Banks unable to auction properties

In yet another sign of the state of the economy, Financial Institutions are unable to auction properties and even vehicles with most going unsold.

This is a problem affecting all FIs who have tried auctions in the past few months like T-Bank, NPPF, BoB, BNB, RICBL and BDBL.

Druk-PNB and BIL have not had auctions this year so far.

T-Bank put on auction 5 plots of lands in Thimphu, Gelephu, Tsirang and Chukha and 2 equipment in the form of a crushing plant and Bachoe loader on 8th April 2024 but only 2 plots could sell from Gelephu and Tsirang.

Surprisingly, a 12.5 decimal land and building in Mothithang, which would have been the first to be sold in the past remained unsold.  A previous auction attempt in 16 November 2023 for the same plot and building also could not get buyers.

An official said ther e were a lot of enquiries but ultimately no buyer.

NPPF tried auctioning 6 plots of lands in Punakha, Dagana, Nganglam, Pemagatshel and Lhuentse on 29th April 2024 but they could not find a single buyer.

These same plots had largely been put on auction on 25th December 2023 but even then, they were unable to find buyers.

The BoB tried its first round of auction on 26th January 2024 with 14 plots of land from Phuentsholing, Thimphu, Bumthang, Dagana, Wangdue, Tsirang, Trashigang and Zhemgang but according to a BoB official the overwhelming majority of the plots remained unsold including the Phuentsholing and Thimphu plots.

A second auction was attempted of 11 plots on 31st May 2024 which comprised the unsold plots of the previous auction but here again the result was the same.

The BNB on 26 February 2024 auctioned 20 plots of land in Phuentsholing, Chukha, Haa, Trashigang, Dagana, Samdrupjongkhar and Trongsa but here again the plots remained largely unsold.

In the case of RICBL on 6th April 2024 it held a re-auction of various properties that could not be sold in past auctions.

The first list was a list of 17 plots in Thimphu, Chukha, Mongar and Samtse and 11 heavy machineries which could not be sold in the last auction and so were coming for the second round of auction.

It is significant to note that the 17 properties included a 10.6 decimal land with building in Babena, Thimphu and an 18.47 decimal land with a 7 storied hotel in Changbandhu, Thimphu.

There were then 13 plots of land from Chukha, Bumthang and Trashigang and 4 equipment that was coming in the third round of auction on 6th April.

There were then 43 plots of land coming for auction the 4th time around on 6th April from Mongar, Pemagatshel, Chukha, Tsirang, Thimphu, Dagana and Paro.

Generally, properties that fail to sell multiple times can be acquired by the bank and kept with it or sold at a later date.

On 28th June RICBL announced that there would be a re-auction for properties on 9th July that could not be sold on 26th June.

These were 29 plots of lands in Sarpang, Paro, Samdrupjongkhar, Trashigang and Chukha and 14 equipment.

However, while the auction market is generally down, there are some bright spots.

In the case of BDBL it held an auction on 25th June 2024 for 32 properties in Sarpang, Paro, Chukha, Thimphu, Phuentsholing, Lhuentse and Punakha.

The majority of the properties were from Sarpang.

Among all the auctions in recent months, this did the best as people scooped up the Sarpang properties in anticipation of the Gelephu Mindfulness City (GMC) project.

In contrast three of the Thim Throm properties which are a 48 decimal land in Semtokha, 25 decimal plot in Semtokha with a one storied building and a 10.38 decimal land with a 4-storied building all failed to sell.

A BDBL official said they had deliberately auctioned the more attractive lands like in Sarpang and Gelephu in the particular auction to get sales otherwise last year another auction with land in the eastern Dzongkhags and other places did not get a good response.

The BDBL official said there are some properties which cannot be sold even after multiple auctions.

The official said like other Financial Institutions (FIs) the BDBL has a minimum floor or reserve price below which it cannot go. Anything gained in excess of the loan goes to the owner.

The same auction had 10 mainly construction equipment and heavy vehicles but none could sell. Here the BDBL official said that is because there are not much construction jobs right now.

Why auctions are not doing well

The BDBL official said that auctions across FIs are not doing well given the state of the economy. The official also noted that unlike in the past there are no takers for properties in Thimphu.

The official said this may be due to the fact that landlords in Thimphu are finding it more difficult to get tenants and certain spaces are even going empty which even leads to some landlords unable to meet EMI payments.

The official also said that another reason for the poor response to the auction may be the expectation that once deferrals come to an end in June 2024 then land rates and auction rates will come down.

While auctions for vehicles can be done right away it takes time for land as it has to complete the judicial process for permission to auction the land.

The BDBL official said that the hope is that things will pick up as the economy improves, but if this continues for a long period of time then there will be cash flow impact as a lot of the money will be blocked.

To improve its auction prospects the BDBL aims to do auctions in the districts headquarters with the expectation that there will be more interest as buyers in Thimphu will not be interested in land in distant Dzongkhags.

Other banks like BNB are also considering the same idea.

A BNB official said that location matters in an auction and so for far flung properties it is time to take it to the respective Dzongkhags as people can actually see the properties and participate.

In terms of equipment he said there are still buyers for Prados and Land Cruisers.

The official said that people come to the auction with the mentality that they can get something cheap, but the reserve price is fixed by the bank and RMA regulations allow only a 15% discount after three unsuccessful auctions.

In terms of why equipment is not selling the BNB official said that most of the equipment are used or damaged and buyers expect a loan transfer but this is not possible as loans cannot be given for old vehicles exceeding their life.

The BNB official also said that the state of the economy is to blame for the unsuccessful auctions.

However, the BNB official said that while auctions do not go well there is no reason to worry as the bigger banks can hold the properties and sell it later.

He said someone once asked if the bank will not face a problem in taking over properties but he said he replied to the client saying the bank will not face any issues.

He said BoB is a Nu 100 bn bank and BNB is a Nu 70 bn bank and the NPL in BNB is only Nu 2.3 bn.

He said banks are hesitant to take over properties as banks do not want to do it as they want to offer other options, banks are not property agencies and it is not the culture. But he said if there is no choice then banks can hold these assets and sell them at a later date.

A BoB official said that one additional factor is also the moratorium on loans as people in the past bought land and equipment at auctions using loans. He said the hope is that once ESP and the budget kicks in, then things will improve.

All FIs that the paper talked to agreed that the auction market is down.

Druk-PNB said that it will come up with some properties for auction at a later date once the judicial process is completed.

As of April 2024, the total outstanding Non-Performing Loan is Nu 19.349 billion (bn) out of Nu 228.368 bn in loans. This means an average NPL rate of 8.47%.

With the loan deferral coming to an end and banks only giving deferrals to certain companies that qualify on a case by case basis, the number of properties coming up for auction is only expected to increase in the coming months.

If FIs are unable to auction them off then cash flow will be impacted as money will be stuck and if the numbers get too big then it will impact the FIs as a whole. It will also start to affect property prices.

So far, the above indicates that the economy despite some initial recovery is still weak and vulnerable, and it is made worse by the largescale migration abroad which has reduced demand in all sectors of the economy.