The private sector since the last few months is faced with a serious issue of loan repayment partly caused by unavailability of additional loans from the commercial banks.
The Druk PNB (DPNB) CEO N.K Arora said this should not be used as an “excuse” by the private sector to default. Talking to The Bhutanese the Druk PNB (DPNB) CEO NK Arora said “by taking the excuse of the liquidity crunch they shouldn’t default on the repayment of their existing loans.”
“Each and every one of has to understand one’s own responsibility,” he added.
The CEO clarified that there are certain genuine cases such as in the construction industry. “They should come forward for the re-scheduling of their loans,” he said.
Like the loan modification in American mortgage companies, DPNB offers loan “re-schedulement” to its genuinely needful clients.
“For example vehicle distributors should come forward but they should not take the liquidity crunch as an excuse”, he added.
A credit analyst that The Bhutanese talked to said one major reason behind the increasing trend in Non-Performing Loans (NPL) is the mindset of Bhutanese clients who are not keen to make timely loan payments.
He said most of the clients took loans from the bank to start a business but proceeds from the business is used to finance another business instead of taking care of the loans. “That is how the funds are diverted and when the business runs into loss, one cannot make any payments”, he added.
NK Arora said if the NPL level of the bank of a country goes high, ultimately the private sector will be affected. He explained that external funding agencies will be skeptical of providing financial assistance to a debt ridden nation.
“The credibility of the country as a whole will be affected and even ECB with sovereign guarantee may prove difficult,” he added.
In his earlier comments, a senior corporate executive with DPNB, Chandan Subba said the bank has faced many cases of irregularity in the housing sector and bank records show that NPL has increased since December 2011.
“If we are suffering the financial institutions are going to suffer and the whole economy is going to suffer,” Bhutan Chamber of Commerce and Industry (BCCI) president Tobgyal Dorji said Monday.
During a recent private sector meeting with the banks, Chairman of Singye Group who is also the President of CAB, Ugen Tsechup Dorji said in the next few months, a majority of the contractors won’t be able to pay their credit installments. “Machinery and equipment are getting old, and contractors need to buy new ones,” he explained.
Druk Holding and Investments (DHI) chief executive officer Karma Yonten, during the same meeting seconded the voices of the private sector that there is “urgency”. He said commercial banks and the private sector are in it (liquidity crunch) together. He said NPL with banks are increasing and if private sector’s situation doesn’t improve, banks’ will not as well. “Private sector and banks are going to float, sink or rise together,” he said.
The percentage of NPL and Non-Performing Assets (NPA) with commercial banks in the country have rapidly increased in the last few months since the credit crunch surfaced in April 2012, when the banks stopped giving loans.
The sudden freeze on credit was largely attributed to the Indian Rupee (INR) shortfall as it was perceived that the excessive credit had fueled the shortfall. However, the situation now is that commercial banks will not be able to lend even if the Royal Monetary Authority (central bank) lifts its restrictions.
This is because all commercial banks in the country currently suffer a severe liquidity crunch due to lack of adequate deposits which means banks have no cash to lend to any new clients.
Since loans are not available, the worst hit among others is the construction industry which needs continuous flow of funds to carry out various projects on time. Apart from private home builders, this also includes the government’s huge ongoing developmental construction works like highway networks, bridges, schools, medical units, farm roads, electricity supply, Gewog centers etc.
Meanwhile, private home builders cannot complete construction of their buildings to rent it out so that they can make their monthly loan repayments.
Members of the private sector during a recent meeting suggested that the BCCI propose government to consider ECB (external commercial borrowings) to inject cash into the economy as the banks are short of any other options.