The Royal Monetary Authority (RMA) will implement seven monetary measures to support loan repayment. The measures will be implemented after June this year. At a press conference today, the authority said, unlike the existing blanket loan deferment approach, focus will now be given on individual borrowers and reducing non-performing loans. Financial institutions will be given a three-month transition period from July before the implementation.
Unlike the blanket loan deferments provided during the pandemic to offer temporary relief, the RMA says there will be no such deferments going forward, as they are not a sustainable solution.
Loan deferment was provided to individuals from April 2020 to June 2024 during the pandemic. It was a blanket measure, given to all borrowers regardless of their financial condition.
Announcing the measures at a press conference this morning, the RMA said Bhutan is the only country that has provided such long-term deferment for five consecutive years.
However, the authority said this extended deferment added to the overall debt and created a false sense of financial comfort for many borrowers.
Interest continued to build up during the period, and by April last year, the interest on deferred loans had reached Nu 4.7bn. As of March this year, loan deferrals with eight financial service providers accounted for over Nu 29.6bn.
This also affected the quality of bank assets and made it difficult for financial institutions to tell apart genuinely struggling borrowers from those who could repay but chose not to.
Additionally, the authority said prolonged deferment poses risks for future loan availability, as it impacts the financial health of lending institutions.
As a result, the authority will now implement a more targeted and structured approach to loan repayment.
According to the Loan Restructuring Rules and Regulations 2022, there are seven types of restructuring options available for viable loans—a type of loan which the financial institution foresees repayment.
“The first one is an interest-only payment. For like two years, you just have to pay the interest amount of your EMI, not the principal component. The second one is a payment moratorium; if a borrower has a cash flow problem, then they can opt for a loan moratorium. The third one is capitalisation. It means adding interest on the principal amount and seeking for term extension of the loan. The fourth one is an extension of the maturity term for the loan. If you have taken a loan for five years, you can extend it for maybe six, seven, eight years,” said Jurme Tenzin, Senior Analyst, RMA.
The fifth measure, which is a loan top-up with collateral, gives an option for the borrower to get give additional loan from financial institutions.
“The sixth one is loan splitting. If you have a big ticket loan, you can opt to split your loan into two or three parts and choose to repay based on your capability. The final one is the conversion of an overdraft of a working capital loan into term loans. Term loan means you would have a series of frequent scheduled repayments, be it monthly, quarterly or annually,” said Jurme Tenzin, Senior Analyst, RMA.
Additionally, financial institutions may introduce any other measures as part of their loan restructuring facilities approved by their board members.
The decisions were made in consultation with the Prime Minister’s Office, the Ministry of Finance and financial institutions. The three-month transition period for the financial institutions is for consultations with their clients and to assess their loan’s viability.
Sonam Yuden
Edited by Kipchu
