglam in Pema Gatshel asked the government about its plans and policies in solving such an issue.
An NPL is when a borrower is not making interest payments or repaying any principal for a certain period of time prescribed by the regulatory authorities. For Bhutan, any loans that are overdue by 91 days or more are considered as NPL.
As per the Financial Sector Performance Review Report, the service and tourism sector has the highest share of NPL, followed by trade and commerce, production and manufacturing and Housing. The NPL increased from over Nu 12bn in June 2018 to over Nu 21bn in June 2019.
Going by the report, tourism and service sector has the second-highest loan exposure after the housing sector.
“When the borrower can’t repay the money, the bank takes away their property which is mortgaged. Later they do an auction. And when that happens, they usually can’t sell it because people don’t have money to buy it. That way, the property remains with the bank. The bank then does not have money to give as a loan, or to put into economic activities. It has a huge impact on the circular flow of money,” said Choida Jamtsho, the Nganglam MP.
The Finance Minister, however, said that it is not a major concern. The formulation of policies and strategies are underway.
“We are working with the RMA to formulate policies and laws. I also had a discussion with the banking institution for two times in six months. One way forward that the government is working on is to not provide loans from all the institution when a person builds a house but rather to come up with individual specialisation from each institution. Like RICBL and BIL can come up with securitization of the loan which means the person if they are not able to pay loans, the insurance will cover it. So we are in the process of changing all these things,” said Namgay Tshering, the Finance Minister.
He added that the Royal Monetary Authority’s policy of Minimum Lending Rate revision in 2016 is one of the main reasons for the increase in the number of loans availed. Consequently, the ripple effects resulted in more defaulters.
Samten Dolkar
