The Bhutanese Leading the way.
Financial Institutions (FIs), businesses and the government are all watching with concern as 30th June 2025 approaches – when the Nu 34.141 billion (bn) in loan deferrals granted for a year from July 2024 comes to an end.
In June 2024 the Phase 4 monetary measures of the Royal Monetary Authority (RMA) related to the impact of the pandemic came to an end, and RMA essentially left it between the FIs and clients on a case-by-case basis.
The FIs came up with a common Standard Operating Procedure (SOP) and decided to give loan deferrals in a case-by-case basis for a year.
As of February 2025, of the Nu 34.141 bn loan deferral, the biggest is Hotel and Tourism with Nu 14.323 bn, of which Nu 13.619 bn is for hotels, Nu 267.16 million (mn) for travel and ticketing agencies, Nu 274.98 mn for home stays and guest houses, and Nu 162.28 mn for restaurants and bars.
The second biggest deferral is for Production and Manufacturing sector dominated mainly by medium and small manufacturers with Nu 6.171 bn in deferrals. Within this sector, the biggest sub-sector is to do with food production related to local groceries and others which is Nu 3.285 bn, Nu 1.719 bn in manufacture of hardware and construction materials, Nu 413.53 mn in production of medicines, drugs and cosmetics, Nu 297.63 mn in manufacture of garments, textiles and jewelries, Nu 255.27 mn in manufacture of chemical and petroleum product. Others are printing and production of recorded media (Nu 64.76 mn), electronics and home and office furnishing (Nu 67 mn), arts and crafts (Nu 48.90 mn) and smaller ones like sports and toy products (Nu 8.19 mn), vehicles, machineries and maintenance (Nu 4.73mn), renewable energy (Nu 2.74 mn), non-renewable energy (Nu 2.42) and stationeries (Nu 1.17 mn).
The third biggest sector is the Service sector with a total deferral of Nu 3.418 bn. In the service sector, the biggest sub-sector is aviation service with Nu 1.326 bn followed by Institutional and Education Services at Nu 740.93 mn, and other services at Nu 549 mn.
Other sub-sectors are repair and maintenance service (Nu 415 mn), entertainment and recreational services (Nu 192 mn), health and fitness services (Nu 96.18 mn), ICT (Nu 57.38mn), travel and ticketing service (Nu 36.44 mn) and consultancy (Nu 4.67 mn).
This is followed by the Trade and Commerce sector with Nu 3.239 bn in deferred loans. These are mostly shops of various sizes. Here, the sub sectors are groceries and other related commodities (Nu 970.46 mn), hardware and construction materials (Nu 695.30 mn), electronics, home and office furnishing (Nu 400.94 mn), garments, textiles and jewelries stores (Nu 150.45 mn), export business (Nu 121.96 mn), medicines, drugs and cosmetics (Nu 112.94 mn), petroleum distributors (Nu 105.49 mn), arts and craft (Nu 88 mn), stationaries (Nu 76.07 mn), other services (Nu 9.13 mn) and sports and toys (Nu 1.30 mn).
Next is loans to contractors at Nu 3.182 bn. Of this Nu 2.549 bn is construction based contract, Nu 479.44 mn is business operation loan for contractors and Nu 152.81 mn is non-construction based contract.
The other sectors with major deferrals are Mining and Quarrying with Nu 920.14 mn, Housing sector with Nu 895.57 mn, Transport loans with Nu 880.35 mn, Agriculture and Livestock with Nu 773.48 mn, Personal Loans at Nu 319.72 mn and Forestry and Logging with Nu 16.22 mn.
The RMA recently made a presentation of the deferrals to the Cabinet which is also concerned about the matter.
The Cabinet is especially worried about the hotel loans.
The RMA is likely to again leave the deferral matter between the FIs and clients on a case-by-case basis.
A source said the FIs are optimistic about most of the sectors as the economy grows, but the concern is around Hotels which also holds the biggest deferral, as there has been no major turnaround in this sector.
A head of a FI, on the condition of anonymity, said, “We will have to see how the economy has moved and if there are no major changes in the economy then it is too premature to call in the loans.”
He said that he would sit with his biggest borrowers and talk to them, and understand their issues and the situation.
He said the two key things to watch are whether the 13th Plan is starting to make an impact on the ground and how tourism arrival numbers are shaping up
The FI head said there is no point going after hotels if the tourist numbers have not touched the pre-pandemic numbers. He said if FIs call in hotel loans and takeover hotels then who would buy the hotels in such a business climate, and should FIs even be running hotels.
The FI head said the bigger concern is the economy and the aim of FIs should be to help and nurture the economy than push it into more trouble, which would be bad for everyone.
He said there is cut and dry approach, and it will depend on a sector-to-sector and case-by-case basis.
Another FI head also, on the condition of anonymity, said while giving deferral makes sense in one aspect at another level it is only postponing the problem and making it bigger in the process, as time goes on.
He said the primary responsibility lies on the government to improve things, like tourism numbers and carry out more activities on the ground so that money reaches the hands of the people to enable them to pay loans.
