NPL interest waiver will benefit the banks too says PM
With the economy coming to an effective halt due to COVID-19 and the hurt spreading to many sectors, one concern is many companies and individuals being unable to pay back their loans with no business or revenue.
His Majesty’s interest waiver for three months and loan deferment for all has given both the banks and the clients some breathing space for now, but if the crisis continues for a long time then a question arises on how the government plans to secure and protect the banks and stop any of them from failing.
Lyonchhen Dr Lotay Tshering said, he asked the Macroeconomic Framework Coordination Committee (MFCC) to assess this, its implications and the measures and so they are formally supposed to submit a report on this.
“The last thing we want is a banking collapse but the best thing is that our banks are within Bhutan and none of them have operations outside, except for Druk-PNB, but that is different so they are all within. So I personally feel that they can be protected as we just need to give them a liquidity cash injection and they can be revived overnight,” said the PM.
He said the overall loan portfolio is about 150 bn of which 22 bn is NPL and so it is a matter of around 130 to 120 bn active loans.
“So if at all there are not much depositors and there is not much interest to sustain them then we just have to inject a few billions here and there because they have no transaction outside,” said the PM.
He said this injection would be different from the 30 bn Kidu package which already has many components and it is not just the Relief Kidu but other things like elderly group care, destitute group care, disabled group care and others.
The Prime Minister also highlighted how the loan NPL waiver also helped strengthen the liquidity of the banks.
“I am grateful to the Financial Institutions and they can take this for four to five months. RMA and we sat together and looked at it and found that these people on NPL would be defaulting anyway without COVID-19 and since the waiver is only for the COVID-19 affected, the NPL loans were initially excluded,” said the PM.
“But His Majesty granted interest waiver for all after reviewing it and His Majesty’s reason is when they could not pay back at normal times and so how can they pay back now. That also makes a lot of sense and so as commanded it was waived off,” added the PM.
He said that additional interest waiver is of Nu 600 mn and the government’s additional contribution comes to around Nu 300 mn as the overall NPL is around 22 bn.
Lyonchhen pointed out that the banks were not getting this Nu 300 mn interest anyway as they were NPL but now they are at least getting 50 percent from the government.
“They are benefitting as they could have taken this to court and gotten some property out of it, but there would still be no cash flow, but now they are at least getting some money out of it,” reasoned the PM.
He said on top of that when a loan goes into NPL an equivalent amount has to be frozen or provisioned from its profits and so now that 50 percent gets released for three months and so the banks have more liquidity and this, he said, is perfect.